<PAGE>
As filed with the Securities and Exchange Commission on July 29, 1994
Registration No. 2-65778
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 13
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact name of trust:
Empire State Municipal Exempt Trust,
Series 16
B. Name of depositors:
GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
C. Complete address of depositors' principal executive offices:
GLICKENHAUS & CO. LEBENTHAL & CO., INC.
6 East 43rd Street 25 Broadway
New York, New York 10017 New York, New York 10004
D. Name and complete address of agents for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL
Glickenhaus & Co. Lebenthal & Co., Inc.
6 East 43rd Street 25 Broadway
New York, New York 10017 New York, New York 10004
Copies to:
KEVIN A. WALSH, Esq.
Keck, Mahin & Cate
220 East 42nd Street
New York, New York 10017
[X] Check box if it is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b) of Rule 485.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 16
Prospectus, Part I 11,296 Units Dated: July 29, 1994
NOTE: Part I of this Prospectus may not be distributed
-------------------------------------------------------
unless accompanied by Part II.
-----------------------------
This Prospectus consists of two parts. The first part contains a "Summary of
---------------
Essential Financial Information" on the reverse hereof as of April 29, 1994 and
a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of March 31, 1994. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of counsel for the Sponsors as of the Date of Deposit,
-------- ------------------------------------------------------------
interest on the Bonds which is exempt from federal income tax when
- ------------------------------------------------------------------
received by the Trust will be excludable from the federal gross income of the
- -----------------------------------------------------------------------------
Unit Holders and, with certain exceptions, interest income to the Unit Holders
- ------------------------------------------------------------------------------
is generally exempt from all New York State and New York City income taxes.
- ---------------------------------------------------------------------------
Capital gains, if any, are subject to tax. See Part II under "The Trust -- Tax
- -------------------------------------------------------------------------------
Status."
- --------
The Trust is a unit investment trust formed for the purpose of obtaining tax-
exempt interest income through investment in a diversified portfolio of long-
term bonds, issued by or on behalf of the State of New York and counties,
municipalities, authorities or political subdivisions thereof or issued by
certain United States territories or possessions and their public authorities
(the "Bonds"). See Part II under "The Trust." The Bonds deposited in the
portfolio of the Trust are sometimes referred to herein as the "Securities."
The payment of interest and the preservation of principal are, of course,
dependent upon the continuing ability of the issuers of the Bonds to meet such
obligations thereunder.
Offering. The initial public offering of Units in the Trust has been
--------
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid price of
-------------------------
the Securities in the Trust divided by the number of Units outstanding, plus a
sales charge determined on the basis of the maturities of the Securities in the
Trust. See "Public Offering -- Offering Price" in Part II of this Prospectus.
Market for Units. The Sponsors, although they are not obligated to do so,
----------------
intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." If such a market is not maintained, a Unit Holder may be
able to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
- ----------------------------------------------------------------------------
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
- -----------------------------------------------------------------------------
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
- --------------------------------------------------------------------------
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
- --------------------------------------------------------------------------------
CRIMINAL OFFENSE.
- -----------------
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 16
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 29, 1994
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 6,340,000
Number of Units: 11,296
Fractional Undivided Interest in the Trust Per Unit: 1/11,296
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $6,564,281.32
=============
Sponsors' Repurchase Price Per Unit: $ 581.12
Plus Sales Charge(1): 20.23
-------------
Public Offering Price Per Unit(2): $ 601.35
=============
Redemption Price Per Unit(3): $ 581.12
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 20.23
Weighted Average Maturity of Bonds in the Trust: 19.169 years
Evaluation Time: 2:00 p.m., New York Time, on the day next following receipt by a Sponsor of
an order for a Unit sale or purchase or by the Trustee of a Unit tendered for
redemption.
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.24 under the
monthly and $.69 under the semi-annual distribution plan.
Sponsors' Annual Fee: None in this series.
Date of Deposit: December 12, 1979
Date of Trust Agreement: December 12, 1979
Mandatory Termination Date: December 31, 2028
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
</TABLE>
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 16
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 29, 1994
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
--------- -----------
<S> <C> <C> <C>
P Estimated Annual Interest Income: $ 43.29 $ 43.29
Less Estimated Annual Expenses 1.85 1.31
------- ------
E
Estimated Net Annual Interest Income: $ 41.44 $ 41.98
======= =======
R
Estimated Interest Distribution: $ 3.45 $ 20.99
U Estimated Current Return Based on Public
Offering Price (4): 6.89% 6.98%
N
Estimated Long-Term Return Based
I on Public Offering Price (5): 6.57% 6.66%
T Estimated Daily Rate of Net Interest
Accrual: $.11511 $.11661
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- ---------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to May 6, 1994, the expected date of settlement, of
$8.06 monthly and $25.90 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net annual
interest income received in cash per Unit by the Public Offering Price.
Interest income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual
only, does not include discount accretion on original issue discount bonds
or on zero coupon bonds or premium amortization on bonds purchased at a
premium. See "The Trust -- Tax Status" and "The Trust -- Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part II of this
Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes into
account the yields (including accretion of discounts and amortization of
premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "The Trust --
Estimated Current Return and Estimated Long-Term Return to Unit Holders" in
Part II of this Prospectus.
-3-
<PAGE>
Portfolio Information
---------------------
On March 31, 1994, the bid side valuation 36.1% was at a discount from par and
63.9% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
----------------------------------------
The Portfolio consists of 10 issues of Bonds issued by entities located in New
York or certain United States territories or possessions. The following
information is being supplied to inform Unit Holders of circumstances affecting
the Trust. 100.0% of the aggregate principal amount of the Bonds in the
Portfolio are payable from the income of specific projects or authorities and
are not supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: Revenue: Housing, 5 (63.9%); Higher Education,
1 (8.6%); and Health Care, 4 (27.5%). The Trust is deemed to be concentrated in
the Housing and Health Care Bond categories./1/ On March 31, 1994, 2 issues
(13.3%) were rated AAA, 1 issue (6.9%) was rated A, and 1 issue (12.2%) was
rated A- by Standard & Poor's Corporation; 1 issue (8.6%) was rated Aaa, 2
issues (14.1%) were rated A, and 1 issue (8.8%) was rated Baa by Moody's
Investors Service, Inc./2/ Two issues (36.1%) were not rated. Subsequent to such
date, such ratings may have changed. See "Tax-Exempt Bond Portfolio." For a more
detailed discussion, it is recommended that Unit Holders consult the official
statements for each Security in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was rendered on the Date
----------
of Deposit. Consult your tax advisor to discuss any relevant changes in tax
laws since the Date of Deposit. See also "The Trust -- Tax Status" in Part II
------------------------------------------------------
of this Prospectus.)
--------------------
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1954, as amended. See "The Trust
- -- Portfolio" in Part II of this Prospectus.
- ---------------
/1/A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
/2/For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
-4-
<PAGE>
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on a
sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. For tax years beginning after December
31, 1992, long-term capital gains will be taxed at a maximum federal income tax
rate of 28%, while ordinary income will be taxed at a maximum federal income tax
rate of 36% (plus a 10% surtax applicable to certain high income taxpayers).
On the Date of Deposit, Hall, McNicol, Hamilton, Clark & Murray, special
counsel for the Sponsors as to Series 16, issued an opinion as to the tax status
of the Trust. In part, the opinion stated:
The Trust is not an association taxable as a corporation for Federal
income tax purposes, and interest on the underlying bonds which is exempt
from Federal income tax under the Internal Revenue Code (the "Code") when
received by the Trust will retain its status as tax exempt interest, for
Federal income tax purposes, when distributed to the Unit holders.
Each Unit holder will be considered the owner of a pro rata portion of
the Trust under Section 676(a) of the Code. Each Unit holder will be
considered to have received his pro rata share of bond interest when it is
received by the Trust, and each Unit holder will have a taxable event when
the Trust disposes of a bond (whether by sale, exchange, redemption, or
payment at maturity) or when the Unit holder redeems or sells his Units.
The total tax cost of each Unit to a Unit holder is allocated among each of
the bond issues held in the Trust (in accordance with the proportion of the
Trust comprised by each bond issue) in order to determine his per Unit tax
cost for each bond issue, and the tax cost reduction requirements of the
Code relating to amortization of bond premium will apply separately to the
per Unit tax cost of each bond issue. Therefore, under some circumstances a
Unit holder may realize taxable gains when his Units are sold or redeemed
for an amount equal to his original cost.
Under the income tax laws of the State and City of New York, the Trust
is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unit holders.
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
============================
The Sponsors, Trustee and Unit Holders of Empire State Municipal
Exempt Trust, Series 16:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Series 16, including the bond portfolio, as of March
31, 1994, and the related statements of operations and changes in net assets
for the years ended March 31, 1994 and 1993. These financial statements are
the responsibility of the Sponsors. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of March 31,
1994, by correspondence with the Trustee. An audit also includes assessing
the accounting principles used and significant estimates made by the
Sponsors, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal
Exempt Trust, Series 16 as of March 31, 1994, and the results of its
operations and changes in net assets for the years ended March 31, 1994 and
1993, in conformity with generally accepted accounting principles.
BDO Seidman
Woodbridge, New Jersey
April 29, 1994
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
STATEMENT OF NET ASSETS
MARCH 31, 1994
===================================
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
CASH.......................................................... $ 227
INVESTMENTS IN SECURITIES, at market value (cost $5,845,629).. 6 586 794
ACCRUED INTEREST RECEIVABLE................................... 181 756
----------
Total trust property....................................... 6 768 777
LESS - ACCRUED EXPENSES....................................... 637
----------
NET ASSETS.................................................... $6 768 140
==========
</TABLE>
NET ASSETS REPRESENTED BY:
<TABLE>
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
------------ ------------ ----------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS.................... $2 964 958 $3 612 398 $6 577 356
UNDISTRIBUTED NET INVESTMENT
INCOME....................... 56 238 134 546 190 784
---------- ---------- ----------
Total value............... $3 021 196 $3 746 944 $6 768 140
========== ========== ==========
UNITS OUTSTANDING.............. 5 097 6 210 11 307
========== ========== ==========
VALUE PER UNIT................. $ 592.74 $ 603.37
========== ==========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
STATEMENTS OF OPERATIONS
===================================
<TABLE>
<CAPTION>
Year ended
March 31,
--------------------
1994 1993
---------- --------
<S> <C> <C>
INVESTMENT INCOME - INTEREST............... $ 500 771 $521 379
--------- --------
EXPENSES:
Trustee fees.............................. 9 899 8 562
Evaluation fees........................... 1 560 1 825
Auditors' fees............................ 1 800 1 800
--------- --------
Total expenses........................... 13 259 12 187
--------- --------
NET INVESTMENT INCOME...................... 487 512 509 192
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Note 3)...................... 58 132 7 296
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION)............... (193 181) 208 625
--------- --------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS................................ $ 352 463 $725 113
========= ========
</TABLE>
See accompanying notes to financial statements
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
STATEMENTS OF CHANGES IN NET ASSETS
===================================
<TABLE>
<CAPTION>
Year ended
March 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
OPERATIONS:
Net investment income..................... $ 487 512 $ 509 192
Realized gain on securities
sold or redeemed......................... 58 132 7 296
Net change in unrealized market
appreciation (depreciation).............. (193 181) 208 625
---------- ----------
Net increase in net assets resulting
from operations...................... 352 463 725 113
---------- ----------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income..................... (495 099) (508 642)
Principal................................. (267 611) (38 478)
---------- ----------
Total distributions.................. (762 710) (547 120)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 223 and 82 units............ (132 831) (49 706)
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS...... (543 078) 128 287
NET ASSETS:
Beginning of year......................... 7 311 218 7 182 931
---------- ----------
End of year............................... $6 768 140 $7 311 218
========== ==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan............................. $42.15 $43.43
Semi-annual plan......................... $43.13 $44.10
Principal:
Monthly plan............................. $23.21 $ 3.33
Semi-annual plan......................... $23.21 $ 3.33
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
NOTES TO FINANCIAL STATEMENTS
===================================
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no provision
has been made.
NOTE 2 - DISTRIBUTIONS
- ----------------------
Interest received by the Trust is distributed to Unit Holders either semi-
annually on the first day of June and December or, if elected by the Unit
Holder, on the first day of each month, after deducting applicable expenses.
Principal distributions, resulting from the sale or redemption of securities,
were made in June and July 1993.
NOTE 3 - BONDS SOLD OR REDEEMED
- -------------------------------
<TABLE>
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- ----- --------- -------- ------------------------------ ------------ -------- --------
Year ended March 31, 1994:
<S> <C> <C> <C> <C> <C> <C>
6 $ 10 000 5/1/93 New York State Housing Finance $ 10 000 $ 9 273 $ 727
Agency, Clinton Plaza
Housing Project Bonds (HUD
Section 236 Assisted)
7 5 000 5/1/93 New York City Housing Development 5 000 5 000 -
Corporation General Housing
Bonds Series E (A Corporate
Governmental Agency of the
State of New York)
3 120 000 5/1/93 New York State Housing Finance 122 400 102 067 20 333
Agency, Hospital and
Nursing Home Project
Bonds, 1977 Series A
* 120 000 5/20/93 Dormitory Authority of 120 600 104 878 15 722
the State of New York,
Nassau Community College,
1977 Series A
</TABLE>
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
NOTES TO FINANCIAL STATEMENTS
(Continued)
===================================
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
- -------------------------------------------
<TABLE>
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- ---- --------- -------- ---------------------------------- ------------ -------- --------
Year ended March 31, 1994 (continued):
<S> <C> <C> <C> <C> <C> <C>
9 $ 10 000 6/1/93 Niagara Falls Housing Develop- $ 10 000 $ 9 188 $ 812
ment Corporation, First Lien
Revenue Bonds, Series 1979
(HUD Section 8 Assisted -
Cedar Street Housing Project)
1 5 000 7/1/93 Dormitory Authority of the State 5 000 5 075 (75)
of New York, Montefiore Hospital
and Medical Center Parking
Facilities, Revenue Bonds
6 5 000 11/1/93 New York State Housing Finance 5 000 4 241 759
Agency, Clinton Plaza Housing
Project Bonds (HUD Section 236
Assisted)
2 10 000 11/22/93 Dormitory Authority of the State 11 450 8 400 3 050
of New York, City University
Community College, 1979 Series D
3 80 000 2/1/94 New York Housing Finance Agency, 81 680 68 045 13 635
Hospital and Nursing Home
Project Bonds, 1977 Series A
3 20 000 3/30/94 New York Housing Finance Agency, 20 180 17 011 3 169
Hospital and Nursing Home
Project Bonds, 1977 Series A
-------- -------- -------- -------
$385 000 $391 310 $333 178 $58 132
======== ======== ======== =======
</TABLE>
- ---------------
* Portfolio redeemed in its entirety.
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
NOTES TO FINANCIAL STATEMENTS
(Concluded)
===================================
<TABLE>
<CAPTION>
NOTE 4 - NET ASSETS
- -------------------
<S> <C>
Cost of 12,300 units at Date of Deposit $12 176 752
Less gross underwriting commission 547 965
-----------
Net cost - initial offering price 11 628 787
Realized net gain on securities sold or redeemed 267 591
Principal distributions (5 429 325)
Redemption of 993 units (630 862)
Unrealized market appreciation of securities 741 165
Undistributed net investment income 190 784
-----------
Net assets $ 6 768 140
===========
</TABLE>
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1994
===================================
<TABLE>
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds March 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
- ------- ---------- --------- ------------------- -------- --------- --------------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 A* $160 000 Dormitory Author- 8.625% 07/01/10 No Sinking Fund $162 400 $161 062 $13 800
ity of the State 07/01/94 @ 100 Opt.
of New York,
Montefiore Hospi-
tal and Medical
Center Parking
Facilities,
Revenue Bonds
2 Aaa* 550 000 Dormitory Author- 7.000 07/01/09 No Sinking Fund 462 000 620 125 38 500
ity of the State 07/01/07 @ 100 Opt.
of New York,
City University
Community College,
1979 Series D
3 A* 740 000 New York State 7.000 11/01/17 11/01/98 @ 100 S.F. 629 415 755 044 51 800
Housing Finance 05/01/94 @ 102 Opt.
Agency, Hospital
and Nursing Home
Project Bonds,
1977 Series A
4 AAA 750 000 New York State 7.600 11/01/04 05/01/95 @ 100 S.F. 684 172 851 678 57 000
Housing Finance 05/01/94 @ 101 Opt.
Agency, Health
Facilities Bonds,
1979 Series A
(Escrowed to
Maturity)
</TABLE>
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1994
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds March 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
- ------- ---------- ---------- -------------------- -------- --------- --------------------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 AAA $ 100 000 New York State 7.900% 05/01/99 No Sinking Fund $ 95 255 $ 113 551 $ 7 900
Housing Finance No Optional Call
Agency, Health
Facilities Bonds,
1974 Series A
(Escrowed to
Maturity)
6 NR 1 050 000 New York State 7.625 11/01/19 05/01/94 @ 100 S.F. 973 618 1 037 579 80 062
Housing Finance 05/01/94 @ 102 Opt.
Agency, Clinton
Plaza Housing
Project Bonds
(HUD Section
236 Assisted)
7 A 440 000 New York City 9.000 05/01/22 05/01/94 @ 100 S.F. 440 000 448 813 39 600
Housing Develop- 05/01/94 @ 102 Opt.
ment Corporation
General Housing
Bonds Series E
(A Corporate
Governmental
Agency of the
State of New
York)
8 NR 1 250 000 Northside Elderly 7.750 06/01/11 06/01/95 @ 100 S.F. 1 147 738 1 224 325 96 875
Housing Corpora- 06/01/94 @ 101.5 Opt.
tion, First Lien
Revenue Bonds,
Series 1979 (HUD
Section 8
Assisted-Intown
Towers Project)
</TABLE>
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1994
(Continued)
===================================
<TABLE>
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Cal Bonds March 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
- ----- -------- ---------- -------------------- -------- --------- -------------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9 A- $ 775 000 Niagara Falls 7.750% 06/01/10 06/01/94 @ 100 S.F. $ 712 031 $ 797 095 $ 60 063
Housing Develop- 12/01/94 @ 103 Opt.
ment Corporation,
First Lien Reve-
nue Bonds, Series
1979 (HUD Section
8 Assisted-Cedar
Street Housing
Project)
10 Baa* 560 000 New York State 8.250 11/01/19 11/01/00 @ 100 S.F. 539 000 577 522 46 200
Housing Finance 11/01/94 @ 103 Opt.
Agency Urban
Rental Project
Bonds, 1979
Series A
---------- ---------- ---------- ---------
$6 375 000 $5 845 629 $6 586 794 $ 491 800
========== ========== ========== =========
</TABLE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are by
Standard & Poor's Corporation, except for those indicated by (*), which are
by Moody's Investors Service. Certain bond ratings have changed since the
Date of Deposit, at which time all such bonds were rated A or better by
either Standard & Poor's Corporation or Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund (mandatory
partial redemption) (S.F.) or at the stated optional call (at the option of
the issuer) (Opt.) or by refunding. Certain bonds in the portfolio may be
redeemed earlier than dates shown in whole or in part under certain unusual
or extraordinary circumstances as specified in the terms and provisions of
such bonds. Single-family mortgage revenue bonds and housing authority
bonds are most likely to be called subject to such provisions, but other
bonds may have similar call features.
-15-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
PROSPECTUS, PART II
NOTE: PART II OF THIS PROSPECTUS MAY NOT BE
DISTRIBUTED UNLESS ACCOMPANIED BY PART I.
THE TRUST
The Trust is one of a Series of similar but separate unit investment
trusts. The first of the Series of trusts is designated Municipal Exempt Trust,
New York Exempt Series 1 and the second and third, New York Series 2 and 3,
respectively (the "MET Series"). After three MET Series of the Trust had been
created, the name of future Series was changed to Empire State Municipal Exempt
Trust and each succeeding trust in the Series was designated by a different
Series number commencing with Series 10. Each Trust was created under the laws
of the State of New York pursuant to a Trust Indenture and Agreement (the "Trust
Agreement"), dated the Date of Deposit as set forth in "Summary of Essential
Financial Information" in Part I of this Prospectus, among the Sponsors, the
Trustee and the Evaluator. The Bank of New York acts as successor trustee for
all Series. Muller Data Corporation acts as successor Evaluator for all Series.
Glickenhaus & Co. and Lebenthal & Co., Inc. act as co-Sponsors for all Series
(the "Sponsors") except for the MET Series for which Glickenhaus & Co. acts as
sole Sponsor. References herein to the Sponsors shall, with respect to a Trust
for which there is a sole Sponsor, be deemed to be references to the sole
Sponsor.
On the Date of Deposit for each Trust, the Sponsors deposited with the
Trustee obligations or contracts for the purchase of such obligations (the
"Bonds" or "Securities"); and, in some Series, the Sponsors also deposited units
of previously issued Series ("Trust Units"). See "The Trust - Portfolio" and
"Special Factors Concerning the Portfolio" in Part I of this Prospectus. In the
case of those Series in which the portfolios contain both Bonds and Trust Units
("Trust Unit Series"), the term "Securities" is a reference to the Bonds and
Trust Units collectively; with respect to other Series, the term "Securities" is
a reference only to the Bonds. Certain of the Bonds may have been purchased at
prices which resulted in the portfolio as a whole being purchased at a discount
due to original issue discount, market discount or the inclusion of zero coupon
bonds. Bonds selling at market discount tend to increase in market value as
they approach maturity when the principal amount is payable, thus increasing the
potential for capital gain. Any capital gain other than any earned original
issue discount will be taxable and will not be realized until maturity,
redemption or sale of the underlying Bonds or Units.
PORTFOLIO
The objective of the Trust is to obtain tax-exempt income through an
investment in a diversified portfolio consisting primarily of long-term
municipal bonds. No assurance can be given that the Trust's objective will be
achieved because the Trustee's ability to do so is subject to the continuing
ability of the issuers of the bonds to meet their obligations.
In view of the Trust's objective, the following factors, among others, were
considered in selecting the Bonds: (1) all the Bonds (and all the bonds
underlying the Trust Units) are obligations of the State of New York and
counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities so that the interest on them will be exempt from Federal, New York
State and New York City income tax under existing law; (2) the Bonds are
diversified as to purpose of issue; (3) in the opinion of the Sponsors, the
Bonds are fairly valued relative to other bonds of comparable quality and
maturity; and
<PAGE>
(4) the quality of the Bonds and (a) as to the MET Series and Series 10 through
68, whether they were rated "A" or better by either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (b) as to Series 69 and
subsequent Series, whether they were rated at least "BBB" or "Baa" by either
Standard & Poor's Corporation or Moody's Investors Service, Inc., respectively,
or had, in the opinion of the Sponsors, similar credit characteristics./1/
Subsequent to the Date of Deposit, a Bond may cease to be rated or its rating
may be reduced. Neither event requires an elimination of such Bond from the
portfolio, but may be considered in the Sponsors' determination to direct the
Trustee to dispose of the Bonds. See "Sponsors - Responsibility."
In all Trust Unit Series, the Trust Units represent previously issued
Series (no one of which represents more than 5%, and all of which represent no
more than 10%, of the value of the portfolios of such Series) the portfolios of
which contain long-term bonds issued on behalf of the State of New York and
counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities. On the respective Dates of Deposit of said Series, the underlying
bonds were rated "A" or better by Standard & Poor's Corporation or Moody's
Investors Service, Inc. While certain of such bonds included in the portfolios
of said Series may not currently meet such criteria, they will in no event
represent more than 0.5% of the face amount of the portfolio.
The investment objectives of the various Series are similar to the
investment objective of the Trust, and the Sponsors, Trustee and Evaluator of
the various Series represented by the Trust Units have responsibilities and
authority and receive fees substantially identical to those described in this
Prospectus.
An investment in Units of the Trust should be made with an understanding of
the risks entailed in investments in fixed-rate bonds, including the risk that
the value of such bonds (and, therefore, of the Units) will decline with
increases in interest rates. Inflation and recession, as well as measures
implemented to address these and other economic problems, contribute to
fluctuations in interest rates and the values of fixed-rate bonds generally. The
Sponsors cannot predict future economic policies or their consequences; nor,
therefore, can they predict the course or extent of such fluctuations in the
future.
Special Factors Affecting New York
Beginning in early 1975, New York State (the "State") and several of its
public benefit corporations that issue municipal bonds under State legislation
("authorities") and municipalities, particularly New York City (the "City"),
faced serious financing difficulties which impaired the borrowing abilities of
the State and the respective entities. If during the term of the Trust there
should be a default by any authority or municipality, or other financial crisis
relating to the State, its authorities or municipalities, the market price and
marketability of outstanding Bonds in the Trust, and therefore the asset value
of Units of the Trust, could be adversely affected.
The information set forth below is derived from the official statements
and/or preliminary drafts of official statements prepared in connection with the
issuance of New York municipal bonds. The Sponsors have not independently
verified this information.
(1) New York City. The City, with a population of approximately 7.3
million, is an international center of business and culture. Its non-
manufacturing economy is broadly based, with the banking and securities, life
insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a
- ------------------------------
/1/ For the meanings of ratings, including the symbols "p" and "Con.(....),"
see "Description of Bond Ratings." Security letter ratings may be modified by
the addition of a plus or minus sign, when appropriate, to show relative
standing within the major rating categories. There can be no assurance that the
economic and political conditions on which the ratings of the Bonds in any Trust
are based will continue or that particular Bond issues may not be adversely
affected by changes in economic, political or other conditions that do not
affect the above ratings. See "The Trust - Special Factors Affecting New York"
and "The Trust - General Considerations."
2
<PAGE>
significant portion of the City's total employment earnings. The City is also
the nation's leading tourist destination. Manufacturing activity in the City is
conducted primarily in apparel and printing.
For each of the past twelve fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), and the City's current fiscal year results are projected to
be balanced in accordance with GAAP. The City was required to close substantial
budget gaps in its 1990, 1991 and 1992 fiscal years in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget, or that it can maintain a balanced
budget without additional tax or other revenue increases or reductions in City
services, which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual four-year
financial plan, which is reviewed and revised on a quarterly basis and which
includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City is
required to submit its financial plans to review bodies, including the New York
State Financial Control Board ("Control Board"). If the City were to experience
certain adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual operating
deficit of more than $100 million or the loss of access to the public credit
markets to satisfy the City's capital and seasonal financing requirements, the
Control Board would be required by State law to exercise powers, among others,
of prior approval of City financial plans, proposed borrowings and certain
contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. As a result of the
national and regional economic recession, the State's tax revenues for its 1991
and 1992 fiscal years were substantially lower than projected. The State
completed its 1993 fiscal year with a cash-basis positive balance of $671
million in the State's General Fund (the major operating fund of the State). The
State's 1994 fiscal year budget, as enacted, projects a balanced General Fund.
If the State experiences revenue shortfalls or spending increases beyond its
projections during its 1994 fiscal year or subsequent years, such developments
could result in reductions in anticipated State aid to the City. In addition,
there can be no assurance that State budgets in future fiscal years will be
adopted by the April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures as a result of
such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan for the 1994 through 1997 fiscal
years (the "1994-1997 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing of any
regional and local economic recovery, the impact on real estate tax revenues of
the current downturn in the real estate market, the absence of wage increases
for City employees in excess of the increases assumed in the Financial Plan,
employment growth, provision of State and Federal aid and mandate relief and the
impact on the New York City region of the tax increases contained in President
Clinton's economic plan.
Implementation of the Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1994 through 1997 contemplates the
issuance of $11.7 billion of general obligation bonds primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
capital investments. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes will be subject to prevailing
market conditions, and no assurance can be given that such sales will be
completed. If the City were unable to sell its general obligation bonds and
notes, it would be prevented from meeting its planned capital and operating
expenditures.
The City achieved balanced operating results as reported in accordance with
GAAP for the 1993 fiscal year. On November 23, 1993, the City submitted to the
Control Board the Financial Plan for the 1994 through 1997 fiscal
3
<PAGE>
years, which relates to the City, the Board of Education ("BOE") and the City
University of New York ("CUNY"). The 1994-1997 Financial Plan projects revenues
and expenditures for the 1994 fiscal year balanced in accordance with GAAP.
The 1994-1997 Financial Plan sets forth actions to close a previously
projected gap of approximately $2.0 billion in the 1994 fiscal year. The gap-
closing actions for the 1994 fiscal year include agency actions aggregating $666
million, including productivity savings and savings from restructuring the
delivery of City services; service reductions aggregating $274 million; the sale
of delinquent real property tax receivables for $215 million; discretionary
transfers from the 1993 fiscal year of $110 million; reduced debt service costs
aggregating $187 million, resulting from refinancings and other actions; $150
million in proposed increased Federal assistance; a continuation of the personal
income tax surcharge, resulting in revenues of $143 million; $80 million in
proposed increased State aid, which is subject to approval by the Governor; and
revenue actions aggregating $173 million.
The Financial Plan also sets forth projections for the 1995 through 1997
fiscal years and outlines a proposed gap-closing program to close projected
budget gaps of $1.7 billion, $2.5 billion and $2.7 billion for the 1995-1997
fiscal years, respectively. The projections include $150 million of increased
Federal assistance in each of the 1995 through 1997 fiscal years and the
continuation of the personal income tax surcharge, resulting in revenues of
$420, $446 and $471 million in the 1995, 1996 and 1997 fiscal years,
respectively. The proposed gap-closing actions include City actions aggregating
$640 million, $814 million and $870 million in the 1995 through 1997 fiscal
years, respectively; $100 million and $200 million in proposed additional
Federal assistance in the 1996 and 1997 fiscal years, respectively; savings from
various proposed mandate relief measures and the proposed reallocation of State
education aid among various localities, aggregating $175 million, $325 million
and $475 million in the 1995 through 1997 fiscal years, respectively; $131
million, $291 million and $291 million of increased State assistance in the
1995, 1996 and 1997 fiscal years, respectively, which could include savings from
the proposed State assumption of certain Medicaid costs or various proposed
mandate relief measures; and other unspecified Federal, State or City actions of
$784 million, $983 million and $863 million in the 1995, 1996 and 1997 fiscal
years, respectively.
Various actions proposed in the Financial Plan, including the proposed
continuation of the personal income tax surcharge beyond December 1995 and the
proposed increase in State aid, are subject to approval by the Governor and the
State Legislature, and the proposed increase in Federal aid is subject to
approval by Congress and the President. The State Legislature has in previous
legislative sessions failed to approve similar proposals for State assistance,
thereby increasing the uncertainty as to the receipt of the State assistance
included in the Financial Plan. If these actions cannot be implemented, the City
will be required to take other actions to decrease expenditures or increase
revenues to maintain a balanced financial plan. The State Legislature has
approved the continuation of the personal income tax surcharge through December
31, 1995, and the Governor is expected to approve this continuation. The
Financial Plan has been the subject of extensive public comment and criticism
particularly regarding the sale of delinquent property tax receivables, the sale
of the New York City Off-Track Betting Corporation ("OTB"), the amount of State
and Federal aid included in the Financial Plan and the inclusions of
non-recurring actions.
In May 1993 the Mayor appointed a three-member panel to study the gap
between the City's recurring expenditures and recurring revenues and to make
recommendations for achieving structural balance. In its report, the panel
concluded that the City's budget imbalance is likely to be greater than set
forth in the Financial Plan, with possible budget gaps of approximately $2
billion, $3.2 billion, $4.2 billion and $5 billion in the 1995 through 1998
fiscal years, respectively, and proposed expenditure reductions, additional
State aid and additional taxes and user fees to deal with the projected budget
gaps. The proposed expenditure reductions include reductions in City-funded
personnel from the current level of 214,000 to 185,000 by the 1998 fiscal year.
Revenue increased proposed by the panel include an increase in property taxes
payable by one and two family homeowners in the City; a 1/4% increase in the
City sales tax; extension of the personal income tax surcharge; the imposition
of tolls on the East River bridges and certain Harlem River crossings and user
fees for residential garbage collection; and additional State aid, including the
State assumption of certain Medicaid costs paid by the City and an increase in
State education aid provided to the City.
In November 1993, Rudolph W. Giuliani was elected mayor of the City,
replacing the previous administration on January 1, 1994. Mayor Giuliani's
Modification No. 94-2 to the Financial Plan for the City and Covered
Organizations for fiscal years 1994-1998 (the "Modification"), issued February
10, 1994, reports that for 1995 fiscal year, the budget gap is estimated at
$2.26 billion, or nearly a 12 percent shortfall of existing tax revenues over
baseline expenditures. Absent gap closing initiatives, the Modification reports
that the projected budget gap will grow to nearly $3.4 billion by 1998 fiscal
year. According to the Modification, the 1995 fiscal year budget gap is the
largest that the City has faced since 1981, when the City converted to GAAP.
The Modification attributes the projected budget gaps to the lingering national
recession, to a sharp growth in expenditures during the boom years of the 1980s
and the failure of the City to reduce the City's municipal workforce. The
Modification reports that at the same time that City employment has declined as
a percentage of U.S. employment, local government employment in the City, which
exceeds the state government employment of the five largest states, is on the
verge of an historic high. According to the Modification, at the end of
December 1993, the City's full-time municipal workforce stood at more than
362,000 employees and absent reductions, will reach an all-time high at the end
of fiscal year 1994.
The Modification states that in order to strengthen the City's long-term
fiscal position the City's gap closing initiatives much be accomplished without
resorting to one-shot gap-closing measures, such as tax increases; instead, it
must balance its budgets by reducing City spending, reducing the size of the
City's municipal workforce and reducing certain City taxes to encourage economic
growth. Under the Modification, fiscal year 1995 spending declines by $516
million over the current fiscal year, the lowest projected spending rate since
1975. The Modification plans to reduce the City's municipal workforce by 15,000
positions, as compared to the current actual headcount, by the end of fiscal
year 1995. The workforce reduction will be achieved through an aggressive
severance package, and, if necessary, layoffs. It is anticipated that these
workforce reduction initiatives will save $117 million, $144 million, $311
million, $415 million and $539 million in fiscal years 1994 through 1998,
respectively, after taking into account an estimated $200 million in costs
related to instituting the proposed severance programs which are anticipated to
be financed with surplus Municipal Assistance Corporation funds (see below for a
discussion of the Municipal Assistance Corporation). The Modification also
contemplates the loss of $35 million, $186 million, $534 million and $783
million in tax revenues in 1995 through 1998, respectively, as a result of the
reduction in certain City taxes, such as the reduction of the hotel tax from 6
percent to 5 percent, commercial rent tax reductions and the elimination of the
12.5 percent personal income tax surcharge.
4
<PAGE>
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues may be less and future expenditures may be greater than those
forecast in the Financial Plan. In addition, the Control Board staff and others
have questioned whether the City has the capacity to generate sufficient
revenues in the future to meet the costs of its expenditure increases and to
provide necessary services. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
On January 11, 1993, the City announced a settlement with a coalition of
municipal unions, including Local 237 of the International Brotherhood of
Teamsters ("Local 237"), District Council 37 of the American Federation of
State, County and Municipal Employees ("District Council 37") and other unions
covering approximately 44% of the City's workforce. The settlement, which has
been ratified by the unions, includes a total net expenditure increase of 8.25%
over a 39-month period, ending March 31, 1995 for most of these employees. On
April 9, 1993 the City announced an agreement with the Uniformed Fire Officers
Association ("UFOA") which is consistent with the coalition agreement. The
agreement has been ratified. On August 30, 1993, the BOE and the City announced
an agreement with the United Federation of Teachers ("UFT"). The agreement,
which has been ratified by the UFT members, is generally consistent with the
coalition agreement. However, while the coalition agreement covers a period of
39 months, the UFT agreement is for 48 1/2 months. The Financial Plan reflects
the costs for all City-funded employees associated with these settlements and
provides for similar increases for all City-funded employees. Additional
expenditures aggregating $42 million for fiscal year 1995 and $79 million for
each year thereafter have been added to the Financial Plan to provide funding
for the additional 9 1/2 months provided for under the UFT agreement.
The Financial Plan provides no additional wage increases for City employees
after their contracts expire in the 1995 fiscal year. Each 1% wage increase for
all employees commencing in the 1995 fiscal year would cost the City an
additional $30 million for the 1995 fiscal year and $135 million for the 1996
fiscal year and $150 million for each year thereafter above the amounts provided
for in the Financial Plan.
In the event of a collective bargaining impasse, the terms of wage
settlements could be determined through the impasse procedure in the New York
City Collective Bargaining Law, which can impose a binding settlement.
The Municipal Assistance Corporation for the City of New York ("MAC") was
organized in 1975 to provide financing assistance for the City and also to
exercise certain review functions with respect to the City's finances. MAC
bonds are payable out of certain State sales and compensating use taxes imposed
within the City, State stock transfer taxes and per capita State aid to the
City. Any balance from these sources after meeting MAC debt service and reserve
fund requirements and paying MAC's operating expenses is remitted to the City
or, in the case of the stock transfer taxes, rebated to the taxpayers. The
State is not, however, obligated to continue the imposition of such taxes or to
continue appropriation of the revenues therefrom to MAC, nor is the State
obligated to continue to appropriate the State per capita aid to the City which
would be required to pay the debt service on certain MAC obligations. MAC has
no taxing power and MAC bonds do not create an enforceable obligation of either
the State or the City. As of September 30, 1992, MAC had outstanding
approximately $5.549 billion of its bonds.
Standard & Poor's has rated City Bonds A-. Moody's Investors Service, Inc.
("Moody's") has rated City Bonds Baa1. Such ratings reflect only the views of
Standard & Poor's and Moody's, from which an explanation of the significance of
such ratings may be obtained. There is no assurance that either or both of such
ratings will
5
<PAGE>
continue for any given period of time or that either or both will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on the market prices of the Bonds.
In 1975, Standard & Poor's suspended its A rating of City Bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City Bonds upward to BBB+ and on
November 19, 1987, to A-. Moody's ratings of City bonds were revised in November
1981 from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December
1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1.
On November 6, 1990, the voters of the borough of Staten Island voted to
establish a charter commission for the purpose of proposing a charter under
which Staten Island would secede from The City of New York to become a separate
City of Staten Island. A referendum approving the charter proposed by such
commission was approved by the voters of the borough of Staten Island on
November 2, 1993. The charter commission is expected to submit to the State
Legislature proposed legislation enabling Staten Island to separate from the
City. The charter would take effect upon approval of such enabling legislation
by the State Legislature. Any such legislation would be subject to legal
challenge by the City and would require approval by the United States Department
of Justice under the Federal Voting Rights Act.
(2) New York State and its Authorities. Historically, the State has
accounted for, reported and budgeted its operations on a cash basis. Under this
form of accounting, receipts are recorded only at the time money or checks are
deposited in the State Treasury, and disbursements are recorded only at the time
a check is drawn. As a result, actions and circumstances, including
discretionary decisions by certain governmental officials, can affect the timing
of payments and deposits and therefore can significantly affect the amounts
reported in a fiscal year.
The State has implemented a phased changeover to accounting and financial
reporting systems based on GAAP. Substantially all State non-pension financial
operations are accounted for in the State's governmental funds. When reported in
accordance with GAAP, the State's governmental funds show an operating surplus
of $1,941 million for the 1991-92 fiscal year and net operating deficits of
$1,400 million for the 1990-91 fiscal year and $1,172 million for the 1989-90
fiscal year.
The Federal Tax Reform Act of 1986 substantially altered definitions of
income and deductions in the computation of taxable income and substantially
lowered tax rates used in the computation of Federal taxes. In 1987, the State
enacted legislation that conformed State law to most of those definitional
changes and also lowered tax rates. These changes "broadened" the income tax
base through such devices as full inclusion of capital gains, restrictions on
certain losses and adjustments to income. The changes in the Federal statute
influenced taxpayer behavior with respect to the timing of realization of income
and losses, in advance of the effective date of such changes as well as during
1987 and beyond. In addition, changes in Federal and State law increased the
attractiveness of "Subchapter S Corporation" status, thus encouraging general
business corporations to convert to Subchapter S Corporations. This shift would
generally have the effect of reducing corporate tax liability and increasing
personal income tax liability, although the extent and magnitude of the shift is
not known. Such changes in the Federal tax law are expected to continue to
influence taxpayer behavior during the next several years.
For State personal income taxes, the net effect of these changes is to make
estimates and forecasts of adjusted gross income less reliable than they had
been in the past and to add substantial uncertainty to estimates of State tax
liability based on such estimates and forecasts. For the corporate franchise
tax, these changes have altered the relationship between corporate profits and
corporate tax liability, thus making forecasts of tax liability and tax
collections more uncertain.
The State's current fiscal year commenced on April 1, 1994, and ends on
March 31, 1995, and is referred to herein as the State's 1994-95 fiscal year.
The State's budget for the 1994-95 fiscal year was enacted by the Legislature on
June 7, 1994, more than two months after the start of the fiscal year. Prior to
adoption of the budget, the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other purposes, including
all necessary appropriations for debt service. The State Financial Plan for the
1994-95 fiscal year was formulated on June 16, 1994 and is based on the State's
budget as enacted by the Legislature and signed into law by the Governor.
The State's Financial Plan is based upon forecasts of national and State
economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and State
economies, including consumer attitudes toward spending, Federal financial and
monetary policies, the availability of credit, and the condition of the world
economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience results in the current
fiscal year that are worse than predicted, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.
The State Division of the Budget ("DOB") believes that its projections of
receipts and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth below, and
those projections may be changed materially and adversely from time to
time.
6
<PAGE>
As noted above, the financial condition of the State is affected by several
factors, including the strength of the State and regional economy and actions of
the Federal government, as well as State actions affecting the level of receipts
and disbursements. Owing to these and other factors, the State may, in future
years, face substantial potential budget gaps resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the future costs of maintaining State programs at current levels. Any such
recurring imbalance would be exacerbated if the State were to use a significant
amount of nonrecurring resources to balance the budget in a particular fiscal
year. To address a potential imbalance for a given fiscal year, the State would
be required to take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State Constitution the
Governor is required to propose a balanced budget each year. To correct
recurring budgetary imbalances, the State would need to take significant actions
to align recurring receipts and disbursements in future fiscal years. There can
be no assurance, however, that the State's actions will be sufficient to
preserve budgetary balance in a given fiscal year or to align recurring receipts
and disbursements in future fiscal years.
The 1994-95 State Financial Plan contains actions that provide nonrecurring
resources or savings, as well as actions that impose nonrecurring losses of
receipts or costs. It is believed that the net positive effect of nonrecurring
actions represents considerably less than one-half of one percent of the State's
General Fund, an amount significantly lower than the amount included in the
State Financial Plans in recent years. In addition to those nonrecurring
actions, the 1994-95 State Financial Plan reflects the use of $1.026 billion in
the positive cash margin carried over from the prior fiscal year, resources that
are not expected to be available in the State's 1995-96 fiscal year.
The General Fund is the general operating fund of the State and is used to
account for all financial transactions, except those required to be accounted
for in another fund. It is the State's largest fund and receives almost all
State taxes and other resources not dedicated to particular purposes. In the
State's 1994-95 fiscal year, the General Fund is expected to account for
approximately 52 percent of total governmental-fund receipts and 51 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
New York State's financial operations have improved during recent fiscal
years. During the period 1989-90 through 1991-92, the State incurred General
Fund operating deficits that were closed with receipts from the issuance of tax
and revenue anticipation notes ("TRANs"). First, the national recession, and
then the lingering economic slowdown in the New York and regional economy,
resulted in repeated shortfalls in receipts and three budget deficits. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
The State ended its 1993-94 fiscal year with a balance of $1.140 billion in
the tax refund reserve account, $265 million in its Contingency Reserve Fund
("CRF") and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account
will be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve account, $1.026
billion was available for budgetary planning purposes in the 1994-95 fiscal
year. The remaining $114 million will be redeposited in the tax refund reserve
account at the end of the State's 1994-95 fiscal year to continue the process of
restructuring the State's cash flow as part of the Local Government Assistance
Corporation ("LGAC") program. The balance in the CRF will be used to meet the
cost of litigation facing the State. The Tax Stabilization Reserve Fund may be
used only in the event of an unanticipated General Fund cash-basis deficit
during the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund reserve account,
General Fund receipts in 1993-94 exceeded those originally projected when the
State Financial Plan for that year was formulated on April 16, 1993 by $1.002
billion. Greater-than-expected receipts in the personal income tax, the bank
tax, the corporation franchise tax and the estate tax accounted for most of this
variance, and more than offset weaker-than-projected collections from the sales
and use tax and miscellaneous receipts. Collections from individual taxes were
affected by various factors including changes in Federal business laws,
sustained profitability of banks, strong performance of securities firms, and
higher-than-expected consumption of tobacco products following price cuts.
Disbursements and transfers from the General Fund were $303 million below
the level projected in April 1993, an amount that would have been $423 million
had the State not accelerated the payment of Medicaid billings, which in the
April 1993 State Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State Financial Plan
formulated in April 1993, lower disbursements resulted from lower spending for
Medicaid, capital projects, and debt service (due to refundings) and $114
million used to restructure the State's cash flow as part of the LGAC program.
Disbursements were higher-than-expected for general support for public schools,
the State share of income maintenance, overtime for prison guards, and highway
snow and ice removal.
In certain prior fiscal years, the State has failed to enact a budget prior
to the beginning of the State's fiscal year. A delay in the adoption of the
State's budget beyond the statutory April 1 deadline and the resultant delay in
the State's Spring borrowing has in certain prior years delayed the projected
receipt by the City of State aid, and there can be no assurance that State
budgets in future fiscal years will be adopted by April 1 statutory
deadline.
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There are a number of methods by which the State may incur debt. Under the
State Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (i.e., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. With the exception of housing bonds (which must be paid in equal annual
installments, within 50 years after issuance, commencing no more than three
years after issuance), general obligation bonds must be paid in equal annual
installments, within 40 years after issuance, beginning not more than one year
after issuance of such bonds.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued bonds, by issuing bond anticipation notes.
Tax and revenue anticipation notes must mature within one year from their
dates of issuance and may not be refunded or refinanced beyond such period. The
amount of tax and revenue anticipation notes issued may not exceed either the
amount of appropriations in force (which amount normally exceeds the amount of
disbursements provided in the financial plan for each year) or the amount of
taxes and revenues reasonably expected, at the time the notes are issued, to be
available to pay such notes.
The State may issue bond anticipation notes only for the purposes and
within the amounts for which bonds may be issued. Such notes must be paid from
the proceeds of the sale of bonds in anticipation of which they were issued or
from other sources within two years of the date of issuance or, in the case of
notes for housing purposes, within five years of the date of issuance. The State
may also, pursuant to specific constitutional authorization, directly guarantee
certain Authority obligations. Payments of debt service on State general
obligation and State-guaranteed bonds and notes are legally enforceable
obligations of the State.
As of March 31, 1994, the State had approximately $5.370 billion in general
obligation bonds, excluding refunding bonds and $294 million in bond
anticipation notes outstanding. On May 24, 1993, the State issued $850 million
in tax and revenue anticipation notes all of which matured on December 31,
1993. Principal and interest due on general obligation bonds and interest due
on bond anticipation notes and on tax and revenue anticipation notes were
$782.5 million for the 1993-94 fiscal year, and are estimated to be $786.3
million for the 1994-95 fiscal year. These figures do not include interest on
refunding bonds issued in July 1992, to the extent that such interest is to be
paid from escrowed funds.
The State also employs two other types of long-term financing mechanisms
which are State-supported but are not general obligations of the State: moral
obligation and lease-purchase or contractual-obligation financing. Moral
obligation financing generally involves the issuance of debt by an Authority to
finance a revenue-producing project or other activity, and that debt is secured
by project revenues and statutory provisions of the State, subject to
appropriation by the Legislature, to make up any deficiencies which may occur in
the issuer's debt service reserve fund. Under lease-purchase or contractual-
obligation financing arrangements, Authorities and certain municipalities have
issued obligations to finance the construction and rehabilitation of facilities
or the acquisition and rehabilitation of equipment, and expect to cover debt
service and amortization of the obligations through the receipt of rental or
other contractual payments made by the State. The State has also entered into a
payment agreement with LGAC. State lease-purchase or contractual-obligation
financing arrangements involve a contractual undertaking by the State to make
payments to an Authority, municipality or other entity, but the State's
obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State also participates in the issuance of
certificates of participation in a pool of leases entered into by the State's
Office of General Services on behalf of several State departments and agencies.
The State has also participated in the issuance of certificates of participation
for the acquisition of real property which represent proportionate interests in
lease payments to be paid by the State.
As of September 30, 1992, there were 18 authorities that had outstanding
debt of $100 million or more. The aggregate outstanding debt, including
refunding bonds, of these 18 authorities was $63.5 billion as of September 30,
1993. As of March 31, 1994, aggregate public authority debt outstanding as
State-supported debt was $21.1 billion and as State-related debt was $29.4
billion.
The authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however,
the State has provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 authorities for operating and
other expenses and, in fulfillment of its commitments on moral obligation
indebtedness or otherwise for debt service. This assistance is expected to
continue to be required in future years.
Payments for principal and interest due on general obligation bonds,
interest due on bond anticipation notes and on tax and revenue anticipation
notes, and contractual-obligation and lease-purchase commitments were $1.783
billion and $2.045 billion in the aggregate, for the State's 1991-92 and 1992-93
fiscal years, respectively, and are estimated to be $2.181 billion for the
State's 1993-94 fiscal year. These figures do not include interest payable on
either State General Obligation Refunding Bonds issued in July 1992 ("Refunding
Bonds") to the extent that such
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interest is to be paid from an escrow fund established with the proceeds of such
Refunding Bonds or the State's installment payments relating to the issuance of
certificates of participation.
The State has never defaulted on any of its general obligation indebtedness
or its obligations under lease-purchase or contractual-obligation financing
arrangements and has never been called upon to make any direct payments pursuant
to its guarantees. There has never been a default on any moral obligation debt
of any Authority.
In addition to the arrangements described above, State law provides for
State municipal assistance corporations, which are Authorities authorized to aid
financially troubled localities. The Municipal Assistance Corporation For The
City of New York ("MAC"), created to provide financing assistance to New York
City, is the only municipal assistance corporation created to date. To enable
MAC to pay debt service on its obligations, MAC receives, subject to annual
appropriation by the Legislature, receipts from the 4% New York State Sales Tax
for the Benefit of New York City, the State-imposed Stock Transfer Tax and,
subject to certain prior liens, certain local assistance payments otherwise
payable to New York City. The legislation creating MAC also includes a moral
obligation provision. Under its enabling legislation, MAC's authority to issue
bonds and notes (other than refunding bonds and notes) expired on December 31,
1984. Legislation has been enacted which would, under certain conditions, permit
MAC to issue up to $1.465 billion of additional bonds, which are not subject to
a moral obligation provision.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating the Local Government Assistance Corporation ("LGAC"), a public benefit
corporation empowered to issue long-term obligations to fund certain payments to
local governments traditionally funded through the State's annual seasonal
borrowing. Over a period of years, the issuance of those long-term obligations,
which will be amortized over no more than 30 years, is expected to result in
eliminating the need for continuing short-term seasonal borrowing for those
purposes because the timing of local assistance payments in future years will
correspond more closely with the State's available cash flow. The legislation
also imposed a cap on the annual seasonal borrowing of the State at $4.7
billion, less net proceeds of bonds issued by the LGAC, except in cases where
the Governor and the legislative leaders have certified both the need for
additional borrowing and a schedule for reducing it to the cap. If borrowing
above the cap is thus permitted in any fiscal year, it is required by law to be
reduced to the cap by the fourth fiscal year after the limit was first exceeded.
As of December 21, 1993, LGAC had issued its bonds to provide net proceeds of
$3.281 billion. LGAC has been authorized to issue its bonds to provide net
proceeds of up to $575 million during the State's 1993-94 fiscal year. On
December 9, 1993, LGAC sold $359 million of bonds to provide net proceeds of
$300 million for the payments to local governments and school districts.
On May 31, 1988, the Supreme Court of the United States took jurisdiction
of a claim of the State of Delaware that certain unclaimed dividends, interest
and other distributions made by issuers of securities and held by New York-based
brokers incorporated in Delaware, for beneficial owners who cannot be identified
or located, had been, and was being, wrongfully taken by the State of New York
pursuant to New York's Abandoned Property Law (State of Delaware v. State of New
York, United States Supreme Court). Texas intervened, claiming a portion of such
distributions and similar property taken by the State of New York from New York-
based banks and depositories incorporated in Delaware. All other states and the
District of Columbia moved to intervene. In a decision dated March 30, 1993, the
United States Supreme Court granted all pending motions of the states and the
District of Columbia to intervene and remanded the case to a Special Master for
further proceedings consistent with
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the Court's decision. The Court determined that the abandoned property should be
remitted first to the state of the beneficial owner's last known address, if
ascertainable, and, if not, then to the state of incorporation of the
intermediary bank, broker or depository. New York and Delaware have executed a
settlement agreement which provides for payments by New York to Delaware of $35
million in the State's 1993-94 fiscal year and five annual payments thereafter
of $33 million. New York and Massachusetts have executed a settlement agreement
which provides for aggregate payments by New York of $23 million, payable over
five consecutive years. The claims of the other states and the District of
Columbia remain.
On November 16, 1993, the Court of Appeals, the State's highest court,
affirmed the decision of the Appellate Division (Third Department) of the
State's Supreme Court in three actions (McDermott, et al. v Regan, et al.; Puma,
et al. v Regan, et al; and Guzdet, et al. v Regan, et al) declaring
unconstitutional certain legislation enacted in 1990. That legislation mandated
a change in the actuarial funding method for determining contributions by the
State and its local governments to the State and local retirement systems from
the aggregate cost (AC) method, previously used by the Comptroller, to the
projected unit credit (PUC) method, and it required the application of the
surplus reported under the PUC method as a credit to employer contributions. As
a result, contributions to the retirement systems have been significantly
reduced since the State's 1990-91 fiscal year. The Court of Appeals held, among
other things, that the State Constitution, which prohibits the benefits of
membership in the retirement systems from being impaired or diminished, was
violated because the PUC legislation impaired "the means designed to assure
benefits to public employees by depriving the Comptroller of his personal
responsibility to maintain `the security and sources of benefits' of the pension
fund." As a result of this decision, the Comptroller has developed a plan to
return to the AC method and to restore prior funding levels of the retirement
systems. The Comptroller expects to achieve this objective in a manner that,
consistent with his fiduciary responsibilities, will not require the State to
make additional contributions in its 1993-94 fiscal year. The Comptroller's plan
calls for a return to the AC method, using a four-year phase-in in the New York
State and Local Employees' Retirements System (ERS), with State AC contributions
capped at a percentage of payroll that increased each year during the phase-in.
Although State contributions to ERS under the plan are expected to be lower
during the phase-in period than they would have been if the AC method were
reinstated immediately, they are expected to exceed PUC levels by $30 million in
fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal 1996-97,
and $193 million in fiscal 1997-98. The excess over PUC levels is expected to
peak at $241 million in fiscal 1998-99, when State contributions under the
Comptroller's plan are first projected to exceed levels that would have been
required by an immediate return to the AC method. The excess over PUC levels is
projected to decline after fiscal 1998-99, and, beginning in fiscal 2001-02,
State contributions required under the Comptroller's plan are projected to be
less than PUC requirements would have been.
A number of other court actions have been brought involving State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could adversely affect the ability of the State to maintain a
balanced State Financial Plan in the 1994-95 fiscal year or thereafter. Among
the more significant of the other cases, which are at various procedural stages,
are those that challenge: (i) the validity of agreements and treaties by which
various Indian tribes transferred title to the State of certain land in central
New York; (ii) certain aspects of the State's Medicaid rates and regulations,
including reimbursements to providers of mandatory and optional Medicaid
services; (iii) the treatment provided at several State mental hygiene
facilities; (iv) contamination in the Love Canal area of Niagara Falls; (v) the
use by the State of certain casualty insurance reserve funds; (vi) an action
against State and New York City officials alleging that the present level of
shelter allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (vii) alleged employment discrimination by
the State and its agencies; (viii) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the client's Social
Security benefits; (ix) a challenge to the methods by which the State reimburses
localities for the administrative costs of food stamp programs; (x) alleged
responsibility of State officials to assist in remedying racial segregation in
the City of Yonkers; (xi) an action, in which the State is a third party
defendant, for injunctive or other appropriate relief, concerning liability for
the maintenance of stone groins constructed along certain areas of Long Island's
shoreline; (xii) actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed the actuarial funding
methods for determining contributions to State
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employee retirement systems; (xiii) actions challenging legislation enacted in
1990 which requires the withholding of certain amounts of pay from State
employees until their separation from State employment; (xiv) an action
challenging legislation enacted in 1990 which had the effect of deferring
certain employer contributions to the State Teachers' Retirement System and
reducing State aid to school districts by a like amount; (xv) a challenge to the
constitutionality of specified financing programs authorized by Chapter 190 of
the Law of 1990 and which seeks the recall and refunding of obligations of
certain public authorities issued pursuant to such legislation; (xvi) challenges
to the constitutionality of financing programs of the Thruway Authority
authorized by Chapters 166 and 410 of the laws of 1991, (xvii) an action
challenging the constitutionality of the New York Local Government Assistance
Corporation; (xviii) challenges to the delay by the State Department of Social
Services in making two one-week Medicaid payments to the service providers;
(xix) challenges to portions of Chapter 55 of the Laws of 1992 requiring
hospitals to impose and remit to the State an 11% surcharge on hospital bills
paid by commercial insurers, and which require health maintenance organizations
to remit to the State a surcharge of up to 9%; (xx) challenges to the
promulgation of the State's proposed procedure to determine the eligibility for
and nature of home care services for Medicaid recipients; (xxi) a challenge to
State implementation of a program which reduces Medicaid benefits to certain
home-relief recipients; and (xxii) a challenge to portions of Section 2807-c of
the Public Health Law and implementing regulations which impose a bad debt and
charity care allowance on all hospital bills and a 13% surcharge on inpatient
bills paid by employee welfare benefit plans.
On January 13, 1992, Standard & Poor's Corporation ("Standard & Poor's")
downgraded the State's general obligation bonds from A to A-. Also downgraded
were certain of the State's variously rated moral obligation, lease purchase,
guaranteed and contractual obligation debt, including debt issued by certain
State agencies. Standard & Poor's had downgraded the State's (i) general
obligation bonds from AA- to A and (ii) commercial paper from A-1+ to A-1 on
March 26, 1990. The short-term notes issued by the State on March 29, 1990, to
close a portion of its budget deficit for the 1990 fiscal year were assigned a
rating of SP-1. On January 6, 1992, Moody's Investors Service ("Moody's")
downgraded its rating of certain State appropriations bonds from A to Baa-1. On
March 26, 1990, Moody's assigned a MIG-2 rating to the short-term notes issued
by the State on March 29, 1990, to close a portion of its budget deficit for the
1990 fiscal year. On June 6, 1990, Moody's changed its rating of the State's
outstanding general obligation bonds from A1 to A. The State's tax and revenue
anticipation notes issued in February 1991 were rated MIG-2 by Moody's and SP-1
by Standard & Poor's. The State's tax and revenue anticipation notes issued in
June 1991 were also rated MIG-2 by Moody's and SP-1 by Standard & Poor's. Any
action taken by Standard & Poor's or Moody's to lower the credit rating on
outstanding indebtedness and obligations of the State may have an adverse impact
on the marketability of the State's notes and bonds.
The fiscal stability of the State is related to the fiscal stability of its
authorities, which generally have responsibility for financing, constructing and
operating revenue producing public benefit facilities. The authorities are not
subject to the constitutional restrictions on the incurrence of debt which apply
to the State itself and may issue bonds and notes within the amounts of, and as
otherwise restricted by, their legislative authorization. Several authorities,
including the Urban Development Corporation ("UDC"), the New York State Housing
Finance Agency ("HFA") and the Metropolitan Transportation Authority ("MTA"),
have, in the past, experienced financial difficulties. Certain authorities
continue to experience financial difficulties, requiring financial assistance
from the State. If one or more authorities or local governments seek special
State assistance, the marketability of notes and bonds issued by the State,
other governmental entities within the State and the authorities may be
impaired.
The MTA oversees the operation of New York City's subway and bus system
(the "TA") and commuter rail and bus lines serving suburban New York and
Connecticut. Fare revenues from such operations have been insufficient to meet
expenditures, and MTA depends heavily upon a system of State, local, Triborough
Bridge and Tunnel Authority ("TBTA") and, to the extent available, Federal
support. Over the past several years, the State has enacted several taxes,
including a surcharge on the profits of banks, insurance corporations and
general business corporations doing business in the 12-county region served by
MTA (the "Metropolitan Transportation Region") and a special one-quarter of 1%
regional sales and use tax, that provide additional revenues for mass transit
purposes including assistance to MTA. The surcharge, which expires in November,
1995, yielded approximately
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$507 million in calendar year 1992, of which amount the MTA was entitled to
receive approximately 90%, or approximately $456 million. For the 1994-95 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.3 billion.
In addition, legislation enacted in 1987 creates a further source of
recurring revenues for the MTA. This legislation requires that the proceeds of a
one-quarter of 1% mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region that theretofore had been paid to the State
of New York Mortgage Agency be deposited in a special MTA fund. These tax
proceeds may be used by the MTA for either operating or capital (including debt
service) expenses. The 1987 legislation also requires the MTA to pay
approximately $25 million annually from its existing recurring mortgage
recording tax revenues, of which $20 million is to be paid to the State for
highway purposes in the Metropolitan Transportation Region (other than New York
City) to the extent revenues are available therefor, and the remaining $5
million of which is to be paid to certain counties in the Metropolitan
Transportation Region.
For 1993, the TA originally projected a budget gap of approximately $266
million. The MTA Board approved an increase in TBTA tolls which took effect
January 31, 1993. Since TBTA operating surplus help subsidize TA operations, the
January toll increase on TBTA facilities, and other developments, reduced the
projected gap to approximately $241 million.
Legislation passed in April 1993 relating to the MTA's 1992-1996 Capital
Program reflected a plan for closing this gap without raising fares. A major
element of the plan provides that the TA receive a significant share of the
petroleum business tax which will be paid directly to MTA for its agencies. The
plan also relies on certain City actions that have not yet been taken. The plan
also relies on MTA and TA resources projected to be available to help close the
gap.
If any of the assumptions used in making these projections prove incorrect,
the TA's gap could grow, and the TA would be required to seek additional State
assistance, raise fares or take other actions.
Two serious accidents in December 1990 and August 1991, which caused
fatalities and many injuries, have given rise to substantial claims for damages
against both the TA and the City.
From its inception through 1975, UDC acted primarily as a lender for low,
moderate and middle income residential projects, but since 1975, UDC has not
financed any new residential projects. UDC has largely redirected its efforts to
exercising its powers to assist in the development of educational, cultural,
recreational, community and other civic facilities throughout the State. All
such civic projects must be owned or leased by the State or a municipality or an
instrumentality thereof, a public benefit corporation or an entity carrying out
a community, municipal, public service or other civic purpose. UDC has
experienced, and expects to continue to experience, financial difficulties with
the housing programs it had undertaken prior to 1975, because a substantial
number of these housing program mortgagors are unable to make full payments on
their mortgage loans. In 1975, the State appropriated money to cure a default by
UDC on notes not backed by the State's moral obligation. UDC has been, and is
expected to remain, dependent on the State for appropriations to meet its
operating expenses. In its 1987-88, 1988-89 and 1989-90 fiscal years, the State
appropriated $3.9 million, $7.1 million and $7.6 million, respectively, to UDC
for corporate operating expenses. The 1990-91 State Financial Plan included a
$6.7 million appropriation to UDC for corporate operating expenses. As of
September 30, 1991, UDC had approximately $2.85 billion in outstanding debt.
The HFA continues to face significant financial difficulties with some of
the projects on which it holds mortgages, which could affect its ability to meet
debt service on obligations issued under one or more of its housing and certain
other programs. In the absence of State assistance, it is doubtful that HFA will
be able to meet debt service requirements on certain housing project bonds. The
most significant of the projects in arrears is Co-op City, a major tenant-
cooperative project on which HFA holds a mortgage in the original amount of $390
million. During the State's 1986-87 fiscal year, the State appropriated and paid
$6.5 million to replenish HFA's debt service reserve funds. No such payments
have since been required, nor are any anticipated to be made during the State's
1989-90
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fiscal year. Pursuant to a settlement agreement entered into with respect to
HFA's Co-op City housing project, the State paid approximately $6 million to Co-
op City in the 1987-88 fiscal year, $6.7 million in the 1988-89 fiscal year and
$1.5 million in the State's 1989-90 fiscal year. The 1990-91 State Financial
Plan included a payment of $5.0 million for such agreement. As of September 30,
1991, HFA had approximately $3.1 billion in outstanding debt.
(3) Other Localities. Certain localities in addition to New York City could
have financial problems leading to requests for additional State assistance
during the State's 1993-94 fiscal year and thereafter. The potential impact on
the State of such requests by localities is not reflected in the projections of
the State receipts and disbursements in the State's 1993-94 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board of the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in allocation of State
resources in amounts that cannot yet be determined.
(4) State Economic Trends. Over the long term, the State and the City also
face serious potential economic problems. The City accounts for approximately
41% of the State's population and personal income and the City's financial
health affects the State in numerous ways. The State historically has been one
of the wealthiest states in the nation. For decades, however, the State has
grown more slowly than the nation as a whole, gradually eroding its relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
During the years ended December 31, 1982 and December 31, 1983, the State's
economy in most respects performed better than that of the nation. In calendar
years 1984 through 1991, however, the State's rate of economic expansion was
somewhat slower than that of the nation. The unemployment rate in the State
dipped below the national rate in the second half of 1981 and remained lower
until 1991. Overall economic activity declined less than that of the nation as a
whole during the 1982-83 recession. In the current recession, however, the
State, and the rest of the Northeast, has been more heavily impacted.
A national recession commenced in mid-1990. The downturn, which continued
throughout the remainder of the 1990-91 fiscal year, and was followed by a
period of weak economic growth during the 1991 calendar year. For calendar year
1992, the national economy continued to recover, although at a rate below all
post-war recoveries. For calendar year 1993, the economy is expected to grow
faster than in 1992, but still at a very moderate rate, compared to other
recoveries. The recession has been more severe in the State than in other parts
of the nation, owing to a significant retrenchment in the financial services
industry, cutbacks in defense spending, and an overbuilt real estate market. The
Division of the Budget's forecast for the overall rate of growth for the
national economy during calendar year 1993 is similar to the "consensus" of a
widely followed survey of forecasters.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State.
Reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State's localities.
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GENERAL CONSIDERATIONS
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their terms
and the proceeds from such events will be distributed to Unit holders and will
not be reinvested, no assurance can be given that the Trust will retain for any
length of time its present size and composition. The inclusion of unrated Bonds
in certain Series of the Trust may result in less flexibility in their disposal
and a loss to the Trust upon their disposition. Except as described in footnotes
to "Summary of Essential Financial Information" in Part I of this Prospectus,
interest accrues to the benefit of Unit holders commencing with the expected
date of settlement for purchase of the Units. Neither the Sponsors nor the
Trustee shall be liable in any way for any default, failure or defect in any
Security.
The following paragraphs discuss the characteristics of the Bonds in the
Trust and of certain types of issuers of the Bonds in the Trust. See "Special
Factors Concerning the Portfolio" in Part I of this Prospectus. These paragraphs
discuss, among other things, certain circumstances which may adversely affect
the ability of such issuers to make payments of principal of and interest on
Bonds held in the portfolio of the Trust or which may adversely affect the
ratings of such Bonds. An investment in Units of the Trust should be made with
an understanding of the risks that such an investment may entail, certain of
which are described below. Unit holders may obtain additional information
concerning a particular Bond by requesting an official statement from the issuer
of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. The taxing
power of any governmental entity may be limited, however, by provisions of state
constitutions or laws, and an entity's credit will depend on many factors,
including potential erosion of the tax base due to population declines, natural
disasters, declines in the state's industrial base or inability to attract new
industries; economic limits on the ability to tax without eroding the tax base;
state legislative proposals or voter initiatives to limit ad valorem real
property taxes; and the extent to which the entity relies on Federal or state
aid, access to capital markets or other factors beyond the state or entity's
control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects (e.g.,
buildings or equipment, among other things). Such obligations are often made
subject to annual appropriations. Certain Series of the Trust may contain Bonds
in the portfolio that are, in whole or in part, subject to and dependent upon
(1) the governmental entity making appropriations from time to time or (2) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special taxes. The obligation to make lease
payments exists only to the extent of the monies available to the governmental
entity therefor, and no liability is incurred by the governmental entity beyond
the monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to make lease rental
payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or used
by the governmental entity and notwithstanding any circumstances or occurrences
which might arise. In the event of non-appropriation, certificate holders' or
bondowners' sole remedy (absent credit enhancement) generally is limited to
repossession of the collateral for resale or releasing, and the obligation of
the governmental lessee is not backed by a pledge of the general credit of the
governmental lessee. In the event of non-appropriation, the Sponsors may
instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may contain Bonds in
the portfolio that are secured by pledged revenues and additionally by the so-
called "moral obligations" of the State or a local governmental body.
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Should the pledged revenues prove insufficient, the payment of such Bonds is not
a legal obligation of the State or local government and is subject to its
willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue bonds".
Under the Internal Revenue Code of 1986, as amended, (the "Code") "mortgage
revenue bonds" are obligations all of the proceeds of which are used to finance
owner-occupied residences under programs which meet numerous statutory
requirements relating to residency, ownership, purchase price and target area
requirements, ceiling amounts for state and local issuers, arbitrage
restrictions, and certain information reporting, certification, and public
hearing requirements. There can be no assurance that additional federal
legislation will not be introduced or that existing legislation will not be
further amended, revised, or enacted after delivery of these Bonds or that
certain required further actions will be taken by the issuing governmental
authorities, which action or failure to act would cause interest on the Bonds to
be subject to federal income tax. If any portion of the Bonds proceeds are not
committed for the purpose of the issue, Bonds in such amount could be subject to
earlier mandatory redemption at par, including issues of Zero Coupon Bonds.
Housing Bonds. Some of the aggregate principal amount of Bonds may consist
of obligations of state and local housing authorities whose revenues are
primarily derived from mortgage loans to housing projects for low to moderate
income families. Since such obligations are not general obligations of a
particular state or municipality and are generally payable from rents and other
fees, economic developments including failure or inability to increase rentals,
fluctuations of interest rates and increasing construction and operating costs
may reduce revenues available to pay existing obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the original
issuance dates of such Bonds (often referred to as "ten year call protection"),
do contain provisions which require the issuer to redeem such obligations at par
from unused proceeds of the issue within a stated period. In recent periods of
declining interest rates there have been increased redemptions of housing bonds
according to such redemption provisions. In addition, the housing bonds in the
Trust are also subject to mandatory redemption in part at par at any time that
voluntary or involuntary prepayments of principal on the underlying mortgages
are made to the trustee for such Bonds or that the mortgages are sold by the
bond issuer. Prepayments of principal tend to be greater in periods of declining
interest rates; it is possible that such prepayments could be sufficient to
cause a housing bond to be redeemed substantially prior to its stated maturity
date, earliest call date or sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and operation
of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials and
the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and proposed
relating to the development and operation of nuclear generating facilities. The
Sponsors are unable to predict whether any such actions or whether any such
proposals or litigation, if enacted or instituted, will have an adverse impact
on the revenues available to pay the debt service on the Bonds in the portfolio
issued to finance such nuclear projects.
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Each of the problems referred to above could adversely affect the ability
of the issuers of public power revenue bonds to make payments of principal of
and/or interest on such bonds. Certain municipal utilities or agencies may have
entered into contractual arrangements with investor-owned utilities and large
industrial users and consequently may be dependent in varying degrees on the
performance of such contracts for payment of bond debt service.
Health Care Revenue Bonds. Some of the aggregate principal amount of Bonds
may consist of hospital revenue bonds. Ratings of hospital bonds are often
initially based on feasibility studies which contain projections of occupancy
levels, revenues and expenses. Actual experience may vary considerably from such
projections. A hospital's gross receipts and net income will be affected by
future events and conditions including, among other things, demand for hospital
services and the ability of the hospital to provide them, physicians' confidence
in hospital management capability, economic developments in the service area,
competition, actions by insurers and governmental agencies and the increased
cost and possible unavailability of malpractice insurance. Additionally, a major
portion of hospital revenue typically is derived from federal or state programs
such as Medicare and Medicaid which have been revised substantially in recent
years and which are undergoing further review at the state and federal level.
Future legislation or changes in the areas noted above, among other things,
would affect all hospitals to varying degrees and, accordingly, any adverse
change in these areas may affect the ability of such issuers to make payment of
principal and interest on such bonds.
Higher Education Revenue Bonds. Higher education revenue bonds include debt
of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet their
obligations is dependent upon various factors, including the revenues, costs and
enrollment levels of the institutions. In addition, their ability may be
affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance and
energy costs, failure or inability to raise tuition or room charges and adverse
results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of a private
corporation,/2/ including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent upon
income from the specific pollution control facility and/or the financial
condition of the corporation. See also "Industrial Development Bonds."
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission facilities,
public water supply, treatment and distribution facilities, and sewage
collection, treatment and disposal facilities. Repayment of these bonds is
dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this category
include securities issued to finance facilities for removal and disposal of
solid municipal waste. Repayment of these bonds is dependent on factors which
may include revenues from appropriations from a governmental entity, the
financial condition of the private corporation and revenues derived from the
collection of charges for disposal of solid waste. Repayment of resource
recovery bonds may also be dependent to various degrees on revenues from the
sale of electric energy or steam. Bonds in this category may be subject to
mandatory redemption in the event of project non-completion, if the project is
rendered uneconomical or if it is considered an environmental hazard.
- --------------------------
/2/ For purposes of the description of users of facilities, all references
to "corporations" shall be deemed to include any other nongovernmental person or
entity.
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Transportation Revenue Bonds. Bonds in this category include bonds issued
for airport facilities, bridges, turnpikes, port authorities, railroad systems
or mass transit systems. Generally, airport facility revenue bonds are payable
from and secured by the revenues derived from the ownership and operation of a
particular airport. Payment on other transportation bonds is often dependent
primarily or solely on revenues from financed facilities, including user fees,
charges, tolls and rents. Such revenues may be adversely affected by increased
construction and maintenance costs or taxes, decreased use, competition from
alternative facilities, scarcity of fuel, reduction or loss of rents or the
impact of environmental considerations. Other transportation bonds may be
dependent primarily or solely on Federal, state or local assistance including
motor fuel and motor vehicle taxes, fees and licenses and, therefore, may be
subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may contain other Bonds
that are "private activity bonds" (often called industrial revenue bonds
("IRBs") if issued prior to 1987), which would be primarily of two types: (1)
Bonds for a publicly owned facility that a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system and (2) Bonds for facilities deemed owned or beneficially owned by a
private entity but which were financed with tax-exempt bonds of a public issuer,
such as a manufacturing facility or a pollution control facility. In the case of
the first type, bonds are generally payable from a designated source of revenues
derived from the facility and may further receive the benefit of the legal or
moral obligation of one or more political subdivisions or taxing jurisdictions.
In most cases of project financing of the first type, issuers are obligated to
pay the principal of, any premium then due, or interest on the private activity
bonds only to the extent that funds are available from receipts or revenues of
the Issuer derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service charges, rental
and lease payments, and mortgage and other loan payments.
The second type of issue will generally finance projects which are owned by
or for the benefit of, and are operated by, corporate entities. Ordinarily, such
private activity bonds are not general obligations of governmental entities and
are not backed by the taxing power of such entities, and are solely dependent
upon the creditworthiness of the corporate user of the project or corporate
guarantor.
The private activity bonds in the Trust have generally been issued under
bond resolutions, agreements or trust indentures pursuant to which the revenues
and receipts payable under the issuer's arrangements with the users or the
corporate operator of a particular project have been assigned and pledged to the
holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including sales
and use taxes or excise taxes. Consequently, such bonds may be subject to
fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also contain revenue
bonds which are payable from and secured primarily or solely by revenues from
the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are secured by
direct obligations of the U.S. Government or, in some cases, obligations
guaranteed by the U.S. Government, placed in an escrow account
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maintained by an independent trustee until maturity or a predetermined
redemption date. In a few isolated instances to date, bonds which were thought
to be escrowed to maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain Series of the Trust may contain general obligation bonds and/or
revenue bonds of issuers in Puerto Rico that will be affected by general
economic conditions in Puerto Rico. The economy of Puerto Rico is closely
integrated with that of the mainland United States. During fiscal year 1989,
approximately 87% of Puerto Rico's exports were to the United States mainland,
which was also the source of 67% of Puerto Rico's imports. In fiscal 1989,
Puerto Rico experienced a $965.7 million positive adjusted trade balance. The
economy of Puerto Rico is dominated by the manufacturing and service sectors.
The manufacturing sector has experienced a basic change over the years as a
result of increased emphasis on higher wage, high technology industries such as
pharmaceuticals, electronics, computers, microprocessors, professional and
scientific instruments, and certain high technology machinery and equipment. The
service sector, including finance, insurance and real estate, also plays a major
role in the economy. Since fiscal 1985, personal income has increased
consistently in each fiscal year. Personal income includes transfer payments to
individuals in Puerto Rico under various social programs. Transfer payments to
individuals in fiscal 1989 were $3.9 billion, of which $2.7 billion, or 69.2%,
represent entitlement to individuals who had previously performed services or
made contributions under programs such as social security, veterans benefits and
medicare. The number of persons employed in Puerto Rico rose to a record level
during fiscal 1990. Unemployment, although at the lowest level since the late
1970s, remains above the average for the United States. In fiscal 1990, the
unemployment rate in Puerto Rico was 14.3%. From fiscal 1985 through fiscal
1989, Puerto Rico experienced an economic expansion that affected almost every
sector of its economy and resulted in record levels of employment. Factors
behind this expansion include Commonwealth sponsored economic development
programs, the relatively stable prices of oil imports, the continued growth of
the United States economy, periodic declines in exchange value of the United
States dollar and the relatively low cost borrowing during the period. In fiscal
1989, the economy of Puerto Rico completed its sixth consecutive year of
economic growth. Real gross product amounted to approximately $15.4 billion in
fiscal 1989, or 3.6% above the fiscal 1988 level. The economy continued its
growth during fiscal 1990 but at a slower rate. The Puerto Rico Planning Board's
economic activity index, a composite index for thirteen economic indicators,
increased 1% for the first ten months of fiscal 1990 compared to the same period
in fiscal 1989, which period showed an increase of 3.2% over the same period in
fiscal 1988. The Planning Board is in the process of preparing a forecast for
the economy for fiscal 1991. Continued growth in fiscal 1991 will depend on
several factors, including stabilization of the price of oil at closer to the
levels of the past few years.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain Series of the Trust may contain original issue discount bonds and
zero coupon bonds. Original issue discount bonds are bonds whose original issue
prices are lower than their stated redemption prices at maturity. Zero coupon
bonds are original issue discount bonds that do not provide for the payment of
current interest. For Federal income tax purposes, the original issue discount
on original issue discount bonds and zero coupon bonds must be amortized over
the term of such bonds. On sale or redemption, the excess of (1) the amount
realized (other than amounts treated as tax-exempt income as described below),
over (2) the tax basis of such bonds (properly adjusted, in the circumstances
described below, for amortization of original issue discount) will be taxable as
capital gain or loss. See "The Trust - Tax Status." The Tax Reform Act of 1984
requires holders of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations. In
addition, the Tax Reform Act of 1984 provides that the basis of a tax-exempt
obligation is increased by the amount of accrued tax-exempt original issue
discount. These provisions are applicable to obligations issued after September
3, 1982 and acquired after March 1, 1984. Original issue discount on a tax-
exempt obligation issued on or before July 1, 1982 is deemed to accrue as tax-
exempt interest ratably over the life of the obligation. Original issue discount
on any other tax-exempt obligation is also deemed to accrue as tax-exempt
interest over the life of the obligation, although it is not clear whether such
accrual is ratable or is determined under a formula based on the compounding of
interest. The Trust's tax basis in
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a Bond is increased by any accrued original issue discount as is a Unit holder's
tax basis in his Units. For Bonds issued on or after June 9, 1980 that are
redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any such gain may be taxable as ordinary income.
________________________________________________________
There can be no assurance that additional Federal legislation will not be
enacted or that existing legislation will not be amended hereafter with the
effect that interest on the Bonds becomes subject to Federal income taxation. If
the interest on the Bonds should ultimately be deemed to be taxable, the
Sponsors may instruct the Trustee to sell them, and, since they would be sold as
taxable securities, it is expected that they would have to be sold at a
substantial discount from current market prices.
Most of the Bonds in the Trust are subject to redemption prior to their
stated maturity date pursuant to sinking fund or call provisions. A sinking fund
is a reserve fund accumulated over a period of time for retirement of debt.
Sinking fund provisions are designed to redeem a significant portion of an issue
gradually over the life of the issue. A callable debt obligation is one which is
subject to redemption prior to maturity at the option of the issuer. Obligations
to be redeemed are generally chosen by lot. The portfolio and "Summary of
Essential Financial Information" in Part I of this Prospectus contain a listing
of the sinking fund and call provisions, if any, with respect to each of the
Bonds therein.
Adoption of the federal Bankruptcy Code, which became effective in 1979,
facilitated the use of bankruptcy proceedings by municipalities to restructure
or otherwise alter the terms of their obligations, including those of the type
constituting the Trust. The Sponsors are unable to predict what effect, if any,
this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending as of
the date hereof in respect of any Securities which might reasonably be expected
to have a material adverse effect on the Trust, unless otherwise stated in Part
I of this Prospectus. At any time, however, litigation may be initiated on a
variety of grounds with respect to Securities in the Trust. Such litigation as,
for example, suits challenging the issuance of pollution control revenue bonds
under recently enacted environmental protection statutes may affect the validity
of such Securities or the tax-exempt nature of the interest thereon. While the
outcome of such litigation can never be entirely predicted with certainty, bond
counsel have given opinions to the issuing authorities of each Bond on the date
of issuance to the effect that such Securities have been validly issued and that
the interest thereon is exempt from Federal income tax. Other litigation or
other factors may arise from time to time which potentially may impair the
ability of issuers to meet obligations undertaken with respect to Securities.
THE UNITS
On the date of this Prospectus, each Unit represented the fractional
undivided interest in the Trust set forth in Part I of this Prospectus under
"Summary of Essential Financial Information." Thereafter, if any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual interest
in the Trust represented by each such Unit will remain essentially the same.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unit holder, which may include the Sponsors, or until the termination of the
Trust Agreement. See "Rights of Unit Holders - Redemption."
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ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast, tax-
exempt bonds customarily are offered on a "yield price" basis. Therefore, the
rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit and
information regarding estimated monthly and semi-annual distributions of
interest to Unitholders are set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. Estimated Net Interest
Income per Unit will vary with changes in fees and expenses of the Trustee and
the Evaluator and with principal prepayment, redemption, maturity, exchange or
sale of Bonds. The Public Offering Price per Unit will vary with changes in the
offering price of the Bonds. Estimated Current Return takes into account only
the interest payable on the Bonds and does not involve a computation of yield to
maturity or to an earlier redemption date nor does it reflect any amortization
of premium or discount from par value in the Bond's purchase price. Moreover,
because interest rates on bonds purchased at a premium are generally higher than
current interests rates on newly issued bonds of a similar type with comparable
ratings, the Estimated Current Return per Unit may be affected adversely if such
Bonds are redeemed prior to their maturity. Therefore, there is no assurance
that the Estimated Current Return as set forth under "Summary of Essential
Financial Information" in Part I of this Prospectus will be realized in the
future.
Estimated Long-Term Return is calculated using a formula that (i) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (taking into account the amortization of premiums and the
accretion of discounts) and estimated retirements of all the Bonds in the
portfolio and (ii) takes into account the expenses and sales charge associated
with each Unit. The Estimated Long-Term Return assumes that each Bond is retired
on its pricing life date (i.e., that date which produces the lowest dollar price
when yield price calculations are done for each optional call date and the
maturity date of a callable security). If the Bond is retired on any optional
call or maturity date other than the pricing life date, the yield to the holder
of that Bond will be greater than the initial quoted yield. Since the market
values and estimated retirements of the Bonds, the expenses of the Trust and the
Net Annual Interest Income and Public Offering Price per Unit may change, there
is no assurance that the Estimated Long-Term Return as set forth under "Summary
of Essential Financial Information" in Part I of this Prospectus will be
realized in the future.
TAX STATUS (SEE ALSO "TAX STATUS" IN PART I OF THIS PROSPECTUS)
Interest income on the Bonds contained in the Trust portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, which opinion
was rendered at the time of original issuance of the Bonds, excludable from
gross income under the Internal Revenue Code of 1954, as amended (the "1954
Code"). See "The Trust - Portfolio."
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or
on a sale or redemption of a Unit is, however, includable in gross income as
capital gain (or loss) for Federal, state and local income tax purposes,
assuming that the Unit is held as a capital asset. Such gain (or loss) does not
include any amount received in respect of accrued interest. In addition, such
gain (or loss) may be long- or short-term, depending on the facts and
circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. Gain on the disposition of a Bond
purchase at a market discount generally will be treated as ordinary income,
rather than capital gain, to the extent of accrued market discount. The
deductibility of capital losses is limited to the amount of capital gain; in
addition, up to $3,000 of capital losses of non-corporate Unit holders may be
deducted against ordinary income. Since the proceeds from sales of Bonds, under
certain circumstances, may not be distributed pro-rata, a Unit holder's taxable
income for any year may exceed the actual cash distributions to the Unit Holder
in that year.
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The Code, among other things, provides for the following: (1) the interest
on certain private activity bonds issued after August 7, 1986 is included in the
calculation of the individual alternative minimum tax (currently taxed under a
two-tier rate structure of 26% and 28%). (None of the Bonds in the Trust is a
private activity bond, the interest on which is subject to the individual
alternative minimum tax); (2) interest on certain private activity bonds issued
after August 7, 1986 is included in the calculation of the corporate alternative
minimum tax (currently taxed at a 20% rate), and 75% of the amount by which
adjusted current earnings (including interest on all tax-exempt bonds) exceed
alternative minimum taxable income, as modified for this calculation, will be
included in alternative minimum taxable income; (3) although interest on the
Bonds is includable in the adjusted current earnings of a corporation for
purposes of such alternative minimum tax, the Code does not otherwise require
corporations, and does not require taxpayers other than corporations, including
individuals, to treat interest on the Bonds as an item of tax preference in
computing an alternative minimum tax; (4) subject to certain exceptions, no
financial institution is allowed a deduction for that portion of the
institution's interest expense allocable to tax-exempt interest on tax-exempt
bonds acquired after August 7, 1986; (5) with respect to certain insurance
companies (other than life insurance companies), the Code reduces the deduction
for loss reserves by 15% of the sum of certain items, including tax-exempt
interest received or accrued by such companies; (6) all taxpayers are required
to report for informational purposes on their Federal income tax returns the
amount of tax-exempt interest they receive; (7) an issuer must meet certain
requirements on a continuing basis in order for interest on a tax-exempt bond to
be tax-exempt, with failure to meet such requirements resulting in the loss of
tax exemption; and (8) a branch profits tax on U.S. branches of foreign
corporations is imposed which, because of the manner in which the branch profits
tax is calculated, may have the effect of subjecting the U.S. branch of a
foreign corporation to Federal income tax on the interest on bonds otherwise
exempt from such tax.
The Omnibus Budget Reconciliation Act of 1993 ("OBRA '93") was passed by
Congress on August 6, 1993 and was signed into law by the President on August
10, 1993. OBRA '93 contains more than 70 changes in the Code that are projected
to increase tax revenues by more than $250 billion over the next five years.
Among other things, OBRA '93 increased individual and corporate income tax
rates. Many of the provisions of OBRA '93 went into effect on January 1, 1994.
The changes in tax rates applicable to individuals and corporations, alternative
minimum tax rates and estate and gift tax rates are effective retroactively as
of January 1, 1993. Prospective investors should consult their tax advisors as
to the effect of OBRA '93 on an investment in the Units.
The Superfund/Revenue Act of 1986 (the "Superfund Act") imposed a
deductible, broad-based tax on a corporation's alternative minimum taxable
income (before net operating losses and any deduction for the tax) at a rate of
$12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. The tax is imposed for tax years beginning after 1986 and beginning
before 1996 and is applicable even if the corporation pays no alternative
minimum tax. For purposes of the Superfund Act, alternative minimum taxable
income includes interest on all tax-exempt bonds to the same extent and in the
same manner as the Code. The Superfund Act does not impose a tax on taxpayers
other than corporations.
Section 86 of the Code provides that a portion of social security benefits
is includable in gross income for taxpayers whose "modified adjusted gross
income", combined with 50% of their social security benefits, exceeds a base
amount. The base amount is $34,000 for an individual, $44,000 for a married
couple filing a joint return and zero for married persons filing separate
returns. OBRA '93 adds additional provisions whereby a portion of social
security benefits will be includable in gross income for certain taxpayers. For
taxpayers with "modified adjusted gross income" above the $34,000 and $44,000
levels, gross income will include the lesser of: (a) 85% of the taxpayer's
social security benefit, or (b) the sum of (1) the smaller of (i) the amount
included under prior law or (ii) $3,500 (for unmarried taxpayers) or $4,000 (for
married taxpayers filing joint returns), plus (2) 85% of the excess of the
taxpayer's modified adjusted gross income over the applicable new base amounts.
Interest on tax-exempt bonds is to be added to adjusted gross income for
purposes of determining whether an individual's income exceeds the base amount
described above.
In addition, certain "S Corporations" may be subject to minimum tax on
certain passive income, including tax-exempt interest, such as interest on the
Bonds.
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At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from Federal income tax were or (with respect to "when, as and if
issued" Bonds) were to be rendered by bond counsel to the issuing governmental
authorities. Neither the Sponsors nor their special counsel have made any review
of proceedings relating to the issuance of such Bonds or the basis for bond
counsel's opinions.
In the case of certain Bonds which may be included in the Trust, the
opinions of bond counsel indicate that, although interest on such Bonds is
generally exempt from Federal income tax, such Bonds are "industrial development
bonds" under the 1954 Code. Industrial Development Bonds are defined in the 1954
Code in terms similar to those under which private activity bonds are defined in
the Code and are generally subject to the same limitations. Interest on certain
qualified small issue private activity bonds is exempt from all present Federal
income taxation only so long as the "principal user" of the bond-financed
facility and any "related person" remain within the capital expenditure
limitations imposed by Section 144(a)(4) of the Code and only so long as the
aggregate Private Activity Bond limits of Section 144(a)(10) of the Code
(Sections 103(b)(6)(D) and 103(b)(15) of the 1954 Code, respectively) are met.
In addition, interest on private activity bonds will not be exempt from Federal
income tax for any period during which such bonds are held by a "substantial
user" of the facilities financed by the proceeds of such bonds (or a "related
person" to such a "substantial user"). Interest attributable to such Bonds, if
received by a Unit holder who is such a "substantial user" or "related person,"
will be taxable (i.e., not tax-exempt) to the same extent as if such Bonds were
held directly as owner.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited "arbitrage" activities by
the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners
or users of the facilities financed by the bonds, the amount of such persons'
outstanding tax-exempt private activities bonds, or the facilities themselves,
and no assurance can be given that future events will not affect the tax-exempt
status of the Bonds. Investors should consult their tax advisors for advice
with respect to the effect of these provisions on their particular tax
situation.
Under Section 265 of the Code, if borrowed funds are used by a Unit holder
to purchase or carry Units of the Trust, interest on such indebtedness will not
be deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of Units. Similar rules are applicable for purposes of state and local
taxation. Also, under Section 291 of the Code, certain financial institutions
that acquired Units on or before August 7, 1986 may be subject to a reduction in
the amount of interest expense that would otherwise be allowable as a deduction
for Federal income tax purposes. Subject to certain exceptions under Section 265
of the Code, no deduction is allowed to a financial institution for that portion
of the institution's interest expense allocable to tax-exempt interest on Units
acquired after August 7, 1986. Investors with questions regarding this issue
should consult their tax advisors.
The Trust may contain Bonds issued with original issue discount. The Code
requires holders of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations and to
increase the basis of a tax-exempt obligation by the amount of accrued tax-
exempt original issue discount. These provisions are applicable to obligations
issued after September 3, 1982 and acquired after March 1, 1984. Original issue
discount on a tax-exempt obligation issued on or before July 1, 1982 is deemed
to accrue as tax-exempt interest ratably over the life of the obligation.
Original issue discount on any other tax-exempt obligation is also deemed to
accrue as tax-exempt interest over the life of the obligation, although it is
not clear whether such accrual is ratable or is determined under a formula based
on the compounding of interest. The Trust's tax basis in a Bond is increased by
any accrued original issue discount as is a Unit holder's tax basis in his
Units. For Bonds issued on or after June 9, 1980 that are redeemed prior to
maturity, the difference between the Trust's basis, as adjusted, and the amount
received will be taxable gain or loss to the Unit holders.
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Unit holders should consult their tax advisors with respect to the state
and local tax consequences of owning original issue discount bonds. It is
possible that, under applicable provisions governing determination of such state
and local taxes, interest on tax-exempt bonds such as any Bonds issued with
original issue discount may be deemed to be received in the year of accrual even
though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a Bond exceeds his
pro rata interest in the Bond's face amount, the Unit holder will be considered
to have purchased his pro rata interest in the Bond at a "premium." The Unit
holder will be required to amortize any premium relating to his pro rata
interest in a Bond prior to the maturity of the Bond. Amortization of premium on
a Bond will reduce a Unit holder's tax basis for his pro rata interest in the
Bond, but will not result in any deduction from the Unit holder's income. Thus,
for example, a Unit holder who purchases a pro rata interest in a Bond at a
premium and resells it at the same price will recognize taxable gain equal to
the portion of the premium that was amortized during the period the Unit holder
is considered to have held such interest.
For obligations issued on or before September 27, 1985, bond premium must
be amortized under the method the Unit holder regularly employs for amortizing
bond premium (assuming such method is reasonable) or, otherwise, on a straight-
line basis. Thus, if a Unit holder has previously amortized bond premium with
respect to other bonds (whether tax-exempt or taxable) on a straight-line basis,
the Unit holder may be prohibited from adopting a more favorable method of
amortizing bond premium such as a constant interest method. For obligations
issued after September 27, 1985, amortizable bond premium must be computed on
the basis of the Unit holder's yield to maturity, determined by using the Unit
holder's basis for the bond, compounding at the close of each "accrual period"
(as defined in Section 1271(a)(5) of the Code). With respect to any tax-exempt
bond, the amount of bond premium is determined with reference to the amount of
the basis of such bond and the total amount payable at maturity or on an earlier
call date. If the amount payable on an earlier call date is used in determining
the amortizable bond premium attributable to the period before the earlier call
date, such bond shall be treated as maturing on such date for the amount so
payable and then reissued on such date for the amount so payable.
From time to time proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals may be introduced in the future. The Sponsors
cannot predict whether additional legislation, if any, in respect of the Federal
income tax status of interest on debt obligations may be enacted and the effect
of such legislation on Bonds in the Trust. If the interest on any Bonds in the
Trust should ultimately be deemed to be taxable, the Sponsors may instruct the
Trustee to sell such Bonds, and, since they would be sold as taxable securities,
it is expected that they would be sold at a substantial discount from current
market prices.
In South Carolina v. Baker, 485 U.S. 505 (1988), the Supreme Court held
that a nondiscriminatory Federal income tax on the interest earned on any state
and local bonds would be constitutional. In so holding, the Supreme Court
overruled Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429 (1895), which held
that any interest earned on a state or local bond was immune from Federal
taxation. This decision, in itself, does not affect the status of state and
local bonds previously issued or which may be issued pursuant to the existing
provisions of the Code. The continued availability of the Federal tax exemption,
however, is now solely a matter of Congressional grace rather than
Constitutional mandate.
THE EXEMPTION OF INTEREST ON MUNICIPAL OBLIGATIONS FOR FEDERAL INCOME TAX
PURPOSES DOES NOT NECESSARILY RESULT IN EXEMPTION UNDER THE INCOME TAX LAWS OF
ANY STATE OR LOCAL GOVERNMENT. INTEREST INCOME DERIVED FROM THE BONDS IS NOT
EXCLUDED FROM NET INCOME IN DETERMINING NEW YORK STATE OR NEW YORK CITY
FRANCHISE TAXES ON CORPORATIONS OR FINANCIAL INSTITUTIONS. THE LAWS OF SUCH
STATES AND LOCAL GOVERNMENTS VARY WITH RESPECT TO THE TAXATION OF SUCH
OBLIGATIONS.
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EXPENSES AND CHARGES
Initial Expenses
At no cost to the Trust, the Sponsors have borne all the expenses of
creating and establishing the Trust, including the cost of the initial
preparation, printing and execution of the Trust Agreement and the certificates
for Units, legal expenses, advertising and selling expenses, expenses of the
Trustee and other out-of-pocket expenses.
Fees
The Trustee's, Sponsors' and Evaluator's fees are set forth under "Summary
of Essential Financial Information" in Part I of this Prospectus. The Sponsors'
fee, if any, which is earned for portfolio supervisory services, is based on the
face amount of Securities in the Trust at December 1 of each year. The Sponsors'
fee, which is not to exceed the maximum amount set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus, may exceed the
actual costs of providing portfolio supervisory services for a particular
Series, but at no time will the total amount received by the Sponsors for
portfolio supervisory services rendered to all Series of Empire State Municipal
Exempt Trust in any calendar year exceed the aggregate cost to them of supplying
such services in such year.
The Trustee will receive for its ordinary recurring services to the Trust
an annual fee in the amount set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus. There is no minimum fee and, except
as hereinafter set forth, no maximum fee. For a discussion of certain benefits
derived by the Trustee from the Trust's funds, see "Rights of Unit Holders -
Distribution of Interest and Principal." For a discussion of the services
performed by the Trustee pursuant to its obligations under the Trust Agreement,
reference is made to the material set forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date and the Sponsors' annual fee is payable annually on December
1. These fees may be increased without approval of the Unit holders by amounts
not exceeding proportionate increases in consumer prices for services as
measured by the United States Department of Labor's Consumer Price Index
entitled "All Services Less Rent."
Other Charges
The following additional charges are or may be incurred by the Trust: all
expenses (including audit and counsel fees) of the Trustee incurred in
connection with its activities under the Trust Agreement, including the expenses
and costs of any action undertaken by the Trustee to protect the Trust and the
rights and interests of the Unit holders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement; indemnification of
the Trustee for any loss or liability accruing to it without gross negligence,
bad faith or willful misconduct on its part, arising out of or in connection
with its acceptance or administration of the Trust; and all taxes and other
governmental charges imposed upon the Securities or any part of the Trust (no
such taxes or charges are being levied or made or, to the knowledge of the
Sponsors, contemplated). The above expenses, including the Trustee's fee, when
paid by or owing to the Trustee, are secured by a lien on the Trust. In
addition, the Trustee is empowered to sell Securities in order to make funds
available to pay all expenses.
PUBLIC OFFERING
OFFERING PRICE
The Public Offering Price of the Units is based on the aggregate bid price
of the Bonds in the Trust (as determined by the Evaluator) plus a sales charge
based upon the maturities of each Bond in the Trust. For the purpose of
computing the sales charge, Bonds are deemed to mature on their expressed
maturity dates unless the
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Evaluator evaluates the price of the Bonds to a different date, such as a call
date or a mandatory tender date, in which case the maturity will be deemed to be
such other date.
This method of computing the sale charge will apply different sales charge
rates to each Bond in the Trust depending on the maturity of each Bond in
accordance with the following schedule:
<TABLE>
<CAPTION>
SECONDARY MARKET PERIOD
SALES CHARGE
PERCENTAGE OF PUBLIC PERCENTAGE OF NET
YEARS TO MATURITY PER BOND OFFERING PRICE AMOUNT INVESTED
<S> <C> <C>
0 Months to 1 Year 1.0% 1.010%
1 but less than 2 2.0% 2.091%
2 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
</TABLE>
A minimum sales charge of 2% of the Public Offering Price is applied to all
secondary market unit purchases. There is no reduction of the sales charge for
volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on the
Securities at the date of delivery of the Units to the purchaser is also added
to the Public Offering Price.
MARKET FOR UNITS
Although they are not obligated to do so, the Sponsors have maintained and
intend to continue to maintain a market for the Units and to continuously offer
to purchase Units at prices based on the aggregate bid price of the Securities.
The Sponsors' Repurchase Price shall be not less than the Redemption Price plus
accrued interest through the expected date of settlement. See "Rights of Unit
Holders - Redemption - Computation of Redemption Price per Unit." There is no
sales charge incurred when a Unit holder sells Units back to the Sponsors. Any
Units repurchased by the Sponsors may be reoffered to the public by the Sponsors
at the Public Offering Price at the time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The Sponsors do
not in any way guarantee the enforceability, marketability or price of any
Security in the portfolio of the Trust or of the Units. In the event that a
market is not maintained for the Units, a Unit holder desiring to dispose of his
Units may be able to do so only by tendering such Units to the Trustee for
redemption at the Redemption Price, which is based on the aggregate bid price of
the underlying Securities. The aggregate bid price of the Securities in the
Trust may be expected to be less than the aggregate offering price. If a Unit
holder wishes to dispose of his Units, he should inquire of the Sponsors as to
current market prices prior to making a tender for redemption to the Trustee.
See "Rights of Unit Holders - Redemption" and "Sponsors."
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<PAGE>
DISTRIBUTION OF UNITS
The Sponsors are the sole underwriters of the Units. It is the Sponsors'
intention to effect a public distribution of the Units solely through their own
organizations. Units may, however, be sold to dealers who are members of the
National Association of Securities Dealers, Inc. at a discount. Such discount is
subject to change from time to time by the Agent for Sponsors. Sales will be
made only with respect to whole Units, and the Sponsors reserve the right to
reject, in whole or in part, any order for the purchase of Units. It is the
Sponsors' intention to continue to qualify Units of the Trust for sale where
such qualification is necessary. In maintaining a market for the Units (see
"Public Offering - Market for Units"), the Sponsors will realize profits or
sustain losses in the amount of any difference between the price at which they
buy Units and the price at which they resell such Units (the Public Offering
Price described in the currently effective Prospectus which includes the sales
charge set forth in Part I of this Prospectus under "Summary of Essential
Financial Information") or the price at which they may redeem such Units (based
on the aggregate bid side evaluation of the Securities), as the case may be, and
to the extent that they earn sales charges on resales.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge discussed above is
retained by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions, and banking regulators have not indicated
that these particular agency transactions are not permitted under such Act.
RIGHTS OF UNIT HOLDERS
CERTIFICATES
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsors. The Trustee is authorized to treat as the record owner
of Units that person who is registered as such owner on the books of the
Trustee. Certificates are transferable by presentation and surrender to the
Trustee properly endorsed and accompanied by a written instrument or instruments
of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in connection
with each such transfer or interchange. For new certificates issued to replace
destroyed, stolen or lost certificates, the Unit holder must furnish indemnity
satisfactory to the Trustee and must pay such expenses as the Trustee may incur.
Mutilated certificates must be surrendered to the Trustee for replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
While interest will be distributed semi-annually or monthly, depending on
the method of distribution chosen, principal, including capital gains, will be
distributed only semi-annually; provided, however, that, other than for purposes
of redemption, no distribution need be made from the Principal Account if the
balance therein is less than $1.00 per Unit then outstanding, and that, if at
any time the pro rata share represented by the Units of cash in the Principal
Account exceeds $10.00 as of a Monthly Record Date, the Trustee shall, on the
next succeeding Monthly Distribution Date, distribute the Unit holder's pro rata
share of the balance of the Principal Account. Interest (semi-annually or
monthly) and principal, including capital gains, if any (semi-annually),
received by the Trust will be distributed on each Distribution Date to Unit
holders of record of the Trust as of the preceding Record Date who are entitled
to such distributions at that time under the plan of distribution chosen. All
distributions will be net of applicable expenses and funds required for the
redemption of Units. See "Summary of Essential Financial Information" in Part I
of this Prospectus, "The Trust - Expenses and Charges" and "Rights of Unit
Holders -Redemption."
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The Trustee will credit to the Interest Account for the Trust all interest
received by the Trust, including that part of the proceeds of any disposition of
Securities which represents accrued interest. Other receipts of the Trust will
be credited to the Principal Account for the Trust. The pro rata share of the
Interest Account of the Trust and the pro rata share of cash in the Principal
Account of the Trust represented by each Unit thereof will be computed by the
Trustee each month as of the Record Date. See "Summary of Essential Financial
Information" in Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date and prior to
the next succeeding Distribution Date will be held in the Principal Account for
the Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as of
the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal Account if the
balance therein is less than an amount sufficient to distribute $1.00 per Unit
then outstanding, and, in the case of Series 69 and subsequent Series, no
monthly distribution need be made from the Principal Account if the balance
therein is less than $10.00 per Unit then outstanding.
The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the earlier
of the sale of such Units or the maturity, redemption or sale of Securities in
the Trust.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit holder
desires to change his plan of distribution, and the change will become effective
on May 16 of such year for the ensuing twelve months. For a discussion of
redemption of Units, see "Rights of Unit Holders - Redemption - Tender of
Units."
As of the fifteenth day of each month the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust as of the
first day of such month. See "The Trust - Expenses and Charges." The Trustee
also may withdraw from said accounts such amounts, if any, as it deems necessary
to establish a reserve for any governmental charges payable out of the Trust.
Amounts so withdrawn shall not be considered a part of the Trust's assets until
such time as the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units by the Trustee. See "Rights of Unit Holders - Redemption."
Funds which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to the Unit holders
and are available for use by the Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the monthly
payment plan. On each monthly Distribution Date, therefore, the amount of
interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit holders. There will always remain, therefore, an item of
accrued interest that is added to the value of the Units. If a Unit holder sells
all or a portion of his Units, he will be entitled to receive his proportionate
share of the accrued interest from the purchaser of his Units. Similarly, if a
Unit holder redeems all or a portion of his Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit Holders -
Redemption - Computation of Redemption Price per Unit."
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<PAGE>
REPORTS AND RECORDS
The Trustee shall furnish Unit holders in connection with each distribution
a statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. Within a reasonable time after the end of each calendar year, the
Trustee will furnish to each person who at any time during the calendar year was
a Unit holder of record a statement providing the following information: (1) as
to the Interest Account: interest received (including amounts representing
interest received upon any disposition of Securities and any earned original
issue discount), and, if the issuers of the Securities are located in different
states or territories, the percentage of such interest by such states or
territories, deductions for payment of applicable taxes and for fees and
expenses of the Trust, redemptions of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (2) as to the Principal Account: the
dates of disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest), deductions for payments of applicable taxes and for fees
and expenses of the Trust, redemptions of Units, the amount of any "when issued"
interest treated as a return of capital and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) a list of the Securities held and
the number of Units outstanding on the last business day of such calendar year;
(4) the Redemption Price per Unit based upon the last computation thereof made
during such calendar year; and (5) amounts actually distributed during such
calendar year from the Interest Account and from the Principal Account,
separately stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders at all
reasonable times during usual business hours books of record and account of its
transactions as Trustee, including records of the names and addresses of Unit
holders, certificates issued or held, a current list of Securities in the
portfolio and a copy of the Trust Agreement.
REDEMPTION
Tender of Units
While it is anticipated that Units can be sold in the secondary market,
Units may also be tendered to the Trustee for redemption at its corporate trust
office at 101 Barclay Street, New York, New York 10286, upon payment of any
applicable tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsors or
the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the Trustee and
must be properly endorsed and accompanied by a written instrument of transfer.
Thus, redemption of Units cannot be effected until certificates representing
such Units have been delivered to the person seeking redemption. See "Rights of
Unit Holders -Certificates." Unit holders must sign exactly as their names
appear on the face of the certificate with signature(s) guaranteed by an officer
of a national bank or trust company, a member firm of either the New York,
Midwest or Pacific Stock Exchange, or in such other manner as may be acceptable
to the Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority.
Within seven calendar days following such tender or, if the seventh
calendar day is not a business day, on the first business day prior thereto, the
Unit holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information" as of the next subsequent Evaluation Time. See "Redemption -
Computation of Redemption Price per Unit." The "date of tender" is deemed to be
the date on which Units are received by the Trustee, except that as regards
Units received after the Evaluation Time on the New York
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<PAGE>
Stock Exchange, the date of tender is the next day on which such Exchange is
open for trading or the next day on which there is a sufficient degree of
trading in Units of the Trust, and such Units will be deemed to have been
tendered to the Trustee on such day for redemption at the Redemption Price
computed on that day. For information relating to the purchase by the Sponsors
of Units tendered to the Trustee for redemption at prices in excess of the
Redemption Price, see "Redemption - Purchase by the Sponsors of Units Tendered
for Redemption."
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the size
and diversity of the Trust will be reduced.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule or
regulation) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods as
the Securities and Exchange Commission has by order permitted.
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined by the Trustee on the basis of
the bid prices of the Securities in the Trust, as of the Evaluation Time stated
under "Summary of Essential Financial Information" in Part I of this Prospectus
on the day any such determination is made. The Redemption Price per Unit is each
Unit's pro rata share, determined by the Trustee, of (1) the aggregate value of
the Securities in the Trust (determined by the Evaluator as set forth below),
(2) cash on hand in the Trust, and (3) accrued and unpaid interest on the
Securities as of the date of computation, less (a) amounts representing taxes or
governmental charges payable out of the Trust, (b) the accrued expenses of the
Trust, and (c) cash held for distribution to Unit holders of record as of a date
prior to the evaluation. The Evaluator may determine the value of the Securities
in the Trust (i) on the basis of current bid prices for the Securities, (ii) if
bid prices are not available for any Securities, on the basis of current bid
prices for comparable bonds, (iii) by appraisal, or (iv) by any combination of
the above.
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsors of any
tender of Units for redemption. So long as the Sponsors are maintaining a bid in
the secondary market, the Sponsors, prior to the close of business on the second
succeeding business day, will purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the Unit holder in
an amount not less than the Redemption Price on the date of tender not later
than the day on which the Units would otherwise have been redeemed by the
Trustee. See "Public Offering - Market for Units." Units held by the Sponsors
may be tendered to the Trustee for redemption as any other Units, provided that
the Sponsors shall not receive for Units purchased as set forth above a higher
price than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the Public
Offering Price determined in the manner provided in this Prospectus. See "Public
Offering - Offering Price." Any profit resulting from the resale of such Units
will belong to the Sponsors which likewise will bear any loss resulting from a
lower offering or redemption price subsequent to their acquisition of such
Units.
EXCHANGE OPTION
The Sponsors of the Series of Empire State Municipal Exempt Trust
(including the Series of Municipal Exempt Trust, the predecessor trust to Empire
State Municipal Exempt Trust) (the "Trust") are offering Unit holders
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<PAGE>
of those Series of the Trust for which the Sponsors are maintaining a secondary
market an option to exchange a Unit of any Series of the Trust for a Unit of a
different Series of the Trust being offered by the Sponsors (other than in the
initial offering period) at a Public Offering Price generally based on the bid
prices of the underlying Securities divided by the number of Units outstanding
(see "Public Offering - Market for Units") plus a fixed sales charge of $15 per
Unit (in lieu of the normal sales charge). A Unit holder must have held his Unit
for a period of at least six months, however, in order to exercise the exchange
option or agree to pay a sales charge based on the greater of $15 per Unit or an
amount which together with the initial sales charge paid in connection with the
acquisition of Units being exchanged equals the normal sales charge of the
Series into which the investment is being converted, determined as of the date
of the exchange. Such exchanges will be effected in whole Units only. Any excess
proceeds from the Units being surrendered will be returned, and the Unit holder
will not be permitted to advance any new money in order to complete an exchange.
The Sponsors reserve the right to modify, suspend or terminate this plan at any
time without further notice to the Unit holders. In the event that the exchange
option is not available to a Unit holder at the time he wishes to exercise it,
the Unit holder will be immediately notified and no action will be taken with
respect to his Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as high
a level of current income exempt from Federal income tax and New York State and
New York City income taxes as is believed to be consistent with preservation of
capital. It is the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The Bonds purchased by the Empire Builder will
be of "investment grade" quality--that is, at the time of purchase by the Empire
Builder, such bonds either will be rated not lower than the four highest ratings
of either Moody's Investors Service, Inc. (Aaa, Aa, A or Baa) or Standard &
Poor's Corporation (AAA, AA, A or BBB) or will be unrated bonds which at the
time of purchase are judged by the Empire Builder's investment advisor to be of
comparable quality to bonds rated within such four highest grades. It is a
fundamental policy of the Empire Builder that under normal market conditions at
least 90% of the income distributed to its shareholders will be exempt from
Federal income tax and New York State and New York City personal income taxes.
During times of adverse market conditions, however, when the Empire Builder is
investing for temporary defensive purposes in obligations other than New York
tax-exempt bonds, more than 10% of the Empire Builder's income distributions
could be subject to Federal income tax, New York State income tax and/or New
York City income tax, as described in the current prospectus relating to the
Empire Builder (the "Empire Builder Prospectus"). Glickenhaus & Co.
("Glickenhaus"), a sponsor of the Trust, acts as the investment advisor and
distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan Agent") a
copy of the Empire Builder Prospectus describing the Empire Builder and a form
by which such Unit holder may elect to become a participant ("Participant") in
the Plan. Thereafter, as directed by such person, distributions on the
Participant's Units will, on the applicable Distribution Date, automatically be
applied as of that date by the Trustee to purchase shares (or fractions thereof)
of the Empire Builder at a net asset value as computed as of the close of
trading on the New York Stock Exchange on such date, as described in the Empire
Builder Prospectus. Unless otherwise indicated, new Participants in the Empire
Builder Plan will be deemed to have elected the monthly distribution plan with
respect to their Units. Confirmations of all transactions undertaken for each
Participant in the Plan will be mailed to each such Participant by the Plan
Agent indicating distributions and shares (or fractions thereof) of the Empire
Builder purchased on his behalf. A Participant may at any time prior to 10 days
preceding the next succeeding distribution date, by so notifying the Plan Agent
in writing, elect to terminate his participation in the Plan and receive future
distributions on his Units in cash. There will be no charge or other penalty for
such termination. The Sponsors, the Trustee, the Empire Builder and Glickenhaus,
as investment advisor for Empire Builder each will have the right to terminate
this Plan at any time for any reason. The reinvestment of distributions from the
Trust through the Plan will not affect the income tax status of such
distributions. For more complete information about investing in the Empire
Builder through the Plan, including charges and expenses, request a copy of the
Empire Builder Prospectus from The Bank of New York, Unit Investment Trust
Division, P.O. Box 988, Wall Street Station, New York, New York 10268. Read it
carefully before you decide to participate.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State Municipal
Exempt Trust, Series 10 and all subsequent Series.
Glickenhaus, a New York limited partnership, is engaged in the underwriting
and securities brokerage business and in the investment advisory business. It is
a member of the New York Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. and is an associate member of the American Stock
Exchange. Glickenhaus acts as a sponsor for successive Series of The Municipal
Insured National Trusts and for the prior Glickenhaus acts as a sponsor for
successive Series of The Municipal Insured National Trusts and for the prior
Series of Empire State Municipal Exempt Trust (including those sold under the
name of Municipal Exempt Trust, New York Exempt Series 1, New York Series 2 and
New York Series 3). Glickenhaus, in addition to participating as a member of
various selling groups of other investment companies, executes orders on behalf
of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker or
dealer in securities. The principal offices of Glickenhaus are located at 6 East
43rd Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 60 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor for Empire State Tax Exempt Bond Trust, Series 8
and successive Series of The Municipal Insured National Trust through Series 28.
Lebenthal is registered as a broker/dealer with the Securities and Exchange
Commission and various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and Securities Investors
Protection Corp. The principal offices of Lebenthal are located at 25 Broadway,
New York, New York 10004.
LIMITATIONS ON LIABILITY
The Sponsors are jointly and severally liable for the performance of their
obligations arising from their responsibilities under the Trust Agreement, but
will be under no liability to the Unit holders for taking any action or
refraining from any action in good faith or for errors in judgment; nor will
they be responsible in any way for depreciation or loss incurred by reason of
the sale of any Bonds, except in cases of their willful misfeasance, bad faith,
gross negligence or reckless disregard for their obligations and duties. See
"The Trust - Portfolio" and "Sponsors - Responsibility."
RESPONSIBILITY
The Sponsors may direct the Trustee to dispose of Securities when certain
conditions exist with respect thereto that, in the opinion of the Sponsors, may
be detrimental to the interests of the Unit holders, including default in
payment of interest or principal, default in payment of interest or principal on
other obligations of the same issuer, institution of certain legal proceedings,
default under other documents adversely affecting debt service, decline in
projected income pledged for debt service on revenue bond issues, decline in
price or the occurrence of other market or credit factors and advance refunding
(i.e., the issuance of refunding bonds and the deposit of the proceeds thereof
in trust or escrow to retire the refunded bonds on their respective redemption
dates).
It is the responsibility of the Sponsors to instruct the Trustee to reject
any offer made by an issuer of any of the Securities to issue new obligations in
exchange and substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsors
may deem proper if the issuer is in default with respect to such Securities or
in the judgment of the Sponsors the issuer will probably default with respect to
such Securities in the foreseeable future.
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<PAGE>
Any obligations so received in exchange or substitution will be held by the
Trustee subject to the terms and conditions of the Trust Agreement to the same
extent as Securities originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Securities,
the Trustee is required to give notice thereof to each Unit holder, identifying
the obligations eliminated and the Securities substituted therefor. Except as
stated in this and the preceding paragraph, the acquisition by the Trust of any
securities other than the Securities initially deposited is prohibited.
AGENT FOR SPONSORS
The Sponsor named as Agent for Sponsors under "Summary of Essential
Information" in Part I of this Prospectus has been appointed by the other
Sponsor as agent for purposes of taking action under the Trust Agreement. In
those Trusts for which there is a sole Sponsor, references herein to the Agent
for Sponsors shall be deemed to refer to such sole Sponsor. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsor acts as the Sponsors.
RESIGNATION
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation, a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under the Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
FINANCIAL INFORMATION
At September 30, 1992, the total partners' capital of Glickenhaus was
$101,324,000 (audited); and at March 31, 1993, the total stockholders' equity of
Lebenthal was $5,420,701 (audited).
THE FOREGOING INFORMATION WITH REGARD TO THE SPONSORS RELATES TO THE
SPONSORS ONLY, AND NOT TO ANY SERIES OF EMPIRE STATE MUNICIPAL EXEMPT TRUST.
SUCH INFORMATION IS INCLUDED IN THIS PROSPECTUS ONLY FOR THE PURPOSE OF
INFORMING INVESTORS AS TO THE FINANCIAL RESPONSIBILITY OF THE SPONSORS AND THEIR
ABILITY TO CARRY OUT THEIR CONTRACTUAL OBLIGATIONS SHOWS HEREIN. MORE
COMPREHENSIVE FINANCIAL INFORMATION CAN BE OBTAINED UPON REQUEST FROM ANY
SPONSOR.
TRUSTEE
The Trustee is The Bank of New York, a trust company organized under the
laws of New York, having its offices at 101 Barclay Street, New York, New York
10286, (212) 815-2000. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a corporation organized under the laws of the United States or
the State of New York, which is authorized under such laws to exercise corporate
trust powers, and must have at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000 and its principal office and place
of business in the Borough of Manhattan, New York City. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of any Series of the Trust.
33
<PAGE>
LIMITATIONS ON LIABILITY
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of its
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations and duties. In addition, the Trustee shall not be personally liable
for any taxes or other governmental charges imposed upon or in respect of the
Trust which the Trustee may be required to pay under current or future law of
the United States or any other taxing authority having jurisdiction. See "The
Trust - Portfolio."
RESPONSIBILITY
For information relating to the responsibilities of the Trustee under the
Trust Agreement, reference is made to the material set forth under "Rights of
Unit Holders," "Sponsors - Responsibility" and "Sponsors - Resignation."
RESIGNATION
By executing an instrument in writing, filing the same with the Sponsors
and mailing a copy to each Unit holder, the Trustee and any successor may
resign. In such an event the Sponsors are obligated to appoint a successor
trustee as soon as possible. If the Trustee becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public authorities or, in the
case of Series 69 and subsequent Series, if the Sponsors deem it to be in the
best interest of the Unit holders, the Sponsors may remove the Trustee and
appoint a successor as provided in the Trust Agreement. Such resignation or
removal shall become effective upon the acceptance of appointment by the
successor trustee. If, upon resignation or removal of a trustee, no successor
has been appointed and has accepted the appointment within thirty days after
notification, the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation or removal of a
trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee. Notice of such removal and appointment shall be mailed to
each Unit holder by the Sponsors. Upon execution of a written acceptance of such
appointment by such successor Trustee, all of the rights, powers, duties and
obligations of the original Trustee shall vest in the successor.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York corporation, with main
offices at 395 Hudson Street, New York, New York 10014. Muller Data Corporation
is a wholly owned subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
LIMITATIONS ON LIABILITY
The Trustee and the Sponsors may rely on any evaluation furnished by the
Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided, however,
that the Evaluator shall be under no liability to the Trustee, the Sponsors or
the Unit holders for errors in judgment. This provision shall not protect the
Evaluator in cases of its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties.
RESPONSIBILITY
The Trust Agreement requires the Evaluator to evaluate the Securities on
the basis of their bid prices on the last business day of June and December in
each year in the case of Series 10 through 24, and on each business day after
the initial offering period in the case of Series 25 and subsequent Series, and
also, as to all Series, when
34
<PAGE>
any Unit is tendered for redemption and on any other day such evaluation is
desired by the Trustee or is requested by the Sponsors. For information relating
to the responsibility of the Evaluator to evaluate the Securities on the basis
of their offering prices, see "Public Offering - Offering Price."
RESIGNATION
The Evaluator may resign or may be removed by the Sponsors and the Trustee,
and the Sponsors and the Trustee are to use their best efforts to appoint a
satisfactory successor. Such resignation or removal shall become effective upon
the acceptance of appointment by the successor evaluator. If upon resignation of
the Evaluator no successor has accepted appointment within thirty days after
notice of resignation, the Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of certificates
evidencing 66-2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in a Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In no
event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities either
in addition to or in substitution for any of the Bonds initially deposited in
the Trust, except in accordance with the provisions of the Trust Agreement. In
the event of any amendment, the Trustee is obligated to notify promptly all Unit
holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. In the case of
Series 10 through 68, the Trust may be terminated at any time by the consent of
66-2/3% of the Unit holders or by the Trustee when the value of the Trust as
shown on the last business day of December or June in any year is less than the
minimum Trust value stated in Part I of this Prospectus under "Summary of
Essential Financial Information," and the Trust will be terminated if its value
on any such date is less than $1,000,000. In the case of Series 69 and
subsequent Series, the Trustee shall notify all Unit holders of the Trust when
the value of the Trust as shown on the last business day of December or June in
any year is less than $2,000,000 or less than 20% of the value of the Trust as
of the Date of Deposit, whichever is lower, at which time the Trust may be
terminated (i) by the consent of the holders of 66-2/3% of the Units or (ii) by
the Trustee; provided, however, that the holders of at least 33-1/3% of the
Units may instruct the Trustee not to terminate the Trust. In no event, however,
may the Trust continue beyond the Mandatory Termination Date set forth in Part I
of this Prospectus under "Summary of Essential Financial Information." In the
event of termination, written notice thereof will be sent by the Trustee to all
Unit holders. Within a reasonable period after termination, the Trustee will
sell any remaining Securities and, after paying all expenses and charges
incurred by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
35
<PAGE>
LEGAL OPINIONS
Certain legal matters have been passed upon by Hall, McNicol, Hamilton &
Clark, The News Building, 220 East 42nd Street, New York, New York 10017, as
counsel for the Sponsors as to the MET Series and Series 10 through 68 of Empire
State Municipal Exempt Trust, and by Brown & Wood, One World Trade Center, New
York, New York 10048, as special counsel for the Sponsors as to Series 69 and
subsequent Series of Empire State Municipal Exempt Trust. Tanner, Propp, Fersko
& Sterner, 99 Park Avenue, New York, New York 10016, acts as counsel for the
Trustee.
AUDITORS
The financial statements of the Trust included in Part I of this Prospectus
have been audited by BDO Seidman, independent certified public accountants, as
stated in their report with respect thereto, and are included therein in
reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
DESCRIPTION OF BOND RATINGS
All ratings except those identified by an asterisk (*) are by Standard &
Poor's Corporation ("Standard & Poor's"). A Standard & Poor's corporate or
municipal bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A: Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
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<PAGE>
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default upon failure
of, such completion. Accordingly, the investor should exercise his own
judgment with respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
* Moody's Investors Service, Inc. ("Moody's") rating. A summary of the meaning
of the applicable rating symbols as published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large or
by an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
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<PAGE>
Baa: Bonds which are rated "Baa" are considered as medium grade
obligations; i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of time may
be small.
Con.(...): Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These bonds are secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers "1," "2" and "3" in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the security ranks in the lower end of its generic
rating category.
38
<PAGE>
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
PROSPECTUS, PART II
SPONSORS:
GLICKENHAUS & CO.
6 EAST 43RD STREET
NEW YORK, NEW YORK 10017
(212) 953-7532
LEBENTHAL & CO., INC.
25 BROADWAY
NEW YORK, NEW YORK 10004
(212) 425-6116
THIS PROSPECTUS CONTAINS INFORMATION CONCERNING THE TRUST AND THE SPONSORS, BUT
DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENTS
AND EXHIBITS RELATING THERETO, WHICH THE TRUST HAS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WASHINGTON, D.C., UNDER THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, AND TO WHICH REFERENCE IS HEREBY MADE.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Trust....................... 1
Public Offering................. 24
Rights of Unit Holders.......... 26
Automatic Accumulation Account.. 31
Sponsors........................ 32
Trustee......................... 33
Evaluator....................... 34
Amendment and Termination
of the Trust Agreement......... 35
Legal Opinions.................. 36
Auditors........................ 36
Description of Bond Ratings..... 36
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE SPONSORS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, SECURITIES IN ANY STATE TO ANY PERSON TO WHOM
IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE.
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
Contents of Registration Statement
This Post-Effective Amendment to the Registration Statement on Form S-6
comprises the following papers and documents:
(i) The facing sheet of Form S-6.
The Cross-Reference Sheet (previously filed).
The Prospectus.
Signatures.
(ii) Written consent of the following persons:
Hall, McNicol, Hamilton, Clark & Murray (previously filed).
BDO Seidman.
(iii) The following exhibits:
*4.8-Consent of Muller Data Corporation, as Evaluator.
6.1-Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 5.2(a) to Amendment No. 1 to the
Form S-6 Registration Statement No. 33-78036 of MINT Group 11 on May
3, 1994, and filed as Exhibit 6.1 to Amendment No. 1 to Form S-6
Registration Statement No. 33-58492 of Empire State Municipal Exempt
Trust, Guaranteed Series 95 on May 12, 1993 and incorporated herein by
reference).
6.2-Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 6.2 to Amendment
No. 1 to Form S-6 Registration Statement No. 33-40723 of Empire State
Municipal Exempt Trust, Guaranteed Series 77 on August 15, 1991; as
Exhibit 6.2 to Amendment No. 1 to Form S-6 Registration Statement No.
33-37744 of Empire State Municipal Exempt Trust, Guaranteed Series 67
on January 4, 1991, and as Exhibit 5.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-26577 of Empire State Municipal Exempt
Trust, Guaranteed Series 46 on April 19, 1989, and incorporated herein
by reference).
___________________
* Filed herewith.
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Empire Estate Municipal Exempt Trust, Series 16, certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to the Registration Statement
to be signed on its behalf by the undersigned thereto duly authorized, in the
City of New York and State of New York on the 29th day of July, 1994.
Signature appear on pages II-3 and II-4
A majority of the General Partners of Glickenhaus & Co. have signed this
Post-Effective Amendment to the Registration Statement pursuant to powers of
attorney on file with the Commission authorizing the person signing this Post-
Effective Amendment to the Registration Statement to do so on behalf of such
persons.
A majority of the Board of Directors of Lebenthal & Co., Inc. have signed
this Post-Effective Amendment to the Registration Statement pursuant to powers
of attorney on file with the Commission authorizing the person signing this
Post-Effective Amendment to the Registration Statement to do so on behalf of
such persons.
II-2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
By: GLICKENHAUS & CO.
(Sponsor)
By: /s/ Brian C. Laux
(Brian C. Laux, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 13 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
ROBERT SANTORO* General Partner
(Robert Santoro)
ALFRED FEINMAN* General Partner
(Alfred Feinman)
SETH M. GLICKENHAUS* General Partner
(Seth M. Glickenhaus)
STEVEN B. GREEN* General Partner
(Steven B. Green) Chief Financial Officer
ARTHUR WINSTON* General Partner
(Arthur Winston)
JEFFREY L. LEDERER* General Partner
(Jeffrey L. Lederer)
*By: /s/ Brian C. Laux July 29, 1994
(Brian C. Laux,
Attorney-in-Fact)
II-3
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 16
By: LEBENTHAL & CO., INC.
(Sponsor)
By: /s/ James A. Lebenthal
(James A. Lebenthal,
Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 13 to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
H. GERARD BISSINGER, II* Director
(H. Gerard Bissinger, II)
JEFFREY M. JAMES* Director
(Jeffrey M. James)
D. WARREN KAUFMAN* Director
(D. Warren Kaufman)
JAMES E. McGRATH* Chief Financial
(James B. McGrath) Officer
/s/ JAMES A. LEBENTHAL Director, Chief July 29, 1994
(James. A. Lebenthal) Executive Officer
SAYRA FISCHER LEBENTHAL* Director
(Sayre Fischer Lebenthal)
DUNCAN K. SMITH* Director
(Duncan K. Smith)
PETER J. SWEETSER* Director
(Peter J. Sweetser)
*By: /s/ James A Lebenthal July 29, 1994
(James A. Lebenthal,
Attorney-in-Fact)
II-4
<PAGE>
CONSENT OF COUNSEL
The consent of Hall, McNicol, Hamilton, Clark & Murray to the use of their
name in the Prospectus included in the Registration Statement is contained in
their opinion filed previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 16
We hereby consent to the use in Post-Effective Amendment No. 13 to
Registration Statement No. 2-65778 of our report dated April 29, 1994 relating
to the financial statements of Empire State Municipal Exempt Trust, Series 16,
and to the references to our firm under the heading "Auditors" in the Prospectus
which is part of such Registration Statement.
/s/ BDO Seidman
BDO SEIDMAN
Woodbridge, New Jersey
July 29, 1994
II-5
<PAGE>
EXHIBIT 99.4.8
Muller Data Corporation
A Thomson Financial Services Company
July 7, 1994
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10006
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 15, 16, 17, 18, AND 19 -- AMENDMENT NO. 13
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement
File No. 2-67024 for the above-captioned trusts. We hereby acknowledge
that Muller Data Corporation is currently acting as the evaluator for the
trusts. We hereby consent to the use in the Amendment of the reference to
Muller Data Corporation as evaluator.
In addition, we hereby confirm that the ratings indicated in the above
referenced Amendment to the Registration Statement for the respective bonds
comprising the trust portfolios are the ratings currently indicated in our
Muniview data base.
You are hereby authorized to file a copy of this letter with the Securities
and Exchange Commission.
Sincerely,
/s/ Neil Edelstein
------------------
Neil Edelstein
Executive Vice President
NE>tg
395 Hudson Street - New York - NY 10014-3622 - Telephone (212) 807-3800
