As filed with the Securities and Exchange Commission on January 31, 1994
Registration No. 33-813*
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7
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 70
and Empire State Municipal Exempt Trust,
Guaranteed Series 22
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:
PAUL GROENWEGEN, ESQ.
HODGSON, RUSS, ANDREWS, WOODS & GOODYEAR
Three City Square
Albany, New York 12207
---- Check box if it is proposed that this filing will become effective
| X | immediately upon filing pursuant to paragraph (b) of Rule 485.
----
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 under
the Securities Act of 1933. Said Prospectus relates to Units of
Empire State Municipal Exempt Trust, Series 70 and Empire State
Municipal Exempt Trust, Guaranteed Series 22 covered by prospectuses
heretofore filed as part of separate registration statements on Form
S-6 (Registration Nos. 33-493 and 33-813, respectively) under the
Act.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 70
Prospectus, Part I 5,747 Units Dated: January 31, 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 October 29, 1993 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 September 30, 1993.
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 70
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 29, 1993
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 3,925,000
Number of Units: 5,747
Fractional Undivided Interest in the Trust Per Unit: 1/5,747
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $4,266,250.74
=============
Sponsors' Repurchase Price Per Unit: $ 742.34
Plus Sales Charge(1): 20.09
-------------
Public Offering Price Per Unit(2): $ 762.43
=============
Redemption Price Per Unit(3): $ 742.34
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 20.09
Weighted Average Maturity of Bonds in the Trust: 14.764 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: Maximum of $.25 per $1,000 face amount of
underlying Securities.
Date of Deposit: January 28, 1986
Date of Trust Agreement: January 28, 1986
Mandatory Termination Date: December 31, 2035
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $1,200,000
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 70
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 29, 1993
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $ 57.53 $ 57.53
Less Estimated Annual Expenses 2.13 1.59
E ------- -------
Estimated Net Annual Interest Income: $ 55.40 $ 55.94
R ======= =======
Estimated Interest Distribution: $ 4.61 $ 27.97
U Estimated Current Return Based on Public
Offering Price (4): 7.27% 7.34%
N
Estimated Long-Term Return Based
I on Public Offering Price (5): 4.60% 4.67%
T Estimated Daily Rate of Net Interest
Accrual: $.15388 $.15538
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
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 November 5, 1993, the expected date of
settlement, of $11.53 monthly and $35.27 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 September 30, 1993, the bid side valuation of 10.5% of the
aggregate principal amount of Bonds in the Portfolio for this Trust
was at a discount from par and 89.5% 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. 6.2% of the
aggregate principal amount of the Bonds in the Portfolio are general
obligations of the governmental entities issuing them and are backed
by the taxing power thereof. 93.8% 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:
General Obligation, 1 (6.2%); Revenue: Housing, 3 (8.3%); Higher
Education, 2 (24.1%); Health Care, 1 (23.7%); Industrial
Development, 2 (35.2%); and Other, 1 (2.5%). The Trust is deemed to
be concentrated in the Industrial Development Bonds category.1 One
issue, constituting 1.2% of the Bonds in the Portfolio, is an
original issue discount bond and a zero coupon bond. On
September 30, 1993, 3 issues (47.8%) were rated AAA, 1 issue (2.5%)
was rated AA, 1 issue (3.0%) was rated A and 1 issue (6.2%) was
rated A- by Standard & Poor's Corporation; 2 issues (5.4%) were
rated Aa, 1 issue (19.6%) was rated Aa2 and 1 issue (15.5%) was
rated Baa2 by Moody's Investors Service, Inc.2 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, Brown, Wood, Ivey, Mitchell & Petty
issued an opinion as to the tax status of the Trust, as special
counsel for the Sponsors as sponsors for Empire State Municipal
Exempt Trusts (referred to in such opinion as the "Fund") including
Empire State Municipal Exempt Trust, Series 70 (the "Uninsured
Trust") and Empire State Municipal Exempt Trust, Guaranteed Series
22 (the "Insured Trust"). In part, the opinion stated:
The Fund and each Trust are not associations taxable as
corporations for Federal income tax purposes, and interest on
the Bonds which is exempt from Federal income tax under the
Internal Revenue Code of 1954, as amended, ("Code") when
received by a Trust will be excludible from the Federal gross
income of the Unit holders of such Trust. Any proceeds paid
under the insurance policy described in the Prospectus, issued
to the Insured Trust with respect to the Bonds and any
proceeds paid under individual policies obtained by issuers of
Bonds or other parties which represent maturing interest on
defaulted obligations held by the Trustee will be excludible
from Federal gross income if, and to the same extent as, such
interest would have been so excludible if paid in the normal
course by the issuer of the defaulted obligations.
Each Unit holder will be considered the owner of a pro rata
portion of the Bonds and any other assets held in the related
Trust under the grantor trust rules of Sections 671-679 of the
Code. Each Unit holder will be considered to have received
his pro rata share of income from Bonds held by the related
Trust on receipt (or earlier accrual, depending on the Unit
holder's method of accounting) by such Trust, and each Unit
holder will have a taxable event when an underlying Bond is
disposed of (whether by sale, redemption, or payment at
maturity) or when the Unit holder redeems or sells his Units.
The total tax basis (i.e., cost) of each Unit to a Unit holder
is allocated among each of the Bonds held in the related Trust
(in accordance with the proportion of such Trust comprised by
each such Bond) in order to determine his per Unit tax basis
for each Bond, and the tax basis reduction requirements of the
Code relating to amortization of bond premium will apply
separately to the per Unit tax basis of each such Bond.
Therefore, under some circumstances, a Unit holder may realize
taxable gain when his Units are sold or redeemed for an amount
equal to his original cost. No deduction is allowed for the
amortization of bond premium on tax-exempt bonds such as the
Bonds. The entire amount of net income other than capital
gains distributed by a Trust to Unit holders during the first
year will represent interest which in the opinion of bond
counsel is tax-exempt.
For Federal income tax purposes, when a Bond is sold a Unit
holder may exclude from his share of the amount received any
amount that represents accrued interest but may not exclude
amounts attributable to market discount. Thus, when a Bond is
sold by a Trust, taxable gain or loss will equal the
difference between (i) the amount received (excluding the
portion representing accrued interest) and (ii) the adjusted
basis (including any accrued original issue discount). A Unit
holder may also realize taxable gain or loss when a Unit is
sold or redeemed. Taxable gain will result if a Unit is sold
or redeemed for an amount greater than its adjusted basis to
the Unit holder. The amount received when a Unit is sold or
redeemed is allocated among all the Bonds in the related Trust
in the same manner as when such Trust disposes of Bonds, and
the Unit holder may exclude accrued interest but not amounts
attributable to market discount. The return of a Unit
holder's tax basis is otherwise a tax-free return of capital.
If either Trust purchases any units of a previously-issued
series then, based on the opinion of counsel with respect to
such series, such Trust's pro rata ownership interest in the
bonds (or any previously-issued series) of such series will be
treated as though it were owned directly by that Trust. A
Unit holder, however, will be considered to have received
income or gain with respect to bonds in such previously-issued
series on receipt (or earlier accrual, depending on the Unit
holder's method of accounting) by the previously-issued
series.
Under the income tax laws of the State and City of New York,
the Fund and each Trust are not associations taxable as
corporations and the income of either Trust will be treated as
the income of the Unit holders thereof.
A Unit holder who is a non-resident of New York will not be
subject to New York State or City income tax on any interest
or gain derived from his interest in either Trust's assets or
upon any gain from the sale of his Units except to the extent
that such interest or gain is from property employed in a
business, trade, profession or occupation carried on by him in
the State of New York. An individual Unit holder who resides
in New York State or City will not be subject to State or City
tax on interest income derived from the Bonds held in either
Trust (except in certain limited circumstances), although he
will be subject to New York State and, depending upon his
place of residence, City tax with respect to any gains
realized when Bonds are sold, redeemed or paid at maturity or
when any such Units are sold or redeemed. In addition, an
individual Unit holder residing in New York State or City will
not be subject to State or City income tax on any proceeds
paid under the insurance policy or policies described above
with respect to the Insured Trust which represent maturing
interest on defaulted obligations held by the Trustee if, and
to the same extent as, such interest would have been so
excludible if paid by the issuer of the defaulted obligations.
A New York State or City resident should determine his basis
and holding period for his Units for New York State and City
purposes in the same manner as for Federal purposes.
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State
Municipal Exempt Trust, Series 70:
We have audited the accompanying statement of net assets of
Empire State Municipal Exempt Trust, Series 70, including
the bond portfolio, as of September 30, 1993, and the
related statements of operations and changes in net assets
for the years ended September 30, 1993 and 1992. 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 September 30, 1993,
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 70
as of September 30, 1993, and the results of its operations
and changes in net assets for the years ended September 30,
1993 and 1992, in conformity with generally accepted
accounting principles.
BDO Seidman
Woodbridge, New Jersey
October 29, 1993
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1993
ASSETS:
CASH $ 19 222
INVESTMENTS IN SECURITIES, at market value
(cost $4,066,480) 4 381 535
ACCRUED INTEREST RECEIVABLE
104 457
----------
Total trust property 4 505 214
LESS - ACCRUED EXPENSES
1 327
----------
NET ASSETS $4 503 887
==========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS $2 307 853 $2 068 007 $4 375 860
UNDISTRIBUTED NET INVESTMENT
INCOME 46 949 81 078 128 027
---------- ---------- ----------
Total value $2 354 802 $2 149 085 $4 503 887
========== ========== ==========
UNITS OUTSTANDING 3 031 2 716 5 747
========== ========== ==========
VALUE PER UNIT $ 776.91 $ 791.27
========== ==========
See accompanying notes to financial statements.
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
STATEMENTS OF OPERATIONS
Year ended
September 30,
--------------------------------
1993 1992
INVESTMENT INCOME - INTEREST $340 003 $343 430
-------- --------
EXPENSES:
Trustee fees 5 417 5 560
Evaluation fees 1 559 1 616
Sponsors' advisory fees 1 002 1 015
Auditors' fees 1 800 1 800
-------- --------
Total expenses 9 778 9 991
-------- --------
NET INVESTMENT INCOME 330 225 333 439
REALIZED GAIN (LOSS) ON SECURITIES
SOLD OR REDEEMED (Note 3) (1 125) 350
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (39 213) 140 214
-------- --------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $289 887 $474 003
======== ========
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
STATEMENTS OF CHANGES IN NET ASSETS
Year ended
September 30,
--------------------------------
1993 1992
OPERATIONS:
Net investment income $ 330 225 $ 333 439
Realized gain (loss) on securities
sold or redeemed (1 125) 350
Net change in unrealized market
appreciation (depreciation) (39 213) 140 214
---------- ----------
Net increase in net assets
resulting from operations 289 887 474 003
---------- ----------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income (331 812) (337 837)
Principal (44 998) (25 153)
---------- ----------
Total distributions (376 810) (362 990)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 22 and -0- units (16 777) -
---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS (103 700) 111 013
NET ASSETS:
Beginning of year 4 607 587 4 496 574
---------- ----------
End of year $4 503 887 $4 607 587
========== ==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan $57.11 $57.53
Semi-annual plan $57.85 $59.76
Principal:
Monthly plan $ 7.80 $ 4.36
Semi-annual plan $ 7.80 $ 4.36
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
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 December 1992 and
June 1993.
NOTE 3 - BONDS SOLD OR REDEEMED
Port- Realized
folio Principal Date Net Gain
No. Amount Redeemed Description Proceeds Cost (Loss)
Year ended September 30, 1993:
3 $ 15 000 10/1/92 State of New York $ 15 000 $ 15 525 ($525)
Mortgage Agency,
Mortgage Revenue
Bonds, Seventh
Series
3 30 000 4/1/93 State of New York 30 000 31 050 (1 050)
Mortgage Agency,
Mortgage Revenue
Bonds, Seventh
Series
5 10 000 7/21/93 New York State 11 100 10 650 450
Housing Finance
Agency, State
University
Construction
Bonds, 1985
Series A
------- ------- ------- -------
$55 000 $56 100 $57 225 ($1 125)
======= ======= ======= =======
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
NOTES TO FINANCIAL STATEMENTS
(Concluded)
NOTE 4 - NET ASSETS
Cost of 6,000 units at Date of Deposit $6 099 915
Less gross underwriting commission 298 860
----------
Net cost - initial offering price 5 801 055
Realized net loss on securities sold or redeemed (18 791)
Principal distributions (1 503 690)
Redemption of 253 units (217 769)
Unrealized market appreciation of securities 315 055
Undistributed net investment income 128 027
----------
Net assets $4 503 887
==========
-11-
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $ 950 000 New York State 8.875% 01/15/26 No Sinking Fund $ 1 010 562 $ 1 080 340 $ 84 313
Medical Care 01/15/96 @ 102 Opt.
Facilities Finance
Agency, Insured
Hospital Mortgage
Revenue Bonds,
1985 Series C
(Mount Sinai
Hospital)
2 Aa2* 785 000 New York State 9.000 08/15/20 No Sinking Fund 840 343 878 847 70 650
Energy Research 08/15/95 @ 102 Opt.
and Development
Authority, Electric
Facilities Revenue
Bonds, Series
1985 A
(Consolidated
Edison Company
of New York,
Inc. Project)
3 Aa* 165 000 State of New York 8.625 04/01/11 04/01/05 @ 100 S.F. 170 775 174 393 14 231
Mortgage Agency, 10/01/95 @ 102 Opt.
Mortgage Revenue
Bonds, Seventh
Series
4 Aa* 50 000 State of New York 0.000 04/01/17 04/01/15 @ 100 S.F. 2 750 6 151 -
Mortgage Agency, No Optional Call
Mortgage Revenue
Bonds, Seventh
Series
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
(Continued)
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
5 AAA $ 490 000 New York State 8.875% 05/01/17 05/01/06 @ 100 S.F. $ 521 850 $ 554 925 $ 43 487
Housing Finance 11/01/95 @ 102 Opt.
Agency, State
University
Construction Bonds,
1985 Series A
6 AAA 475 000 New York State 8.875 05/01/12 05/01/06 @ 100 S.F. 505 875 537 938 42 156
Housing Finance 11/01/95 @ 102 Opt.
Agency, State
University
Construction
Refunding Bonds,
1985 Series A
7 A 120 000 New York City 6.500 05/01/22 05/01/07 @ 100 S.F. 97 200 119 992 7 800
Housing Development 11/01/93 @ 102 Opt.
Corporation (A
Corporate
Governmental Agency
of The State of New
York) General
Housing Bonds,
Series A
8 Baa2* 625 000 New York State 8.875 11/01/25 No Sinking Fund 662 500 685 525 55 469
Energy Research 11/01/95 @ 102 Opt.
and Development
Authority, Pollution
Control Revenue
Bonds (Niagara
Mohawk Power
Corporation
Project), Series I
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 70
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
(Continued)
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
9 AA $ 100 000 Battery Park City 6.375% 11/01/14 11/01/96 @ 100 S.F. $ 81 500 $ 101 042 $ 6 375
Authority (A 11/01/93 @ 101 Opt.
Public Benefit
Corporation of
The State of New
York), Series A
Bonds
10 A- 250 000 New York City, 5.400 04/01/13 No Sinking Fund 173 125 242 382 13 500
General Obligation 04/01/94 @ 100 Opt.
Bonds
---------- ---------- ---------- --------
$4 010 000 $4 066 480 $4 381 535 $337 981
========== ========== ========== ========
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.
-14-
</TABLE>
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
Prospectus, Part I 24,356 Units Dated: January 31, 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 October 29, 1993 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 September 30, 1993. The second part of this
Prospectus contains a general summary of the Trust and "Special
Factors Affecting New York."
In the opinion of special 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, insured 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." Insurance guaranteeing the payment of principal and
interest on the Securities while in the Trust has been obtained by the
Trust from the Insurer as set forth in Part II under "The Trust --
Insurance on the Bonds." Such insurance does not guarantee the market
value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent
upon the continuing ability of the issuers of the Bonds and any other
insurer to meet their obligations. As a result of the insurance on the
Bonds, the Units are rated "AAA" by Standard & Poor's Corporation.
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, GUARANTEED SERIES 22
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1993
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 18,710,000
Number of Units: 24,356
Fractional Undivided Interest in the Trust Per Unit: 1/24,356
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $21,946,952.51
==============
Sponsors' Repurchase Price Per Unit: $ 901.09
Plus Sales Charge(1): 21.33
--------------
Public Offering Price Per Unit(2): $ 922.42
==============
Redemption Price Per Unit(3): $ 901.09
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 21.33
Weighted Average Maturity of Bonds in the Trust: 15.000 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.
Annual Insurance Premium: $38,879
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: Maximum of $.25 per $1,000 face amount of
underlying Securities.
Date of Deposit: January 28, 1986
Date of Trust Agreement: January 28, 1986
Mandatory Termination Date: December 31, 2035
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 22
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 30, 1993
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $ 67.29 $ 67.29
Less Annual Premium on Portfolio Insurance 1.60 1.60
E Less Estimated Annual Expenses 1.75 1.14
------- -------
R Estimated Net Annual Interest Income: $ 63.94 $ 64.55
======= =======
U Estimated Interest Distribution: $ 5.33 $ 32.28
N Estimated Current Return Based on Public
Offering Price (4): 6.93% 7.00%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 3.29% 3.36%
Estimated Daily Rate of Net Interest
Accrual: $.17761 $.17931
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
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 November 5, 1993, the expected date of
settlement, of $15.99 monthly and $44.58 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 September 30, 1993, the bid side valuation of 0.5% of the
aggregate principal amount of Bonds in the Portfolio for this Trust
was at a discount from par and 99.5% 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 13 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:
Housing, 4 (14.4%); Higher Education, 2 (16.2%); Health Care, 3
(49.2%); Public Power, 2 (5.0%); Industrial Development, 1 (10.8%);
and Municipal Assistance Corporation, 1 (4.4%). The Trust is deemed
to be concentrated in the Health Care Bonds category.1 Three
issues, constituting 5.5% of the Bonds in the Portfolio, are
original issue discount bonds, of which 1 is a zero coupon bond. On
September 30, 1993, 5 issues (42.1%) were rated AAA and 2 issues
(11.5%) were rated AA by Standard & Poor's Corporation; 1 issue
(10.8%) was rated Aa2 and 5 issues (35.6%) were rated Aa by Moody's
Investors Service, Inc.2 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, Brown, Wood, Ivey, Mitchell & Petty
issued an opinion as to the tax status of the Trust, as special
counsel for the Sponsors as sponsors for Empire State Municipal
Exempt Trusts (referred to in such opinion as the "Fund") including
Empire State Municipal Exempt Trust, Series 70 (the "Uninsured
Trust") and Empire State Municipal Exempt Trust, Guaranteed Series
22 (the "Insured Trust"). In part, the opinion stated:
The Fund and each Trust are not associations taxable as
corporations for Federal income tax purposes, and interest on
the Bonds which is exempt from Federal income tax under the
Internal Revenue Code of 1954, as amended, ("Code") when
received by a Trust will be excludible from the Federal gross
income of the Unit holders of such Trust. Any proceeds paid
under the insurance policy described in the Prospectus, issued
to the Insured Trust with respect to the Bonds and any
proceeds paid under individual policies obtained by issuers of
Bonds or other parties which represent maturing interest on
defaulted obligations held by the Trustee will be excludible
from Federal gross income if, and to the same extent as, such
interest would have been so excludible if paid in the normal
course by the issuer of the defaulted obligations.
Each Unit holder will be considered the owner of a
pro rata portion of the Bonds and any other assets held in
the related Trust under the grantor trust rules of
Sections 671-679 of the Code. Each Unit holder will be
considered to have received his pro rata share of income
from Bonds held by the related Trust on receipt (or
earlier accrual, depending on the Unit holder's method of
accounting) by such Trust, and each Unit holder will have
a taxable event when an underlying Bond is disposed of
(whether by sale, redemption, or payment at maturity) or
when the Unit holder redeems or sells his Units. The
total tax basis (i.e., cost) of each Unit to a Unit holder
is allocated among each of the Bonds held in the related
Trust (in accordance with the proportion of such Trust
comprised by each such Bond) in order to determine his per
Unit tax basis for each Bond, and the tax basis reduction
requirements of the Code relating to amortization of bond
premium will apply separately to the per Unit tax basis of
each such Bond. Therefore, under some circumstances, a
Unit holder may realize taxable gain when his Units are
sold or redeemed for an amount equal to his original cost.
No deduction is allowed for the amortization of bond
premium on tax-exempt bonds such as the Bonds. The entire
amount of net income other than capital gains distributed
by a Trust to Unit holders during the first year will
represent interest which in the opinion of bond counsel is
tax-exempt.
For Federal income tax purposes, when a Bond is
sold a Unit holder may exclude from his share of the
amount received any amount that represents accrued
interest but may not exclude amounts attributable to
market discount. Thus, when a Bond is sold by a Trust,
taxable gain or loss will equal the difference between (i)
the amount received (excluding the portion representing
accrued interest) and (ii) the adjusted basis (including
any accrued original issue discount). A Unit holder may
also realize taxable gain or loss when a Unit is sold or
redeemed. Taxable gain will result if a Unit is sold or
redeemed for an amount greater than its adjusted basis to
the Unit holder. The amount received when a Unit is sold
or redeemed is allocated among all the Bonds in the
related Trust in the same manner as when such Trust
disposes of Bonds, and the Unit holder may exclude accrued
interest but not amounts attributable to market discount.
The return of a Unit holder's tax basis is otherwise a
tax-free return of capital.
If either Trust purchases any units of a
previously-issued series then, based on the opinion of
counsel with respect to such series, such Trust's pro rata
ownership interest in the bonds (or any previously-issued
series) of such series will be treated as though it were
owned directly by that Trust. A Unit holder, however,
will be considered to have received income or gain with
respect to bonds in such previously-issued series on
receipt (or earlier accrual, depending on the Unit
holder's method of accounting) by the previously-issued
series.
Under the income tax laws of the State and City of
New York, the Fund and each Trust are not associations
taxable as corporations and the income of either Trust
will be treated as the income of the Unit holders thereof.
A Unit holder who is a non-resident of New York
will not be subject to New York State or City income tax
on any interest or gain derived from his interest in
either Trust's assets or upon any gain from the sale of
his Units except to the extent that such interest or gain
is from property employed in a business, trade, profession
or occupation carried on by him in the State of New York.
An individual Unit holder who resides in New York State or
City will not be subject to State or City tax on interest
income derived from the Bonds held in either Trust (except
in certain limited circumstances), although he will be
subject to New York State and, depending upon his place of
residence, City tax with respect to any gains realized
when Bonds are sold, redeemed or paid at maturity or when
any such Units are sold or redeemed. In addition, an
individual Unit holder residing in New York State or City
will not be subject to State or City income tax on any
proceeds paid under the insurance policy or policies
described above with respect to the Insured Trust which
represent maturing interest on defaulted obligations held
by the Trustee if, and to the same extent as, such
interest would have been so excludible if paid by the
issuer of the defaulted obligations. A New York State or
City resident should determine his basis and holding
period for his Units for New York State and City purposes
in the same manner as for Federal purposes.
-6-
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State
Municipal Exempt Trust, Guaranteed Series 22:
We have audited the accompanying statement of net assets of
Empire State Municipal Exempt Trust, Guaranteed Series 22,
including the bond portfolio, as of September 30, 1993, and
the related statements of operations and changes in net
assets for the years ended September 30, 1993 and 1992.
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 September 30, 1993,
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, Guaranteed
Series 22 as of September 30, 1993, and the results of its
operations and changes in net assets for the years ended
September 30, 1993 and 1992, in conformity with generally
accepted accounting principles.
BDO Seidman
Woodbridge, New Jersey
October 29, 1993
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1993
ASSETS:
CASH $ 148 602
INVESTMENTS IN SECURITIES, at market value
(cost $21,171,649) 22 263 758
ACCRUED INTEREST RECEIVABLE
435 985
-----------
Total trust property 22 848 345
LESS - ACCRUED EXPENSES
5 022
-----------
NET ASSETS $22 843 323
===========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS $12 424 277 $ 9 748 920 $22 173 197
UNDISTRIBUTED NET INVESTMENT
INCOME 271 608 398 518 670 126
----------- ----------- -----------
Total value $12 695 885 $10 147 438 $22 843 323
=========== =========== ===========
UNITS OUTSTANDING 13 709 10 757 24 466
=========== =========== ===========
VALUE PER UNIT $ 926.10 $ 943.33
=========== ===========
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
STATEMENTS OF OPERATIONS
Year ended
September 30,
------------------------------
1993 1992
INVESTMENT INCOME - INTEREST $1 784 890 $1 803 720
---------- ----------
EXPENSES:
Trustee fees 25 175 25 659
Evaluation fees 2 030 2 146
Insurance premiums 39 210 39 537
Sponsors' advisory fees 5 063 5 166
Auditors' fees 1 800 1 800
---------- ----------
Total expenses 73 278 74 308
---------- ----------
NET INVESTMENT INCOME 1 711 612 1 729 412
REALIZED GAIN (LOSS) ON SECURITIES SOLD
OR REDEEMED (Note 3) 8 010 (4 200)
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (374 210) 533 758
----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $1 345 412 $2 258 970
========== ==========
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
STATEMENTS OF CHANGES IN NET ASSETS
Year ended
September 30,
--------------------------------
1993 1992
OPERATIONS:
Net investment income $1 711 612 $ 1 729 412
Realized gain (loss) on securities
sold or redeemed 8 010 (4 200)
Net change in unrealized market
appreciation (depreciation) (374 210) 533 758
----------- -----------
Net increase in net assets resulting
from operations 1 345 412 2 258 970
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income (1 727 394) (1 733 894)
Principal (167 302) (125 248)
----------- -----------
Total distributions (1 894 696) (1 859 142)
------------ -----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 533 and 1 units (485 675) (911)
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS (1 034 959) 398 917
NET ASSETS:
Beginning of year 23 878 282 23 479 365
----------- -----------
End of year $22 843 323 $23 878 282
=========== ===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan $68.54 $69.00
Semi-annual plan $69.36 $69.69
Principal:
Monthly plan $ 6.72 $5.01
Semi-annual plan $ 6.72 $5.01
See accompanying notes to financial statements.
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
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 December 1992 and
June 1993.
NOTE 3 - BONDS SOLD OR REDEEMED
Port- Realized
folio Principal Date Net Gain
No. Amount Redeemed Description Proceeds Cost (Loss)
Year ended September 30, 1993:
7 $35 000 10/1/92 State of New York $ 35 000 $36 225 $(1 225)
Mortgage Agency,
Mortgage Revenue
Bonds, Seventh
Series
7 135 000 4/1/93 State of New York 135 000 139 725 (4 725)
Mortgage Agency,
Mortgage Revenue
Bonds, Seventh
Series
1 80 000 4/8/93 New York City 89 080 89 487 (407)
Housing Development
Corporation,
MBIA Insured
Residential
Revenue Bonds
(Royal Charter
Properties - East,
Inc. Project),
1985 Series I
10 15 000 5/3/93 New York State 16 800 15 975 825
Housing Finance
Agency, State
University
Construction
Refunding Bonds,
1985 Series A
1 10 000 5/13/93 New York City 10 950 11 186 (236)
Housing Development
Corporation,
MBIA Insured
Residential
Revenue Bonds
(Royal Charter
Properties - East,
Inc. Project),
1985 Series I
10 105 000 6/22/93 New York State 118 388 111 825 6 563
Housing Finance
Agency, State
University
Construction
Refunding Bonds,
1985 Series A
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
NOTES TO FINANCIAL STATEMENTS
(Concluded)
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
Port- Realized
folio Principal Date Net Gain
No. Amount Redeemed Description Proceeds Cost (Loss)
3 $15 000 7/1/93 New York State $16 762 $15 956 $ 806
Medical Care
Facilities
Finance Agency,
Insured Hospital
Mortgage Revenue
Bonds, 1985
Series C
(Mount Sinai
Hospital)
1 15 000 8/17/93 New York City 16 313 16 779 (466)
Housing Development
Corporation, MBIA
Insured Residential
Revenue Bonds
(Royal Charter
Properties - East,
Inc. Project),
1985 Series I
10 110 000 9/10/93 New York State 124 025 117 150 6 875
Housing Finance
Agency, State
University
Construction
Refunding Bonds,
1985 Series A
-------- -------- -------- ------
$520 000 $562 318 $554 308 $8 010
======== ======== ======== ======
NOTE 4 - NET ASSETS
Cost of 25,000 units at Date of Deposit $25 858 188
Less gross underwriting commission (1 266 750)
----------
Net cost - initial offering price 24 591 438
Realized net loss on securities sold or redeemed (76 964)
Principal distributions (2 946 800)
Redemption of 534 units (486 586)
Unrealized market appreciation of securities 1 092 109
Undistributed net investment income 670 126
----------
Net assets $22 843 323
===========
-12-
<TABLE>
<PAGE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $ 1 095 000 New York City 9.375% 10/01/05 04/01/01 @ 100 S.F. $1 224 856 $1 214 005 $ 102 656
Housing Develop- 04/01/95 @ 102 Opt.
ment Corporation,
MBIA Insured
Residential Rev-
enue Bonds (Royal
Charter Proper-
ties - East, Inc.
Project), 1985
Series I
2 Aa* 4 735 000 New York State 9.000 02/15/26 No Sinking Fund 5 059 774 5 137 664 426 150
Medical Care 02/15/95 @ 102 Opt.
Facilities
Finance Agency,
Insured Hospital
and Nursing Home
Mortgage Revenue
Bonds, 1985
Series C
3 AAA 3 985 000 New York State 8.875 01/15/26 No Sinking Fund 4 239 044 4 531 742 353 670
Medical Care Fa- 01/15/96 @ 102 Opt.
cilities Finance
Agency, Insured
Hospital Mortgage
Bonds, 1985
Series C (Mount
Sinai Hospital)
4 AA 1 225 000 Dormitory Auth- 8.750 02/01/25 08/01/99 @ 100 S.F. 1 296 969 1 364 773 107 187
ority of The 08/01/95 @ 102 Opt.
State of New York
Hospital Revenue
Bonds, Rochester
General Hospital
(FHA-Insured
Mortgage) Series
1985
-13-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
(Continued)
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
5 AA $ 1 100 000 New York City 7.500% 11/01/21 11/01/10 @ 100 S.F. $1 066 659 $1 114 531 $ 82 500
Housing Develop- 11/01/93 @ 101 Opt.
ment Corporation,
Multi-Family
Mortgage Revenue
Bonds (FHA-
Insured Mortgage
Loans) 1979
Series A
6 Aa2* 2 195 000 New York State 9.000 08/15/20 No Sinking Fund 2 349 747 2 457 412 197 550
Energy Research 08/15/95 @ 102 Opt.
and Development
Authority, Elec-
tric Facilities
Revenue Bonds,
Series 1985 A
(Consolidated
Edison Company of
New York, Inc.
Project)
7 Aa* 605 000 State of New York 8.625 04/01/11 04/01/05 @ 100 S.F. 626 175 639 443 52 181
Mortgage Agency, 10/01/95 @ 102 Opt.
Mortgage Revenue
Bonds, Seventh
Series
8 Aa* 100 000 State of New York 0.000 04/01/17 04/01/15 @ 100 S.F. 5 500 12 302 -
Mortgage Agency, No Optional Call
Mortgage Revenue
Bonds, Seventh
Series
9 AAA 2 000 New York State 8.875 05/01/17 05/01/06 @ 100 S.F. 2 130 000 2 265 000 177 500
Housing Finance 11/01/95 @ 102 Opt.
Agency, State
University Con-
struction Bonds,
1985 Series A
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
(Continued)
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 September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1993 Trust
10 AAA $ 1 275 000 New York State 8.875% 05/01/12 05/01/06 @ 100 S.F. $1 357 875 $1 443 937 $ 113 156
Housing Finance 11/01/95 @ 102 Opt.
Agency, State
University Con-
struction Refund-
ing Bonds, 1985
Series A
11 Aa* 855 000 Power Authority of 7.000 01/01/10 No Sinking Fund 778 050 894 510 59 850
The State of New 01/01/95 @ 100 Opt.
York, General
Purpose Bonds,
Series S
12 AAA 150 000 Power Authority of 7.000 01/01/18 01/01/17 @ 100 S.F. 135 000 181 939 10 500
The State of New 01/01/10 @ 100 Opt.
York, General
Purpose Bonds,
Series R
13 Aa* 880 000 Municipal Assis- 8.250 07/01/08 07/01/05 @ 100 S.F. 902 000 1 006 500 72 600
tance Corporation 07/01/96 @ 102 Opt.
For The City of
New York (A Pub-
lic Benefit Cor-
poration of The
State of New
York), Series 56
----------- ----------- ----------- ----------
$20 200 000 $21 171 649 $22 263 758 $1 755 500
=========== =========== =========== ==========
-15-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 22
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1993
(Continued)
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.
-16-
</TABLE>
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
-1-
(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
**FOOTNOTES**
[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-
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's 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.
-3-
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 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.
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.
-4-
In January, 1994, the Mayor is expected to prepare a preliminary
Budget for the City's 1995 fiscal year and a modification (the "January
Modification") to the Financial Plan for the City's 1994 through 1997
fiscal years. The modification to the Financial Plan will reflect
changes proposed by the Mayor, and will be required to project balanced
operating results for the City in the 1994 fiscal year and to set forth
measures to be taken based on the then current financial and other data
to close the projected $1.7 billion budget gap for its 1995 fiscal year.
This is the largest budget gap which has been projected for the next
succeeding fiscal year at this stage of the budget planning process for
the last four years. It can be expected that the proposals contained in
the January Modification to close the projected budget gap for the 1995
fiscal year will engender substantial public debate, and that public
debate relating to the 1995 fiscal year budget will continue through the
time the budget is scheduled to be adopted in June 1994.
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.
-5-
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 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.
-6-
A national recession commenced in mid-1990. The downturn continued
throughout the State's 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,
as 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 forecast made by the
Division of the Budget for the overall rate of growth of the national
economy during calendar year 1993 is similar to the "consensus" of a
widely followed survey of forecasters.
The Revised 1993-94 State Financial Plan is based on an economic
projection that the State will perform more poorly than the nation as a
whole. Real gross domestic product grew modestly during calendar year
1992 and is expected to show increased growth in calendar year 1993.
The State's economy, as measured by employment, was expected to commence
growth late in the 1993 calendar year. 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 worse-than-predicted results
in the 1993-94 fiscal year, with corresponding material and adverse
effects on the State's projections of receipts and disbursements.
The Governor released the recommended Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18,
1993. The recommended 1993-94 State Financial Plan projected a balanced
General Fund. General Fund receipts and transfers from other funds were
projected at $31.556 billion, including $184 million expected to be
carried over from the 1993-94 fiscal year. Disbursements and transfers
to other funds were projected at $31.489 billion, not including a $67
million repayment to the State's Tax Stabilization Reserve Fund.
The 1993-94 State Financial Plan issued on April 16, 1993 projects
General Fund receipts and transfers from other funds at $32.367 billion
and disbursements and transfers to other funds at $32.300 billion.
Excess receipts of $67 million will be used for a required repayment to
the State's Tax Stabilization Reserve Fund. In comparison to the
recommended 1993-94 Executive Budget, the 1993-94 State budget, as
enacted, reflects increases in both receipts and disbursements in the
General Fund of $811 million.
The $811-million increase in projected receipts reflects (i) an
increase of $487 million, from $184 million to $671 million, in the
positive year-end margin at March 31, 1993, which resulted primarily
from improving economic conditions and higher-than-expected tax
collections, (ii) an increase of $269 million in projected receipts,
$211 million resulting from the improved 1992-93 results and the
expectation of an improving economy and the balance from improved
auditing and enforcement measures and other miscellaneous items, (iii)
additional payments of $200 million from the Federal government to
reimburse the State for the cost of providing indigent medical care, and
(iv) the payment of an additional $50 million of personal income tax
refunds in the 1992-93 fiscal year which would otherwise have been paid
in fiscal year 1993-94; offset by (v) $195 million of revenue-raising
recommendations in the Executive Budget that were not enacted in the
budget and thus are not included in the 1993-94 State Financial Plan.
The $811-million increase in projected disbursements reflects (i)
an increase of $252 million in projected school-aid payments, after
applying projected receipts from the State Lottery allocated to school
aid, (ii) an increase of $194 million in projected payments for Medicaid
assistance and other social service programs, (iii) an additional
spending on the judiciary ($56 million) and criminal justice ($48
million), (iv) a net increase in projected disbursements for all other
programs and purposes, including mental hygiene and capital projects, of
$161 million, after reflecting certain re-estimates in spending, and (v)
the transfer of $100 million to a newly-established contingency reserve,
which is to be used primarily for litigation settlements.
The Governor's first quarterly update to the GAAP-based 1993-94
State Financial Plan, which is based on the cash basis 1993-94 State
Financial Plan, as revised July 30, 1993, was released on September 1,
1993. The
-7-
update shows a general fund operating surplus of $12 million. For all
governmental funds, the update reflects an overall surplus of $195
million, including the general fund operating surplus of $12 million and
operating surpluses of $43 million in Surplus Revenue Funds, $79 million
in Capital Projects Funds and $61 million in Debt Service Funds.
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 total amount of
long-term State general obligation debt authorized, but not issued, as
of September 30, 1993 was approximately $2.343 billion.
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.
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.
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
-8-
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 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.
The State anticipates that its 1993-94 borrowings for capital
purposes will consist of approximately $316 million in general
obligation bonds and $140 million in new commercial paper issuance. The
State also anticipates the issuance of approximately $140 million in
general obligation bonds for the purpose of redeeming outstanding
commercial paper and other bond anticipation notes. The Legislature has
also authorized the issuance of up to $85 million in certificates of
participation for equipment and real property acquisitions during the
State's 1993-94 fiscal year. The projections of the State regarding its
borrowings for the 1993-94 fiscal year may change if actual receipts
fall short of State projections or if other circumstances require.
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
-9-
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 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. The State anticipates that, as a result of final resolution
of this proceeding, payment, in an amount which may be significant, may
be required during the State's 1993-94 fiscal year or thereafter.
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 neither
require the State to make additional contributions in its 1993-94 fiscal
year nor materially and adversely affect the financial condition of the
State thereafter. 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 1993-94 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
-10-
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 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
-11-
purposes including assistance to MTA. The surcharge, which expires in
November, 1995, yielded approximately $507 million in calendar year
1992, of which amount the MTA was entitled to receive approximately 90%,
or approximately $456 million.
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
-12-
funds. No such payments have since been required, nor are any
anticipated to be made during the State's 1989-90 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.
-13-
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.
-14-
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. 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.
-15-
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.
**FOOTNOTES**
[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.
-16-
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
-17-
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
-18-
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."
-19-
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.
-20-
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.
-21-
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.
-22-
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.
-23-
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
-24-
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:
Secondary Market Period
Sales Charge
Percentage of Public Percentage of Net
Years to Maturity Per Bond Offering Price Amount Invested
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%
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."
-25-
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."
-26-
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."
-27-
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
-28-
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.
-29-
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 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.
-30-
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.
-31-
[THE FOLLOWING ALTERNATE TEXT OF "AUTOMATIC ACCUMULATION ACCOUNT"
APPEARS ONLY IN PROSPECTUSES DISTRIBUTED TO CLIENTS OF LEBENTHAL & CO.,
INC.]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co.,
Inc., the Sponsors have entered into an arrangement (the "Plan") with
Lebenthal New York Municipal Bond Fund (the "Bond Fund") which permits
Unit holders of the Trust to elect to have distributions from Units in
the Trust automatically reinvested in shares of the Bond Fund. The Bond
Fund is an open-end, non-diversified investment company whose investment
objective is to maximize current income exempt from regular Federal
income tax, and from New York State and New York City income taxes
consistent with preservation of capital and with consideration given to
opportunities for capital gain. It is the policy of the Bond Fund to
invest primarily in long-term investment grade tax-exempt securities the
interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund
will be of "investment grade" quality--that is, at the time of purchase
by the Bond Fund, 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
Bond Fund's investment advisor to be of comparable quality to bonds
rated within such four highest grades. It is a fundamental policy of the
Bond Fund that under normal market conditions at least 80% of the income
distributed to its shareholders will be exempt from regular Federal
income tax, and from New York State and New York City personal income
taxes. However, during times of adverse market conditions, more than 20%
of the Bond Fund's income distributions could be subject to Federal
income tax, New York State and/or New York City income taxes, as
described in the current prospectus relating to the Bond Fund (the "Bond
Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts
as the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan
Agent"), a copy of the Bond Fund Prospectus describing the Bond Fund 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 Bond Fund 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 Bond Fund Prospectus.
Unless otherwise indicated, new Participants in the Bond Fund Plan will
be deemed to have elected the monthly distribution plan with respect to
the Units. Confirmations of all transactions undertaken for each
Participant in the Plan will be mailed to each Participant by the Plan
Agent indicating distributions and shares (or fractions thereof) of the
Bond Fund purchased on his behalf. A Participant may at any time prior
to ten 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 Bond Fund and Lebenthal & Co., Inc., as
manager for the Bond Fund, 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 Bond
Fund through the Plan, including charges and expenses, request a copy of
the Bond Fund 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.
-31-
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.
-32-
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-
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-
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-
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.
-36-
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.
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.
-37-
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.
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-
This Prospectus contains
information concerning the Trust EMPIRE STATE
and the Sponsors, but does not MUNICIPAL EXEMPT TRUST
contain all the information set
forth in the registration
statements and exhibits relating
thereto, which the Trust has
filed with the Securities and Prospectus, Part II
Exchange Commission, Washington,
D.C., under the Securities Act of
1933 and the Investment Company Sponsors:
Act of 1940, and to which
reference is hereby made. GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
(212) 953-7532
INDEX
LEBENTHAL & CO., INC.
25 Broadway
New York, New York 10004
(212) 425-6116
Page
The Trust 1
Public Offering 24
Rights of Unit Holders 26
Automatic Accumulation Account31
Sponsors 32
Trustee 33
Evaluator 34
Amendment and Termination
of the Trust Agreement 35
Legal Opinions 36
Auditors 36
Description of Bond Ratings 36
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.
-39-
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
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. 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 of Series 1
through 22 and as Trustee of Series 23 and subsequent 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").
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").
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, insured 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 in the Portfolio to meet
their obligations and of the Insurer to meet its obligations
under the insurance.
Series 1 through 5, Series 6 through 30 and Series 31 and
subsequent Series have obtained insurance guaranteeing the
payment of principal and interest on the Bonds in each respective
Trust from National Union Fire Insurance Company of Pittsburgh,
Pa. ("National Union"), Municipal Bond Insurance Association
("MBIA") and Municipal Bond Investors Assurance Corporation
("MBIAC"), respectively (National Union, MBIA and MBIAC are
collectively referred to herein as the "Insurer"). Insurance
obtained by the Trust applies only while Bonds are retained in
the Trust. As to Series 18 through Series 30 and Series 31 and
subsequent Series, however, pursuant to irrevocable commitments
of MBIA and MBIAC, respectively, in the event of a sale of a Bond
from the Trust the Trustee has the right to obtain permanent
insurance for such Bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of
such Bond. It is expected that the Trustee will exercise the
right to obtain permanent insurance for a Bond in such Series
upon instruction from the Sponsors whenever the value of that
Bond insured to its maturity less the applicable permanent
insurance premium and the related custodial fee exceeds the value
of the Bond without such insurance. Insurance relates only to
the payment of principal and interest on the Bonds in the Trust
but neither covers the nonpayment of any redemption premium on
the Bonds nor guarantees the market value of the Units. Certain
Bonds in the Trust may also be insured under insurance obtained
-1-
by the issuers of such Bonds or third parties ("Pre-insured
Bonds"). As a result of the insurance, Moody's Investors
Service, Inc. has assigned a rating of "Aaa" to all of the Bonds
in Series 6 and subsequent Series, as insured, and Standard &
Poor's Corporation has assigned a rating of "AAA" to the Units of
the Trust, and to the Bonds in Series 17 and subsequent Series,
as insured. No representation is made as to any insurer's
ability to meet its commitments. Insurance is not a substitute
for the basic credit of an issuer, but supplements the existing
credit and provides additional security therefor. A single or
annual premium is paid by the issuer or any other party for its
insurance on Pre-insured Bonds, and a monthly premium is paid by
the Trust for the insurance it obtains from the Insurer on the
Bonds in the Trust that are not pre-insured by such Insurer. No
premium will be paid by Series 1 through 5, Series 6 through 30
and Series 31 and subsequent Series on Bonds pre-insured by
National Union, MBIA and MBIAC, respectively. See "The Trust -
Insurance on the Bonds."
In view of the Trust's objective, the following factors,
among others, were considered in selecting the Bonds: (1) all the
Bonds 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 (4) availability of insurance for the payment of
principal and interest on the Bonds.[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."
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
**FOOTNOTES**
[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-
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.
The national economic downturn that began in July 1990
adversely affected the local economy, which had been declining
since late 1989. As a result the City experienced job losses in
1990 and 1991 and real Gross City Product ("GCP") fell in those
two years. Beginning in 1992, the improvement in the national
economy helped stabilize conditions in the City. Employment
losses moderated toward year-end and real GCP increased, boosted
by strong wage gains. The City now projects, and its current
four-year financial plan assumes, that the City's economy will
continue to improve during calendar year 1993 and that a modest
employment recovery will begin during the second half of this
calendar year.
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
-3-
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 1994 fiscal year. On November 23,
1993, the City submitted to the Control Board the Financial Plan
for the 1994 through 1997 fiscal 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.
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
-4-
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 January 1994, the Mayor is expected to prepare a
preliminary Budget for the City's 1995 fiscal year and a
modification (the "January Modification") to the Financial Plan
for the City's 1994 through 1997 fiscal years. The modification
to the Financial Plan will reflect changes proposed by the Mayor,
and will be required to project balanced operating results for
the City in the 1994 fiscal year and to set forth measures to be
taken based on the then current financial and other data to close
the projected $1.7 billion budget gap for its 1995 fiscal year.
This is the largest budget gap which has been projected for the
next succeeding fiscal year at this stage of the budget planning
process for the last four years. It can be expected that the
proposals contained in the January Modification to close the
projected budget gap for the 1995 fiscal year will engender
substantial public debate, and that public debate relating to the
1995 fiscal year budget will continue through the time the budget
is scheduled to be adopted in June 1994.
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 ("MA") 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. MA 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 MA debt
service and reserve fund requirements and paying MA'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 MA, nor is
the State obligated to continue to
-5-
appropriate the State per capita aid to the City which would be
required to pay the debt service on certain MA obligations. MA
has no taxing power and MA bonds do not create an enforceable
obligation of either the State or the City. As of September 30,
1992, MA 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 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 Ba, 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
-6-
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.
A national recession commenced in mid-1990. The downturn
continued throughout the State's 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, as
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 forecast made by the Division of the Budget for the
overall rate of growth of the national economy during calendar
year 1993 is similar to the "consensus" of a widely followed
survey of forecasters.
The Revised 1993-94 State Financial Plan is based on an
economic projection that the State will perform more poorly than
the nation as a whole. Real gross domestic product grew modestly
during calendar year 1992 and is expected to show increased
growth in calendar year 1993. The State's economy, as measured
by employment, is expected to commence growth late in the 1993
calendar year. 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
worse-than-predicted results in the 1993-94 fiscal year, with
corresponding material and adverse effects on the State's
projections of receipts and disbursements.
The Governor released the recommended Executive Budget for
the 1993-94 fiscal year on January 19, 1993 and amended it on
February 18, 1993. The recommended 1993-94 State Financial Plan
projected a balanced General Fund. General Fund receipts and
transfers from other funds were projected at $31.556 billion,
including $184 million expected to be carried over from the
1993-94 fiscal year. Disbursements and transfers to other funds
were projected at $31.489 billion, not including a $67 million
repayment to the State's Tax Stabilization Reserve Fund.
The 1993-94 State Financial Plan issued on April 16, 1993
projects General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at
$32.300 billion. Excess receipts of $67 million will be used for
a required repayment to the State's Tax Stabilization Reserve
Fund. In comparison to the recommended 1993-94 Executive Budget,
the 1993-94 State budget, as enacted, reflects increases in both
receipts and disbursements in the General Fund of $811 million.
The $811-million increase in projected receipts reflects (i)
an increase of $487 million, from $184 million to $671 million,
in the positive year-end margin at March 31, 1993, which resulted
primarily from improving economic conditions and
higher-than-expected tax collections, (ii) an increase of $269
million in projected receipts, $211 million resulting from the
improved 1992-93 results and the expectation of an improving
economy and the balance from improved auditing and enforcement
measures and other miscellaneous items, (iii) additional payments
of $200 million from the Federal government to reimburse the
State for the cost of providing indigent medical care, and (iv)
the payment of an additional $50 million of personal income tax
refunds in the 1992-93 fiscal year which would otherwise have
been paid in fiscal year 1993-94; offset by (v) $195 million of
revenue-raising recommendations in the Executive Budget that were
not enacted in the budget and thus are not included in the
1993-94 State Financial Plan.
The $811-million increase in projected disbursements
reflects (i) an increase of $252 million in projected school-aid
payments, after applying projected receipts from the State
Lottery allocated to school aid, (ii) an increase of $194 million
in projected payments for Medicaid assistance and other social
service programs, (iii) an additional spending on the judiciary
($56 million) and criminal justice ($48 million), (iv) a net
increase in projected disbursements for all other programs and
purposes, including mental hygiene and capital projects, of $161
million,
-7-
after reflecting certain re-estimates in spending, and (v) the
transfer of $100 million to a newly-established contingency
reserve, which is to be used primarily for litigation
settlements.
The Governor's first quarterly update to the GAAP-based
1993-94 State Financial Plan, which is based on the cash basis
1993-94 State Financial Plan, as revised July 30, 1993, was
released on September 1, 1993. The update shows a general fund
operating surplus of $12 million. For all governmental funds,
the update reflects an overall surplus of $195 million, including
the general fund operating surplus of $12 million and operating
surpluses of $43 million in Surplus Revenue Funds, $79 million in
Capital Projects Funds and $61 million in Debt Service Funds.
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 total amount of long-term State general obligation
debt authorized, but not issued, as of September 30, 1993 was
approximately $2.343 billion.
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.
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.
-8-
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.
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 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
("MA"), created to provide financing assistance to New York City,
is the only municipal assistance corporation created to date. To
enable MA to pay debt service on its obligations, MA 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 MA also includes a
moral obligation provision. Under its enabling legislation, MA'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 MA 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.
The State anticipates that its 1993-94 borrowings for
capital purposes will consist of approximately $316 million in
general obligation bonds and $140 million in new commercial paper
issuance. The State also anticipates the issuance of
approximately $140 million in general obligation bonds for the
purpose of redeeming outstanding commercial paper and other bond
anticipation notes. The Legislature has also authorized the
issuance of up to $85 million in certificates of participation
for equipment and real property acquisitions during the State's
1993-94 fiscal year. The projections of the State regarding its
borrowings for the 1993-94 fiscal year may change if actual
receipts fall short of State projections or if other
circumstances require.
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
-9-
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 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. The State
anticipates that, as a result of final resolution of this
proceeding, payment, in an amount which may be significant, may
be required during the State's 1993-94 fiscal year or thereafter.
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 neither require the
State to make additional contributions in its 1993-94 fiscal year
nor materially and adversely affect the financial condition of
the State thereafter. 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 1993-94 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
-10-
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 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.
-11-
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 $507 million in calendar year 1992, of which amount
the MTA was entitled to receive approximately 90%, or
approximately $456 million.
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.
-12-
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 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.
-13-
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.
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. Because of the
insurance obtained by the Sponsors or by the issuers, however,
such changes should not adversely affect the Trust's ultimate
receipt of principal and interest, the Standard & Poor's or
Moody's ratings of the Bonds in the portfolio of a Trust, or the
Standard & Poor's rating of the Units of the Trust. 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.
-14-
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. 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 future 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
-15-
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 debt service on the Bonds in the portfolio issued to
finance such nuclear projects.
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.
-16-
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.
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.
**FOOTNOTES**
[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.
-17-
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 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
-18-
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 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
-19-
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."
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.
-20-
Insurance on the Bonds
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Trust has been
obtained from the Insurer by the Trust. The Insurer has issued a
policy of insurance covering each of the Bonds in the Trust,
including Pre-insured Bonds. As to each Trust, the Insurer shall
not have any liability under the policy with respect to any Bonds
which do not constitute part of the Trust. In determining to
insure the Bonds, the Insurer has applied its own respective
standards which generally correspond to the standards it has
established for determining the insurability of new issues of
municipal bonds.
By the terms of its policy, the Insurer unconditionally
guarantees to the Trust the payment, when due, required of the
issuer of the Bonds of an amount equal to the principal of
(either at the stated maturity or by any advancement of maturity
pursuant to a mandatory sinking fund payment) and interest on the
Bonds as such payments shall become due but not paid. Except as
provided below with respect to small issue industrial development
Bonds and pollution control revenue Bonds, in the event of any
acceleration of the due date of principal by reason of mandatory
or optional redemption (other than mandatory sinking fund
redemption), default or otherwise, the payments guaranteed will
be made in such amounts and at such times as would have been due
had there not been an acceleration. The Insurer will be
responsible for such payments less any amounts received by the
Trust from any trustee for the Bond issuers or from any other
source. The policy issued by the Insurer does not guarantee
payment on an accelerated basis, the payment of any redemption
premium or the value of the Units. The MBIA and MBIAC policies
also do not insure against nonpayment of principal of or interest
on the Bonds resulting from the insolvency, negligence or any
other act or omission of the trustee or other paying agent for
the Bonds. With respect to small issue industrial development
Bonds and pollution control revenue Bonds in Series 9 through
Series 30 and Series 31 and subsequent Series, however, MBIA and
MBIAC, respectively, guarantee the full and complete payments
required to be made by or on behalf of an issuer of such Bonds if
there occurs pursuant to the terms of the Bonds an event which
results in the loss of the tax-exempt status of interest on such
Bonds, including principal, interest or premium payments payable
thereon, if any, as and when required to be made by or on behalf
of the issuer pursuant to the terms of such Bonds. No assurance
can be given that the policy issued by the Insurer would insure
the payment of principal or interest on Bonds which is not
required to be paid by the issuer thereof because the Bonds were
not validly issued. At the respective times of issuance of the
Bonds, opinions relating to the validity thereof were rendered by
bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancelable
and will continue in force so long as the Trust is in existence
and the Securities described in the policy continue to be held in
and owned by the Trust. Failure to pay premiums on the policy
obtained by the Trust will not result in the cancellation of
insurance but will force the Insurer to take action against the
Trustee to recover premium payments due it. The Trustee in turn
will be entitled to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any
Bond which has been redeemed from or sold by the Trustee or the
Trust on the date of such redemption or on the settlement date of
such sale, and the Insurer shall not have any liability under the
policy as to any such Bond thereafter. If the date of such
redemption or the settlement date of such sale occurs between a
Record Date and a date of payment of any such Bonds, any MBIA or
MBIAC policy will terminate as to such Bond on the business day
next succeeding such date of payment. The termination of a MBIA
or MBIAC policy as to any Bond shall not affect MBIA's or MBIAC's
obligations regarding any other Bond in such Trust or any other
Trust which has obtained a MBIA or MBIAC insurance policy. The
policy issued by the Insurer will terminate as to all Bonds on
the date on which the last of the Bonds matures, is redeemed or
is sold by the Trust.
In the case of Series 18 through 30 and Series 31 and
subsequent Series, pursuant to irrevocable commitments of MBIA
and MBIAC, respectively, the Trustee upon the sale of a Bond in
the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bonds)
(the "Permanent Insurance") upon the payment of a single
predetermined insurance premium from the proceeds of the sale of
such
-21-
Bond. Accordingly, any Bond in such Series of the Trust is
eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for
a Bond in the Trust upon instruction from the Sponsors only if
upon such exercise the Trust would receive net proceeds (sale of
Bond proceeds less the insurance premium attributable to the
Permanent Insurance and the related custodial fee) from such sale
in excess of the sale proceeds if such Bond was sold on an
uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the
Date of Deposit and will not be increased or decreased for any
change in the creditworthiness of such Bond unless such Bond is
in default as to payment of principal and/or interest. In such
event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from
the proceeds of the sale of such Bond.
Except as indicated below, insurance obtained by the Trust
has no effect on the price or redemption value of Units thereof.
It is the present intention of the Evaluator to attribute a value
to the insurance obtained by the Trust (including, as to Series
18 and subsequent Series, the right to obtain Permanent
Insurance) for the purpose of computing the price or redemption
value of Units thereof only if the Bonds covered by such
insurance are in default in payment of principal or interest or,
in the Sponsors' opinion, in significant risk of such default
("Defaulted Bonds"). The value of the insurance will be equal to
the difference between (1) the market value of a Defaulted Bond
insured by the Trust (as to Series 18 and subsequent Series, the
market value of a Defaulted Bond assuming the exercise of the
right to obtain Permanent Insurance less the insurance premium
attributable to the purchase of Permanent Insurance and the
related custodial fee) and (2) the market value of similar
securities not in default or significant risk thereof (as to
Series 18 and subsequent Series, the market value of such
Defaulted Bonds not covered by Permanent Insurance). Insurance
obtained by the issuer of a Bond or by other parties is effective
so long as such Pre-insured Bond is outstanding and the insurer
of such Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond
continues to fulfill its obligations, however, such Bond will
continue to be insured under the policy obtained by the Trust
from MBIA or MBIAC as long as the Bond is held in the Trust.
Insurance obtained by the issuer of a Bond or by other parties
may be considered to represent an element of market value in
regard to the Bonds thus insured, but the exact effect, if any,
of this insurance on such market value cannot be predicted.
In the event that interest on or principal of a Bond is due
for payment but is unpaid by reason of nonpayment by the issuer
thereof, the Insurer will make payments to its fiscal agent, as
identified in the insurance policy (the "Fiscal Agent"), equal to
such unpaid amounts of principal and interest not later than one
business day after the Insurer has been notified by the Trustee
that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the
Trustee the amount of principal and interest which is then due
for payment but is unpaid upon receipt by the Fiscal Agent of (1)
evidence of the Trust's right to receive payment of such
principal and interest and (2) evidence, including any
appropriate instruments of assignment, that all of the rights to
payment of such principal or interest then due for payment shall
thereupon vest in the Insurer. Upon payment by the Insurer of
any principal or interest payments with respect to any Bonds, the
Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
National Union, which was incorporated in Pennsylvania in
1901, is a stock insurance company which provides fire and
casualty insurance and is a wholly-owned subsidiary of American
International Group, Inc.
Each insurance company constituting MBIA will be severally
and not jointly obligated under any MBIA policy obtained by the
Trust in the following respective percentages: The Aetna Casualty
and Surety Company, 33%; Fireman's Fund Insurance Company, 30%;
The Travelers Indemnity Company, 15%; Aetna Insurance Company,
12%; and The Continental Insurance Company, 10%. As a several
obligor, each such insurance company will be obligated only to
the extent of its percentage of any claim under the MBIA policy
and will not be obligated to pay any unpaid obligations of any
other member of MBIA. Each insurance company's participation is
backed by all of its assets. Each insurance company is, however,
a multiline insurer involved in several lines
-22-
of insurance other than municipal bond insurance, and the assets
of each insurance company will also secure all of its other
insurance policy and surety bond obligations.
MBIAC is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. MBIAC is a separate and
distinct entity from MBIA. MBIAC has no liability to the
bondholders for the obligations of MBIA under any policy of
insurance. Neither MBIA Inc. nor its shareholders are obligated
to pay the debts of or claims against MBIAC. MBIAC is a limited
liability corporation rather than a several liability
association. MBIAC is domiciled in the State of New York and
licensed to do business in all 50 states, the District of
Columbia and the Commonwealth of Puerto Rico. Copies of the year
end financial statements of MBIAC prepared in accordance with
statutory accounting practices are available from the Insurer
upon request.
The contract of insurance relating to the Trust and the
negotiations in respect thereof (and, in the case of Series 18
and subsequent Series, certain agreements relating to Permanent
Insurance) represent the only significant relationship between
the Insurer and the Trust. Otherwise, neither the Insurer nor
any associate thereof has any material business relationship,
direct or indirect, with the Trust or the Sponsors, except that
the Sponsors may from time to time in the normal course of their
business participate as underwriters or as managers or as members
of underwriting syndicates in the distribution of new issues of
municipal bonds for which a policy of insurance guaranteeing the
payment of interest and principal has been obtained from the
Insurer, and except that James A. Lebenthal, Chairman of the
Board of Directors of Lebenthal & Co., Inc., is a director of
MBIA Inc. Although all issues contained in the portfolio of the
Trust are individually insured, neither the Trust, the Units nor
the portfolio is insured directly or indirectly by the Insurer.
A purpose of the insurance on the Bonds in the portfolio of
the Trust is to obtain a higher yield on the Trust portfolio than
would be available if all the Securities in such portfolio had
Standard & Poor's Corporation's "AAA" rating and/or Moody's
Investors Service's, Inc. "Aaa" rating but were uninsured and
yet at the same time to have the protection of insurance of
payment of interest and principal on the Securities. There is,
of course, no certainty that this result will be achieved. Any
Pre-insured Bonds in the Trust (all of which are rated "AAA" by
Standard & Poor's Corporation and/or "Aaa" by Moody's Investors
Service, Inc., respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's Corporation
and/or "Aaa" by Moody's Investors Service, Inc., respectively.
Because the Securities are insured by the Insurer as to the
payment of principal and interest, Standard & Poor's Rating
group, a division of McGraw Hill ("Standard & Poor's"), has
assigned its "AAA" investment rating to the Units of the Trust
and, in the case of Series 17 and subsequent Series, to all the
Bonds, as insured, and, in the case of Series 6 and subsequent
Series, Moody's Investors Service, Inc. has assigned a rating of
"Aaa" to all of the Bonds in the Trust, as insured. See "Tax
Exempt Bond Portfolio" in Part I of this Prospectus. The
obtaining of these ratings by the Trust should not be construed
as an approval of the offering of the Units by Standard & Poor's
or Moody's Investors Service, Inc. or as a guarantee of the
market value of the Trust or of the Units. These ratings are not
a recommendation to buy, hold or sell and do not take into
account the extent to which Trust expenses or portfolio asset
sales for less than the Trust's acquisition price will reduce
payment to the Unit holders of the interest or principal.
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"), or the Internal Revenue Code of 1986, as amended (the
"Code"), depending upon the date of issuance of the Bonds in any
particular Series. See "The Trust - Portfolio."
-23-
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.
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.
-24-
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 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.
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 or are "private activity bonds" as that term is defined in
the Code (the following discussion also applies to Bonds that are
"industrial development bonds" as they 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
-25-
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.
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.
-26-
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 and of 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. Under the decision, however, the continued availability of
the Federal tax exemption 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.
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."
-27-
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth
under "Summary of Essential Financial Information" in Part I of
this Prospectus is based on the aggregate amount of Bonds in the
Trust as of the date of such information. The premium, which is
an obligation of each respective Trust, is payable monthly by the
Trustee on behalf of the Trust. As Securities in the Trust
mature, are redeemed by their respective issuers or are sold by
the Trustee, the amount of the premium will be reduced in respect
of those Securities no longer owned by and held in the Trust.
The Trust does not incur any premium expense for any insurance
which has been obtained by an issuer of a Pre-insured Bond, since
the premium or premiums for such insurance have been paid by such
issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by
the Trust on Bonds which are also MBIAC Pre-insured Bonds or MBIA
Pre-insured Bonds. The premium payable for Permanent Insurance
and the related custodial fee will be paid solely from the
proceeds of the sale of a Bond from the Trust in the event that
the Trustee exercises the right to obtain Permanent Insurance on
such Bond.
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 willful misconduct, bad faith or gross negligence
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.
-28-
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 on the maturity 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 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:
Secondary Market Period
Sales Charge
Percentage of Public Percentage of Net
Years to Maturity Per Bond Offering Price Amount Invested
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%
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.
Unless Securities are in default in payment of principal or
interest or in significant risk of such default, the Evaluator
will not attribute any value to the Units due to the insurance
obtained by the Trust. See also "Rights of Unit Holders -
Certificates" and "Rights of Unit Holders - Redemption" for
information relating to redemption of Units. The Evaluator will
consider in its evaluation of Defaulted Bonds which are covered
by insurance obtained by the Trust the value of the insurance
guaranteeing interest and principal payments as well as the
market value of the Securities and the market value of similar
securities of issuers whose securities, if identifiable, carry
identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or
risk of default. If such other securities are not identifiable,
the Evaluator will compare prices of securities with
substantially identical interest rates and maturities and are of
a creditworthiness of minimum investment grade. As to Series 18
and subsequent Series, the value of the insurance will be equal
to the difference between (i) the market value of Defaulted Bonds
assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of
Permanent Insurance and the related custodial fee) and (ii) the
market value of such Defaulted Bonds not covered by Permanent
Insurance. In any case the Evaluator will consider the ability
of the Insurer to meet its commitments under the Trust's
insurance policy and, in the case of Series 18 and subsequent
Series, MBIA's or MBIAC's commitment to issue Permanent
Insurance. For a description of the circumstances under which a
full or partial suspension of the right of Unit holders to redeem
their Units may occur, see "Rights of Unit Holders - Redemption."
It is the present intention of the Trustee (and, in the case
of Series 18 and subsequent Series, assuming the Trustee does not
exercise the right to obtain Permanent Insurance on any Defaulted
Bonds), so long as the Trust
-29-
contains either some Bonds not in default or any Pre-insured
Bonds, not to sell Defaulted Bonds to effect redemptions or for
any other reason but rather to retain them in the portfolio
BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE OBTAINED BY THE TRUST
CANNOT BE REALIZED UPON SALE. Insurance obtained by the issuer
of a Pre-insured Bond, or by some other party, is effective so
long as such Pre-insured Bond is outstanding and the insurer of
such Bond continues to fulfill its obligations. Therefore, any
such insurance may be considered to represent an element of
market value in regard to the Pre-insured Bond, but the exact
effect, if any, of this insurance on such market value cannot be
predicted. Regardless of whether the insurer of a Pre-insured
Bond continues to fulfill its obligations, however, such Bond
will in any case continue to be insured under the policy obtained
by the Trust from the Insurer as long as the Bond is held in the
Trust.
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."
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
-30-
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."
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.
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.
-31-
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."
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 (including insurance costs), 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,
the premium attributable to the Trustee's exercise of the right
to obtain Permanent Insurance and any related custodial fee),
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
-32-
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 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.
As to Series 18 and subsequent Series, if the Trustee
exercises the right to obtain Permanent Insurance on a Bond, such
Bond will be sold from the Trust on an insured basis. In the
event that the Trustee does not exercise the right to obtain
Permanent Insurance on a Bond, such Bond will be sold from the
Trust on an uninsured basis since the insurance obtained by the
Trust covers the timely payment of principal and interest when
due on the Bonds
-33-
only while the Bonds are held in and owned by the Trust. If the
Trustee does not obtain Permanent Insurance on a Defaulted Bond,
to the extent that (and, in the case of Series 18 and subsequent
Series, assuming that the Trustee does not exercise the right to
obtain Permanent Insurance on a Defaulted Bond) Bonds which are
current in payment of interest are sold from the Trust portfolio
in order to meet redemption requests and Defaulted Bonds are
retained in the portfolio in order to preserve the related
insurance protection applicable to said Bonds, the overall value
of the Bonds remaining in the Trust will tend to diminish. See
"Sponsors - Responsibility" for the effect of selling Defaulted
Bonds to meet redemption requests.
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.
Because insurance obtained by the Trust terminates as to
Bonds which are sold by the Trustee, and because the insurance
obtained by the Trust does not have a realizable cash value which
can be used by the Trustee to meet redemptions of Units
(assuming, in the case of Series 18 and subsequent Series, that
the Trustee does not exercise the right to obtain Permanent
Insurance on Defaulted Bonds), under certain circumstances the
Sponsors may apply to the Securities and Exchange Commission for
an order permitting a full or partial suspension of the right of
Unit holders to redeem their Units if a significant portion of
the Bonds in the portfolio is in default in payment of principal
or interest or in significant risk of such default. No
assurances can be given that the Securities and Exchange
Commission will permit the Sponsors to suspend the rights of Unit
holders to redeem their Units, and, without the suspension of
such redemption rights when faced with excessive redemptions, the
Sponsors may not be able to preserve the benefits of the Trust's
insurance on Defaulted Bonds.
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), except for those cases in which
the value of insurance has been included, (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. In determining the
Redemption Price per Unit, no value will be assigned to the
portfolio insurance obtained by the Trust on the Bonds in the
Trust unless such Bonds are in default in payment of principal or
interest or in significant risk of such default. On the other
hand, Pre-insured Bonds are entitled at all times to the benefits
of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to
fulfill its obligations, and such benefits are reflected and
included in the market value of Pre-insured Bonds. For a
description of the situations in which the Evaluator may value
the insurance obtained by the Trust, see "Public Offering -
Market for Units."
-34-
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 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.
-35-
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.
-36-
[THE FOLLOWING ALTERNATE TEXT OF "AUTOMATIC ACCUMULATION ACCOUNT"
APPEARS ONLY IN PROSPECTUSES DISTRIBUTED TO CLIENTS OF LEBENTHAL
& CO., INC.]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal &
Co., Inc., the Sponsors have entered into an arrangement (the
"Plan") with Lebenthal New York Municipal Bond Fund (the "Bond
Fund") which permits Unit holders of the Trust to elect to have
distributions from Units in the Trust automatically reinvested in
shares of the Bond Fund. The Bond Fund is an open-end,
non-diversified investment company whose investment objective is
to maximize current income exempt from regular Federal income
tax, and from New York State and New York City income taxes
consistent with preservation of capital and with consideration
given to opportunities for capital gain. It is the policy of the
Bond Fund to invest primarily in long-term investment grade
tax-exempt securities the interest income from which is exempt
from such taxes.
The Bond Fund has an investment objective which differs in
certain respects from that of the Trust. The bonds purchased by
the Bond Fund will be of "investment grade" quality--that is, at
the time of purchase by the Bond Fund 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 Bond Fund's
investment advisor to be of comparable quality to bonds rated
within such four highest grades. It is a fundamental policy of
the Bond Fund that under normal market conditions at least 80% of
the income distributed to its shareholders will be exempt from
regular Federal income tax, and from New York State and New York
City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income
distributions could be subject to Federal income tax, New York
State and/or New York City income taxes, as described in the
current prospectus relating to the Bond Fund (the "Bond Fund
Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust,
acts as the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the
"Plan Agent"), a copy of the Bond Fund Prospectus describing the
Bond Fund 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 Bond Fund 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 Bond Fund Prospectus.
Unless otherwise indicated, new Participants in the Bond Fund
Plan will be deemed to have elected the monthly distribution plan
with respect to the Units. Confirmations of all transactions
undertaken for each Participant in the Plan will be mailed to
each Participant by the Plan Agent indicating distributions and
shares (or fractions thereof) of the Bond Fund purchased on his
behalf. A Participant may at any time prior to ten 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 Bond Fund and
Lebenthal & Co., Inc., as manager for the Bond Fund, 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 Bond Fund
through the Plan, including charges and expenses, request a copy
of the Bond Fund 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.
-36-
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series,
including all Guaranteed 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 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 misconduct, bad faith or gross negligence. See "The
Trust - Portfolio" and "Sponsors - Responsibility."
-37-
Responsibility
The Trustee shall sell, for the purpose of redeeming Units
tendered by any Unit holder, and for the payment of expenses for
which funds may not be available, such of the Bonds in a list
furnished by the Sponsors as the Trustee in its sole discretion
may deem necessary. In the event that the Trustee does not
exercise the right to obtain Permanent Insurance on a Defaulted
Bond or Bonds, to the extent that Bonds are sold which are
current in payment of principal and interest in order to meet
redemption requests and Defaulted Bonds are retained in the
portfolio in order to preserve the related insurance protection
applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's portfolio will tend to diminish. As to
Series 18 and subsequent Series, in the event that the Trustee
does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond or Bonds, except as described below and in certain
other unusual circumstances for which it is determined by the
Trustee to be in the best interests of the Unit holders or if
there is no alternative, the Trustee is not empowered to sell
Defaulted Bonds for which value has been attributed for the
insurance obtained by the Trust. Because of such restrictions on
the Trustee, under certain circumstances the Sponsors may seek a
full or partial suspension of the right of Unit holders to redeem
their Units. See "Rights of Unit Holders - Redemption." The
Sponsors are empowered, but not obligated, to direct the Trustee
to dispose of Bonds in the event of advance refunding. 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.
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.
If any default in the payment of principal or interest on
any Bond occurs and no provision for payment is made therefor
either pursuant to the portfolio insurance or otherwise within 30
days, the Trustee is required to notify the Sponsors thereof. If
the Sponsors fail to instruct the Trustee to sell or to hold such
Bond within 30 days after notification by the Trustee to the
Sponsors of such default, the Trustee may in its discretion sell
the Defaulted Bond and not be liable for any depreciation or loss
thereby incurred. See "The Trust - Insurance on the Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon
default in the payment of principal or interest, institution of
certain legal proceedings or the existence of certain other
impediments to the payment of Bonds, default under other
documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same
issuer, decline in projected income pledged for debt service on
revenue Bonds, or decline in price or the occurrence of other
market factors, including advance refunding, so that in the
opinion of the Sponsors the retention of such Bonds in a Trust
would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal
Account of the affected
Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final
distributions to Unit holders (if, as to Series 18 and subsequent
Series, the Trustee does not exercise the right to obtain
Permanent Insurance on any Defaulted Bond), because the portfolio
insurance obtained by the Trust is applicable only while Bonds so
insured are held by the Trust, the price to be received by the
Trust upon the disposition of any such Defaulted Bond will not
reflect any value based on such insurance. In connection with
any liquidation, therefore, it shall not be necessary for the
Trustee to, and the Trustee does not currently intend to, dispose
of any Bonds if retention of such Bonds, until due, shall be
deemed to be in the best interest of Unit holders, including, but
not limited to, situations in which Bonds so insured are in
default and situations in which Bonds so insured have a
deteriorated market price resulting from
-38-
a significant risk of default. Since the Pre-insured Bonds will
reflect the value of the insurance obtained by the Bond issuer,
it is the present intention of the Sponsors not to direct the
Trustee to hold any Pre-insured Bonds after the date of
termination. All proceeds received, less applicable expenses,
from insurance on Defaulted Bonds not disposed of at the date of
termination will ultimately be distributed to Unit holders of
record as of such date of termination as soon as practicable
after the date such Defaulted Bonds become due and applicable
insurance proceeds have been received by the Trustee. See
"Summary of Essential Financial Information" in Part I of this
Prospectus.
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 shown 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
-39-
ministerial in nature. The Trustee did not participate in the
selection of Securities for the portfolio of any Series of the
Trust.
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 misconduct, 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 and filing the same
with the Sponsors, 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 11 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.
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
misconduct, bad faith, gross negligence or reckless disregard of
its obligations and duties.
-40-
Responsibility
The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day
after the initial offering period, when 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. The Trustee shall notify all Unit holders when the
value of the Trust as shown by any evaluation 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"; provided, however, as to Series 9 and subsequent
Series, that prior to the Mandatory Termination Date the Trustee
shall not dispose of any Bonds if the retention of such Bonds,
until due, shall be deemed to be in the best interest of the Unit
holders of the affected Trust. 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.
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 Series 1 through 8, by Brown & Wood, One World Trade Center,
New York, New York 10048, as special counsel for the Sponsors as
to Series
-41-
9 through 64 and by Battle Fowler, 280 Park Avenue, New York, New
York 10017 as special counsel for the Sponsors as to Series 65
and subsequent Series of Empire State Municipal Exempt Trust,
Guaranteed Series. 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.
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.
-42-
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.
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
-43-
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.
-44-
This Prospectus contains
information concerning the Trust
and the Sponsors, but does not
contain all the information set EMPIRE STATE
forth in the registration MUNICIPAL EXEMPT TRUST
statements and exhibits relating
thereto, which the Trust has GUARANTEED SERIES
filed with the Securities and
Exchange Commission, Washington, PROSPECTUS, PART II
D.C., under the Securities Act of
1933 and the Investment Company
Act of 1940, and to which Sponsors:
reference is hereby made.
GLICKENHAUS & CO.
INDEX 6 East 43rd Street
New York, New York 10017
(212) 953-7532
Page LEBENTHAL & CO., INC.
25 Broadway
The Trust 1 New York, New York 10004
(212) 425-6116
Public Offering 29
Rights of Unit Holders 31
Automatic Accumulation Account36
Sponsors 37
Trustee 39
Evaluator 40
Amendment and Termination
of the Trust Agreement 41
Legal Opinions 41
Auditors 42
Description of Bond Ratings 42
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.
-45-
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
Contents of Registration Statement
This Post-Effective Amendment to the Registration Statement on Form
S-6 comprise 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:
Brown, Wood, Ivey, Mitchell & Petty (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 6.3 to Post-Effective
Amendment No. 5 to Form S-6 Registration Statement No. 33-12107
of Empire State Municipal Exempt Trust (Empire Maximum AMT
Series A) on August 11, 1992, 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
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Series 70 and Empire
State Municipal Exempt Trust, Guaranteed Series 22, certify that they meet
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 have duly caused this Post-Effective
Amendment to the Registration Statement to be signed on their behalf by
the undersigned thereunto duly authorized, in the City of New York and
State of New York on the 31st day of January, 1994.
Signatures 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.
<PAGE>
Empire State Municipal Exempt Trust, Series 70 and
Empire State Municipal Exempt Trust, Guaranteed Series 22
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. 7 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)
*By: /s/ Brian C. Laux January 31, 1994
(Brian C. Laux,
Attorney-in-Fact)
<PAGE>
Empire State Municipal Exempt Trust, Series 70 and
Empire State Municipal Exempt Trust, Guaranteed Series 22
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. 7 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 E. McGrath) Officer
/s/ James A. Lebenthal Director, Chief January 31, 1994
(James A. Lebenthal) Executive Officer
SAYRA FISCHER LEBENTHAL* Director
(Sayra Fischer Lebenthal)
DUNCAN K. SMITH* Director
(Duncan K. Smith)
PETER J. SWEETSER* Director
(Peter J. Sweetser)
*By: /s/ James A. Lebenthal January 31, 1994
(James A. Lebenthal,
Attorney-in-Fact)
<PAGE>
CONSENT OF COUNSEL
The consent of Brown, Wood, Ivey, Mitchell & Petty 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 70 and
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 22:
We hereby consent to the use in Post-Effective Amendment No. 7 to
Registration Statement No. 33-493 of our report dated October 29, 1993,
relating to the financial statements of Empire State Municipal Exempt
Trust, Series 70; the use in Post-Effective Amendment No. 7 to
Registration Statement No. 33-813 of our report dated October 29, 1993,
relating to the financial statements of Empire State Municipal Exempt
Trust, Guaranteed Series 22; and to the reference to our firm under the
heading "Auditors" in the Prospectuses which are part of such Registration
Statement.
BDO SEIDMAN
Woodbridge, New Jersey
January 29, 1993
Muller Data Corporation
A Thomson Financial Services Company
January 31, 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 70, GTD. SERIES 22 - Amendment No. 7
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-813 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/ Richard Birnbaum
Richard Birnbaum
Vice President
RB>tg
395 Hudson Street - New York - NY 10014-3622 -
Telephone (212) 807-3800
