As filed with the Securities and Exchange Commission on September 30, 1994
Registration No. 33-49993*
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
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 71 and Guaranteed Series 99
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 120 Broadway
New York, New York 10017 New York, New York 10271
D. Name and complete address of agents for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL
Glickenhaus & Co. Lebenthal & Co., Inc.
6 East 43rd Street 120 Broadway
New York, New York 10017 New York, New York 10271
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 71 and Guaranteed Series 99 covered by prospectuses heretofore
filed as part of separate registration statements on Form S-6
(Registration Nos. 33-49993 and 33-53688, respectively) under
the Act.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
Prospectus, Part I 11,000 Units and 3,944 Units Dated: September
30, 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 June 30, 1994 and a summary of additional specific information
including "Special Factors Concerning the Portfolio" and audited
financial statements of the Trust, including the related bond
portfolio, as of May 31, 1994. The second part of this Prospectus
contains a general summary of the Trust and "Special Factors Affecting
New York."
In the opinion of 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 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1994
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Guaranteed
Series 99 Series 71
Aggregate Principal Amount of Bonds
in the Trust: $11,000,000 $4,000,000
Number of Units: 11,000 3,994
Fractional Undivided Interest in
the Trust Per Unit: 1/11,000 1/3,994
Total Value of Securities in the
Portfolio (Based on Bid Side
Evaluations of Securities): $9,340,263.95 $3,398,071.26
============= ==============
Sponsors' Repurchase Price Per Unit: $ 849.11 $ 850.79
Plus Sales Charge(1): 53.24 53.43
------------- -------------
Public Offering Price Per Unit(2): $902.35 $904.22
============= =============
Redemption Price Per Unit(3): $ 849.11 $ 850.79
Excess of Public Offering Price
Over Redemption Price Per Unit: $ 53.24 $ 53.43
Weighted Average Maturity of Bonds
in the Trust: 24.503 years 26.083 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: Guaranteed Series 99 - $28,231
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, $.91 under the
monthly and $.51 under the semi-annual
distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount
of underlying Securities.
Date of Deposit: September 8, 1993
Date of Trust Agreement: September 8, 1993
Mandatory Termination Date: December 31, 2042
Minimum Principal Distribution:$1.00 per Unit
Minimum Value of the Trust
Guaranteed Series 99 and
Series 71 under which Trust
Agreement may be Terminated: $2,000,000 and $800,000, respectively.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1994
(Continued)
Guaranteed
Series 99 Series 71
------------------- -------------------
Monthly Semi-annual Monthly Semi-annual
------- ----------- ------- -----------
P Estimated Annual
Interest Income: $54.03 $54.03 $54.57 $54.57
Less Annual Premium on
Portfolio Insurance 2.57 2.57 - -
E Less Estimated
Annual Expenses 1.67 1.17 1.90 1.40
------- -------- ------- -------
R Estimated Net Annual
Interest Income: $49.79 $50.29 $52.67 $53.17
======= ======== ======= =========
U Estimated Interest
Distribution: $4.14 $ 25.14 $ 4.38 $26.58
N Estimated Current
Return Based on Public
Offering Price (4): 5.52% 5.57% 5.83% 5.88%
I Estimated Long-Term
Return Based on Public
Offering Price (5): 5.80% 5.86% 6.06% 6.11%
Estimated Daily Rate
of Net Interest Accrual: $.13830 $.13969 $.14630 $.14769
Record Dates: 15th Day 15th Day of 15th Day 15th Day of
of Month May and of Month May and
November November
Payment Dates: 1st Day of 1st Day of 1st Day of 1st Day of
of June Month June and Month June and
December 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 July 8, 1994, the expected date of
settlement, of $10.90 monthly and $15.21 semi-annually for the
Guaranteed Series 99 and of $11.59 monthly and $16.12 semi-
annually for the Series 71.
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.
<PAGE>
Portfolio Information
Guaranteed Series 99
On May 31, 1994, the bid side valuation of 100.0% of the
aggregate principal amount of Bonds in the Portfolio for this Trust
was at a discount from par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features
of the Bonds.
Series 71
On May 31, 1994, the bid side valuation of 100.0% of the
aggregate principal amount of Bonds in the Portfolio for this Trust
was at a discount from par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features
of the Bonds.
Special Factors Concerning the Portfolio
Guaranteed Series 99
The Portfolio consists of 9 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. 40.5% 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. 17.5% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 42.0%
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:
General Obligation, 5 (40.5%); Appropriations, 1 (17.5%); Revenue:
Higher Education, 1 (19.0%); Water and Sewer, 1 (16.4%); and
Escrowed to Maturity, 1 (6.6%). The Trust is deemed to be
concentrated in the General Obligation bonds category.1 Eight
issues, constituting 82.5% of the Bonds in the Portfolio, are
original issue discount bonds, of which 1 is a zero coupon bond. On
May 31, 1994, 1 issue (19.5%) was rated A and 4 issues (21.0%) were
rated A- by Standard & Poor's Corporation; 1 issue (6.6%) was rated
Aaa, 1 issue (16.5%) was rated A and 2 issues (36.4%) were rated
Baa1 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.
Series 71
The Portfolio consists of 8 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. 27.6% 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. 18.1% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 54.3%
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, 2 (27.6%); Appropriations, 1 (18.1%); Revenue:
Health Care, 1 (15.1%); Higher Education, 2 (16.4%); Water and
Sewer, 1 (15.9%); and Escrowed to Maturity, 1 (6.9%). The Trust is
deemed to be concentrated in the General Obligation bonds category.1
Seven issues, constituting 81.9% of the Bonds in the Portfolio, are
original issue discount bonds, of which 1 is a zero coupon bond. On
May 31, 1994, 1 issue (15.1%) was rated AAA, 1 issue (5.0%) was
rated A, 1 issue (22.6%) was rated A- and 1 issue (6.3%) was rated
BBB+ by Standard & Poor's Corporation; 1 issue (6.9%) was rated Aaa,
1 issue (15.9%) was rated A and 2 issues (28.2%) was rated Baa1 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 1986, as amended. See "The Trust -- Portfolio" in Part II of
this Prospectus.
1A 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.
<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, Battle Fowler, special counsel for the
Sponsors as to Series 77 and Guaranteed Series 99, issued an opinion
as to the tax status of the Trusts. In part, the opinion stated:
The Fund and each Trust is not an association taxable as a
corporation for Federal income tax purposes, and interest on the
Bonds which is excludible from regular Federal gross income under
the Code, when received by a Trust, will be excludible from the
regular Federal gross income of the Unit holders of such Trust. Any
proceeds paid under the insurance policy described above 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 Insured Trust 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 Code Sections 671-679. 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 and
depending on the existence of any original issue discount) 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. Gain from a sale will be treated as short term or long term
capital gain depending on how long the Bond was held by the related
Trust. 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 cost 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. None of the interest received
from the portfolio is subject to the alternative minimum tax for
individuals; however, some or all of the interest received from the
portfolio may be includible in the calculation of a corporation's
alternative minimum tax.
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, limited in the case of Bonds issued after
June 8, 1980 to the portion earned from the date of acquisition, as
discussed below). In the case of Bonds acquired at a market
discount, gain will be treated as ordinary income to the extent of
accrued market 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, including the earned portion of any
original issue discount, but not amounts attributable to market
discount. In the case of Bonds acquired at a market discount gain
will be treated as ordinary income to the extent of accrued 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,
each Trust's pro rata ownership interest in the bonds of such series
(or any previously issued series) will be treated as though it were
owned directly by that Trust.
Under the income tax laws of the State and City of New York, the
Fund and each Trust is not an association taxable as a corporation
and the income of either Trust will be treated as the income of the
Unit holders.
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
tax purposes in the same manner as for Federal tax purposes.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State
Municipal Exempt Trust, Guaranteed Series 99 and Empire
State Municipal Exempt Trust, Series 71:
We have audited the accompanying statement of net assets of
Empire State Municipal Exempt Trust, Guaranteed Series 99
and Empire State Municipal Exempt Trust, Series 71,
including the bond portfolio, as of May 31, 1994, and the
related statements of operations and changes in net assets
for the period September 15, 1993 to May 31, 1994. These
financial statements are the responsibility of the
Sponsors. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 May 31, 1994, by
correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant
estimates made by the Sponsors, as well as evaluating the
overall financial statement presentation. We believe that
our audit provides 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 99 and Empire State Municipal Exempt Trust, Series
71 as of May 31, 1994, and the results of its operations
and changes in net assets for the period September 15, 1993
to May 31, 1994, in conformity with generally accepted
accounting principles.
BDO Seidman
Woodbridge, New Jersey
June 30, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1994
Guaranteed
Series 99 Series 71
---------- ----------
ASSETS:
CASH $ 68 882 $ 9 295
INVESTMENTS IN SECURITIES,
at market value (cost
$10,569,680 and $3,852,703) 9 424 840 3 435 649
ACCRUED INTEREST RECEIVABLE 189 344 69 889
----------- ---------
Total trust property 9 683 066 3 514 833
=========== =========
LESS - ACCRUED EXPENSES 1 637 691
----------- ---------
NET ASSETS $9 681 429 $3 514 142
=========== =========
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1994
(Continued)
NET ASSETS REPRESENTED BY: Monthly Semi-annual
distribution distribution
plan plan Total
Guaranteed Series 99
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS $5 142 535 $4 282 305 $9 424 840
UNDISTRIBUTED NET INVESTMENT
INCOME 82 679 173 910 256 589
---------- ---------- ----------
Total value $5 225 214 $4 456 215 $9 681 429
========== ========== ==========
UNITS OUTSTANDING 6 002 4 998 11 000
========== ========== ==========
VALUE PER UNIT $870.58 $891.60
========== ==========
Series 71
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS $2 484 728 $945 623 $3 430 351
UNDISTRIBUTED NET INVESTMENT
INCOME 43 012 40 779 83 791
---------- -------- ----------
Total value $2 527 740 $986 402 $3 514 142
=========== ======== ==========
UNITS OUTSTANDING 2 893 1 101 3 994
=========== ======== ==========
VALUE PER UNIT $873.74 $895.91
=========== ========
See accompanying notes to financial statements.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENT OF OPERATIONS
PERIOD SEPTEMBER 15, 1993 TO MAY 31, 1994
INVESTMENT INCOME - INTEREST $ 420 954
----------
EXPENSES:
Trustee fees 6 937
Evaluation fees 652
Insurance premiums 20 624
Sponsors' advisory fees 2 001
----------
Total expenses 30 214
----------
NET INVESTMENT INCOME 390 740
NET CHANGE IN UNREALIZED MARKET
DEPRECIATION (Note 3) (1 144 840)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ (754 100)
============
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENT OF CHANGES IN NET ASSETS
PERIOD SEPTEMBER 15, 1993 TO MAY 31, 1994
OPERATIONS:
Net investment income $ 390 740
Net change in unrealized market
depreciation (1 144 840)
-----------
Net decrease in net assets resulting
from operations (754 100)
DISTRIBUTIONS TO UNIT HOLDERS OF
ACCRUED INTEREST TO DATE OF DEPOSIT (134 151)
-----------
NET DECREASE IN NET ASSETS (888 251)
NET ASSETS:
Beginning of period 10 569 680
-----------
End of period $ 9 681 429
===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan $21.75
Semi-annual plan $1.00
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENT OF OPERATIONS
PERIOD SEPTEMBER 15, 1993 TO MAY 31, 1994
INVESTMENT INCOME - INTEREST $ 154 380
-----------
EXPENSES:
Trustee fees 2 721
Evaluation fees 465
Sponsors' advisory fees 728
-----------
Total expenses 3 914
-----------
NET INVESTMENT INCOME 150 466
NET CHANGE IN UNREALIZED MARKET
DEPRECIATION (Note 3) (417 054)
------------
NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS $(266 588)
==============
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENT OF CHANGES IN NET ASSETS
PERIOD SEPTEMBER 15, 1993 TO MAY 31, 1994
OPERATIONS:
Net investment income $ 150 466
Net change in unrealized market
depreciation (417 054)
------------
Net decrease in net assets resulting
from operations (266 588)
-------------
DISTRIBUTIONS TO UNIT HOLDERS:
Accrued interest to Date of Deposit (50 699)
Net investment income (15 976)
-------------
Total distributions (66 675)
-------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 6 units (5 298)
-------------
NET DECREASE IN NET ASSETS (338 561)
NET ASSETS:
Beginning of period 3 852 703
-------------
End of period $3 514 142
=============
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan $22.90
Semi-annual plan $ 1.00
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
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. No principal distributions, resulting
from the sale or redemption of securities, were made in the period
September 15, 1993 to May 31, 1994.
NOTE 3 - NET CHANGE IN UNREALIZED MARKET APPRECIATION
Guaranteed Series 99
The $1,144,840 of unrealized market depreciation of securities for
the period September 15, 1993 to May 31, 1994 was increased by $87,775
of unrealized market appreciation of securities attributable to the
use of offering prices at September 8, 1993 (Date of Deposit) in the
initial registration (see Note 1 to the financial statements).
Series 71
The $417,054 of unrealized market depreciation of securities for
the period September 15, 1993 to May 31, 1994 was increased by $30,650
of unrealized market appreciation of securities attributable to the
use of offering prices at September 8, 1993 (Date of Deposit) in the
initial registration (see Note 1 to the financial statements).
NOTE 4 - NET ASSETS
Guaranteed
Series 99 Series 71
Cost of 11,000 and 4,000 units at
Date of Deposit $11 114 180 $4 051 183
Less gross underwriting commission 544 500 198 480
----------- ----------
Net cost - initial offering price 10 569 680 3 852 703
Redemption of -0- and 6 units - (5 298)
Unrealized market depreciation
of securities (1 144 840) (417 054)
Undistributed net investment income 256 589 83 791
------------ ------------
Net assets $9 681 429 $3 514 142
============= ============
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
Redemption Features Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust May 31, 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Aaa* $ 725 000 Glen Cove Indus- 0.000% 10/15/19 No Sinking Fund $ 168 563 $ 147 487 $ -
trial Development No Optional Call
Agency, Civic
Facility Revenue
Bonds (The
Regency at Glen
Cove), 1992
Series B
(Escrowed to
Maturity)
2 A 2 140 000 Puerto Rico Public 5.750 07/01/15 07/01/11 @ 100 S.F. 2 185 775 1 980 185 123 050
Buildings Author- 07/01/03 @ 101.5 Opt.
ity, Public Edu-
cation and Health
Facilities Re-
funding Bonds,
Guaranteed by the
Commonwealth of
Puerto Rico,
Series M
3 A* 1 810 000 New York City 5.500 06/15/20 06/15/18 @ 100 S.F. 1 805 475 1 568 980 99 550
Municipal Water 06/15/02 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal
1993 Series A
4 A- 250 000 The City of New 6.250 08/01/18 No Sinking Fund 261 015 236 828 15 625
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
5 A- 175 000 The City of New 6.250 08/01/17 No Sinking Fund 182 710 166 136 10 938
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(Continued)
Redemption Features Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust May 31, 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6 A- $ 300 000 The City of New 6.250% 08/01/21 No Sinking Fund $ 313 218 $ 282 399 $ 18 750
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
7 A- 1 590 000 The City of New 6.000 05/15/20 No Sinking Fund 1 623 231 1 453 848 95 400
York, General 05/15/03 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
8 Baa1* 2 085 000 Dormitory Authority 6.000 07/01/16 07/01/15 @ 100 S.F. 2 131 412 1 955 480 125 100
of the State of 07/01/00 @ 100 Opt.
New York, City
University System
Consolidated,
Second General
Resolution
Revenue Bonds,
Series 1990 C
9 Baa1* 1 925 000 New York State 5.500 09/15/22 03/15/15 @ 100 S.F. 1 898 281 1 633 497 105 875
Housing Finance 03/15/03 @ 102 Opt.
Agency, Service
Contract Obliga-
tion Revenue
Bonds, 1993
Series A
$11 000 000 $10 569 680 $9 424 840 $594 288
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(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.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
Redemption Features Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust May 31, 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $ 605 000 New York State 5.700% 02/15/29 08/15/95 @ 100 S.F. $ 617 100 $ 539 321 $ 34 485
Medical Care 08/15/03 @ 102 Opt.
Facilities
Finance Agency, St.
Luke's-Roosevelt
Center, Hospital
FHA-Insured
Mortgage Revenue
Bonds, 1993
Series A
2 Aaa* 275 000 Glen Cove Indus- 0.000 10/15/19 No Sinking Fund 63 938 55 943 -
trial Development No Optional Call
Agency, Civic
Facility Revenue
Bonds (The
Regency at Glen
Cove), 1992
Series B
(Escrowed to
Maturity)
3 A 200 000 Puerto Rico Public 5.750 07/01/15 07/01/11 @ 100 S.F. 204 278 185 064 11 500
Buildings Author- 07/01/03 @ 101.5 Opt.
ity, Public Edu-
cation and Health
Facilities Re-
funding Bonds,
Series M,
Guaranteed by the
Commonwealth of
Puerto Rico
4 A* 635 000 New York City, 6.000 06/15/19 06/15/17 @ 100 S.F. 653 561 591 191 38 100
Municipal Water 06/15/99 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal
1990 Series A
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(Continued)
Redemption Features Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of Market Value Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds as of Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust May 31, 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 A- $ 905 000 The City of New 6.250% 08/01/17 No Sinking Fund $ 944 874 $ 859 162 $ 56 563
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
6 BBB+ 250 000 Dormitory Authority 5.250 05/15/19 05/15/14 @ 100 S.F. 240 000 209 913 13 125
of the State of No Optional Call
New York, State
University Educa-
tional Facilities,
Revenue Bonds,
Series 1993 B
7 Baa1* 405 000 Dormitory Authority 6.000 07/01/16 07/01/15 @ 100 S.F. 414 015 379 842 24 300
of the State of 07/01/00 @ 100 Opt.
New York, City
University System
Consolidated,
Second General
Resolution
Revenue Bonds,
Series 1990 C
8 Baa1* 725 000 New York State 5.500 09/15/22 03/15/15 @ 100 S.F. 714 937 615 213 39 875
Housing Finance 03/15/03 @ 102 Opt.
Agency, Service
Contracts Obliga-
tion Revenue
Bonds, 1993
Series A
---------- ---------- ---------- --------
$4 000 000 $3 852 703 $3 435 649 $217 948
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(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.
</TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
PROSPECTUS, PART II
Note: Part B of this Prospectus may not be
distributed unless accompanied by Part II
THE TRUST
Organization
Empire State Municipal Exempt Trust (the "Fund") is
comprised of Empire State Municipal Exempt Trust, Series 71 (the
"Uninsured Trust") and Guaranteed Series 99 (the "Insured Trust")
(the Uninsured Trust and the Insured Trust are collectively
referred to in this Prospectus as the "Trusts"), each of which is
a series of similar but separate unit investment trusts created
under the laws of the State of New York by separate Trust
Indentures and Agreements (the "Trust Agreements"), dated the
Date of Deposit, among Glickenhaus & Co. and Lebenthal & Co.,
Inc. as sponsors (the Sponsors"), The Bank of New York, as
trustee (the "Trustee"), and Muller Data Corporation, as
evaluator (the "Evaluator").
On the date of this Prospectus each Unit represented the
fractional undivided interest in the Trust set forth under
Summary of Essential Financial Information" in Part I for each
Trust. Thereafter, if any Units of either Trust are redeemed by
the Trustee, the fractional undivided interest in each Trust
represented by each unredeemed Unit will increase, although the
actual interest in each 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 for the related Trust. See "Rights of Unit Holders--
Redemption" in this Part II.
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.
Objectives
The objective of the Fund is to obtain tax-exempt interest
income through an investment in (a) for the Uninsured Trust, a
fixed portfolio consisting primarily of various long-term,
investment grade municipal bonds with average maturities of over
10 years and (b) for the Insured Trust, a fixed insured portfolio
consisting primarily of various long-term municipal bonds with
average maturities of over 10 years. No assurance can be given
that the Fund's objectives will be achieved as these objectives
are subject to the continuing ability of the respective issuers
of the bonds to meet their obligations and, with regard to the
Insured Trust, of the Insurer to meet its obligations under the
insurance. In addition, an investment in such portfolio can be
affected by fluctuations in interest rates.
Portfolios
The portfolios of each Trust consists of the Bonds described
in "The Portfolios" in Part I and are represented by the
Sponsors" contracts to purchase, which are expected to be settled
by the date set forth in Part I. The Trusts may contain Bonds
which have been purchased on a when, as, and if issued basis.
Accordingly, the delivery of such Bonds may be delayed or may not
occur. (See "The Portfolios" in Part I.) Interest on these Bonds
begins accruing to the benefit of Unit holders on their
respective dates of delivery. Unit holders will be "at risk" with
respect to these Bonds (i.e., may derive either gain or loss from
fluctuations in the offering side evaluation of the Bonds) from
the date they commit for Units. (See "The Portfolios" in Part I.)
For a discussion of the Sponsors" obligations in the event of the
failure of any contract for the purchase of any of the Bonds and
limited right to substitute other bonds to replace any failed
contract, see "Substitution of Bonds" in this Part II. As a
result of the Municipal Bond Investors Assurance
Corporation insurance, Moody's Investors Service has assigned a
rating of "Aaa" to all of the Bonds in the Insured Trust, as
insured and Standard & Poor's Corporation has assigned a rating
of "AAA" to the Units and Bonds while in the Insured Trust. (See
"Insurance on the Bonds in the Insured Trust" in this Part II).
In view of the Fund's objectives, 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,
including Puerto Rico 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
varied 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) with respect to the
Insured Trust, Municipal Bond Investors Assurance Corporation
insurance for the payment of principal and interest on the
Securities is available. 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 such an event may be considered in the Sponsors"
determination to direct the Trustee to dispose of the Bonds. See
"Sponsors-Responsibility" in Part II. The insurance on the Bonds
in the portfolio obtained by the Insured Trust does not cover
such Bonds until they are delivered to the Insured Trust. See
"The Trusts--Portfolios--General Considerations" in this Part II.
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 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 recession which began in July 1990 has
adversely impacted the City harder than almost any other
political jurisdiction in the nation. As a result, the City, with
approximately 3 percent of national employment, has lost
approximately 20 percent of all U.S. jobs during the recent
economic downturn and, consequently, has suffered erosion of its
local tax base. In total, the City private sector employment has
plummeted by approximately 360,000 jobs since 1987. But, after
nearly five years of decline, the City appears to be on the verge
of a broad-based recovery which will lift many sectors of the
local economy. Most of the nascent local recovery can be
attributed to the continued improvement in the U.S. economy, but
a great deal of the strength expected in the City economy will be
due to local factors, such as the heavy concentration of the
securities and banking industries in the City. The current
forecast calls for modest employment growth of about 20,000 a
year (0.6 percent) on average through 1998 with some slowing but
still positive growth in employment in 1995-96 as U.S. growth
slows (local job gains slow from 25,000 to around 10,000 per
year).
During the most recent economic downturn, the City has faced
recurring extraordinary budget gaps that have been addressed by
undertaking one-time, one-shot budgetary initiatives to close
then projected budget gaps in order to achieve a balanced budget
as required by the laws of the State. For example, in order to
achieve a balanced budget for the 1992 fiscal year, the City
increased taxes and reduced services during the 1991 fiscal year
to close a then projected gap of $3.3 billion in the 1992 fiscal
year which resulted from, among other things, lower than expected
tax revenue of approximately $1.4 billion, reduced State aid for
the City of approximately $564 million and greater than projected
increases in legally mandated expenditures of approximately $400
million, including public assistance and Medicare expenditures.
The gap closing measures for fiscal year 1992 included receipt of
$605 million from tax increases, approximately $1.5 billion of
proposed service reductions and proposed productivity savings of
$545 million.
Notwithstanding its recurring projected budget gaps, for
fiscal years 1981 through 1993 the City achieved balanced
operating results (the City's General Fund revenues and transfers
reduced by expenditures and transfers), as reported in accordance
with Generally Accepted Accounting Principles ("GAAP"), and the
City's 1994 fiscal year results are projected to be balanced in
accordance with GAAP.
The City's ability to maintain balanced budgets in the
future is subject to numerous contingencies; therefore, even
though the City has managed to close substantial budget gaps in
recent years in order to maintain balanced operating results,
there can be no assurance that the City will continue to maintain
a balanced budget as required by State law without additional tax
or other revenue increases or reduction 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. 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.
On November 23, 1993, the City submitted to the Control
Board the Financial Plan for the 1994 through 1997 fiscal years,
which is a modification to a financial plan submitted to the
Control Board on August 30, 1993 and 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 included 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 through 1997 fiscal years,
respectively. City gap-closing actions total $640 million in the
1995 fiscal year, $814 million in the 1996 fiscal year and $870
million in the 1997 fiscal year. These actions include increased
revenues and reduced expenditures from agency actions aggregating
$165 million, $439 million and $470 million in the 1995 through
1997 fiscal years, respectively, including productivity savings
and savings from restructuring the delivery of City services and
service reductions; possible BOE expenditure reductions
aggregating $125 million in each of the 1995 through 1997 fiscal
years; and reduced other than personal service costs aggregating
$50 million in each of the 1995 through 1997 fiscal years.
State actions proposed in the gap-program total $306
million, $616 million and $766 million in each of the 1995, 1996
and 1997 fiscal years, respectively. These actions include
savings from various proposed mandate relief measures and the
proposed reallocation of State education aid among various
localities totaling $175 million, $325 million and $475 million
in each of the 1995, 1996 and 1997 fiscal years, respectively.
These actions also include $131 million in 1995 and $291 million
in each of 1996 and 1997 in anticipated State actions which could
include savings from the proposed State assumption of certain
Medicaid costs or various proposed mandate relief measures.
The Federal actions proposed in the gap-closing program are
$100 million and $200 million in increased Federal assistance in
fiscal years 1996 and 1997, respectively.
Other Actions proposed in the gap-closing program represent
Federal, State or City actions to be specified in the future.
Various actions proposed in the Financial Plan, including
the proposed continuation of the personal income tax surcharge
beyond December 31, 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 proposals
for the State assumption of certain Medicaid costs, mandate
relief and reallocation of State education aid, thereby
increasing the uncertainty as to the receipt of the State
assistance included in the Financial Plan. If these actions
cannot be implemented, the City will be required to take other
actions to decrease expenditures or increase revenues to maintain
a balanced financial plan. The State Legislature has approved the
continuation of the personal income tax surcharge through
December 31, 1995, and the Governor is expected to approve this
continuation. The Financial Plan has been the subject of
extensive public comment and criticism particularly regarding the
sale of delinquent property tax receivables, the sale of the New
York City Off-Track Betting Corporation ("OTB"), the amount of
State and Federal aid included in the Financial Plan and the
inclusions of non-recurring actions.
Notwithstanding the proposed city, federal and state actions
in the gap-closing programs, the City Comptroller has warned in
past published reports that State and local tax increases in an
economic downturn or period of slow economic growth can have
adverse effects on the local economy and can slow down an
economic recovery. The City Comptroller has also previously
expressed concerns about the effects on the City's economy and
budgets of rapidly increasing water and sewer rates, decreasing
rental payments in future years from the Port Authority under
leases for LaGuardia and Kennedy airports, the dependence on
increased aid from the State and Federal Governments for
gap-closing programs, the escalation cost of judgements and
claims, federal deficit reduction measures and the increasing
percentage of future years" revenues projected to be consumed by
debt service, even after reductions in the capital program.
Although the City has maintained balanced budgets in each of
its last thirteen fiscal years, and is projected to achieve
balanced operating results for the 1993 fiscal year, there can be
no assurance that the gap-closing actions proposed in the
Financial Plan can be successfully implemented or that the City
will maintain a balanced budget in future years without
additional State aid, revenue increases or expenditure
reductions. Additional tax increases and reductions in essential
City services could adversely affect the City's economic base.
In November 1993, Rudolph W. Giuliani was elected mayor of
the City, replacing the previous administration on January 1,
1994. Mayor Giuliani's Modification No. 94-2 to the Financial
Plan for the City and Covered Organizations for fiscal years
1994-1998 (the "Modification"), issued February 10, 1994, reports
that for 1995 fiscal year, the budget gap is estimated at $2.26
billion, or nearly a 12 percent shortfall of existing tax
revenues over baseline expenditures. Absent gap closing
initiatives, the Modification reports that the projected budget
gap will grow to nearly $3.4 billion by 1998 fiscal year.
According to the Modification, the 1995 fiscal year budget gap is
the largest that the City has faced since 1981, when the City
converted to GAAP. The Modification attributes the projected
budget gaps to the lingering national recession, to a sharp
growth in expenditures during the boom years of the 1980s and the
failure of the City to reduce the City's municipal workforce. The
Modification reports that at the same time that City employment
has declined as a percentage of U.S. employment, local government
employment in the City, which exceeds the state government
employment of the five largest states, is on the verge of an
historic high. According to the Modification, at the end of
December 1993, the City's full-time municipal workforce stood at
more than 362,000 employees, and absent reductions, will reach an
all-time high at the end of fiscal year 1994.
The Modification states that in order to strengthen the
City's long-term fiscal position the City's gap closing
initiatives must be accomplished without resorting to one-shot
gap-closing measures, such as tax increases; instead, it must
balance its budgets by reducing City spending, reducing the size
of the City's municipal workforce and reducing certain City taxes
to encourage economic growth. Under the Modification, fiscal year
1995 spending declines by $516 million over the current fiscal
year, the lowest projected spending rate since 1975. The
Modification plans to reduce the City's municipal workforce by
15,000 positions, as compared to the current actual headcount, by
the end of fiscal year 1995. The workforce reduction will be
achieved through an aggressive severance package, and, if
necessary, layoffs. It is anticipated that these workforce
reduction initiatives will save $117 million, $144 million, $311
million, $415 million and $539 million in fiscal years 1994
through 1998, respectively, after taking into account an
estimated $200 million in costs related to instituting the
proposed severance programs which are anticipated to be financed
with surplus Municipal Assistance Corporation funds (see below
for a discussion of the Municipal Assistance Corporation). The
Modification also contemplates the loss of $35 million, $186
million, $534 million and $783 million in tax revenues in 1995
through 1998, respectively, as a result of the reduction in
certain City taxes, such as the reduction of the hotel tax from 6
percent to 5 percent, commercial rent tax reductions and the
elimination of the 12.5 percent personal income tax surcharge.
The 1994-97 Financial Plan is based on numerous assumptions,
including the recovery of the City's and the region's economy
early in the calendar year 1993 and the concomitant receipt of
economically sensitive tax revenues in the amounts projected. The
1994-97 Financial Plan is subject to various other uncertainties
and contingencies relating to, among other factors, the extent,
if any, to which wage increases for City employees exceed the
annual increases assumed for the 1994 through 1997 fiscal years;
continuation of the 9% interest earnings assumptions for pension
fund assets affecting the City's required pension fund
contributions; the willingness and ability of the State to
provide the aid contemplated by the Financial Plan and to take
various other actions to assist the City, including the proposed
State takeover of certain Medicaid costs and State mandate
relief, the ability of the New York City Health and Hospitals
Corporation ("HHC"), BOE and other agencies to maintain budget
balance; the willingness of the Federal government to provide
Federal aid; approval of the proposed continuation of the
personal income tax surcharge and the State budgets; adoption of
the City's budgets by the City Council; the ability of the City
to implement contemplated productivity and service and personnel
reduction programs and the success with which the City controls
expenditures; additional expenditures that may be incurred due to
the requirements of certain legislation requiring minimum levels
of funding for education; the City's ability to market its
securities successfully in the public credit markets; the level
of funding required to comply with the Americans with
Disabilities Act of 1990; and additional expenditures that may be
incurred as a result of deterioration in the condition of the
City's infrastructure. Certain of these assumptions have been
questioned by the City Comptroller and other public officials.
Estimates of the City's revenues and expenditures are based
on numerous assumptions and subject to various uncertainties. If
expected Federal or State aid is not forthcoming, if unforeseen
developments in the economy significantly reduce revenues derived
from economically sensitive taxes or necessitate increased
expenditures for public assistance, if the City should negotiate
wage increases for its employees greater than the amounts
provided for in the City's Financial Plan or if other
uncertainties materialize that reduce expected revenues or
increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional
actions, including increases in taxes and reductions in essential
City services. The City might also seek additional assistance
from the State.
The City depends on the State for State aid both to enable
the City to balance its budget and to meet its cash requirements.
For its 1993 fiscal year, the State, before taking any remedial
action, reported a potential budget deficit of $4.8 billion
(before providing for repayment of the deficit notes as described
below). If the State experiences revenue shortfalls or spending
increases beyond its projections during its 1993 fiscal year or
subsequent years, such developments could result in reductions in
projected 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.
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 1994-1997 contemplates 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. A significant portion of such bond financing is used
to reimburse the City's general fund for capital expenditures
already incurred. 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 at the
time of the sale, 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 operating and capital expenditures.
Substantially all of the City's full-time employees are
members of labor unions. The Financial Emergency Act requires
that all collective bargaining agreements entered into by the
City and the Covered Organizations be consistent with the City's
current financial plan, except under certain circumstances, such
as awards arrived at through impasse procedures.
On January 11, 1993, the City announced a settlement with a
coalition of municipal unions, including Local 237 of the
International Brotherhood of Teamsters, District Council 37 of
the American Federation of State, County and Municipal Employees
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 which is consistent with
the coalition agreement. The agreement has been ratified. The
Financial Plan reflects the costs associated with these
settlements and provides for similar increases for all other
City-funded employees.
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.
A substantial portion of the capital improvements in the
City are financed by indebtedness issued by the Municipal
Assistance Corporation for the City of New York ("MAC"). 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 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, 1993, MAC had outstanding an aggregate
of approximately $5.304 billion of its bonds.
S&P has rated City Bonds A-. Moody's has rated City Bonds
Baa1. Such ratings reflect only the views of S&P 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, S&P 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 S&P. On July
2, 1985, S&P revised its rating of City Bonds upward to BBB+ and
on November 19, 1987, to A-. On July 2, 1993, Standard & Poor's
reconfirmed its A-rating of City Bonds, continued its negative
rating outlook assessment and stated that maintenance of such
ratings depended upon the City's making further progress towards
reducing budget gaps in the outlying years. 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. The State's current
fiscal year commenced on April 1, 1994, and ends on March 31,
1995, and is referred to herein as the State's 1994-95 fiscal
year. The State's budget for the 1994-95 fiscal year was enacted
by the Legislature on June 7, 1994, more than two months after
the start of the fiscal year. Prior to adoption of the budget,
the Legislature enacted appropriations for disbursements
considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt
service. The State Financial Plan for the 1994-95 fiscal year
was formulated on June 16, 1994 and is based on the State's
budget as enacted by the Legislature and signed into law by the
Governor.
The economic and financial condition of the State may be
affected by various financial, social, economic and political
factors. Those factors can be very complex, may vary from fiscal
year to fiscal year, and are frequently the result of actions
taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal
government, that are not under the control of the State.
The State Financial Plan is based upon forecasts of national
and State economic activity. Economic forecasts have frequently
failed to predict accurately the timing and magnitude of changes
in the national and the State economies. Many uncertainties
exist in forecasts of both the national and State economies,
including consumer attitudes toward spending, Federal financial
and monetary policies, the availability of credit, and the
condition of the world economy, which could have an adverse
effect on the State. There can be no assurance that the State
economy will not experience results int he current fiscal year
that are worse than predicted, with corresponding material and
adverse effects on the State's projections of receipts and
disbursements.
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.
The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current
State Financial Plan, and the assumptions on which they are
based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth below,
and those projections may be changed materially and adversely
from time to time.
As noted above, the financial condition of the State is
affected by several factors, including the strength of the State
and regional economy and actions of the Federal government, as
well as State actions affecting the level of receipts and
disbursements. Owing to these and other factors, the State may,
in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from
a lower recurring receipts base and the future costs of
maintaining State programs at current levels. Any such recurring
imbalance would be exacerbated if the State were to use a
significant amount of nonrecurring resources to balance the
budget in a particular fiscal year. To address a potential
imbalance for a given fiscal year, the State would be required to
take actions to increase receipts and/or reduce disbursements as
it enacts the budget for that year, and under the State
Constitution the Governor is required to propose a balanced
budget each year. To correct recurring budgetary imbalances, the
State would need to take significant actions to align recurring
receipts and disbursements in future fiscal years. There can be
no assurance, however, that the State's actions will be
sufficient to preserve budgetary balance in a given fiscal year
or to align recurring receipts and disbursements in future fiscal
years.
The 1994-95 State Financial Plan contains actions that
provide nonrecurring resources or savings, as well as actions
that impose nonrecurring losses of receipts or costs. It is
believed that the net positive effect of nonrecurring actions
represents considerably less than one-half of one percent of the
State's General Fund, an amount significantly lower than the
amount included in the State Financial Plans in recent years; it
is believed that those actions do not materially affect the
financial condition of the State. In addition to those
nonrecurring actions, the 1994-95 State Financial Plan reflects
the use of $1.026 billion in the positive cash margin carried
over from the prior fiscal year, resources that are not expected
to be available in the State's 1995-96 fiscal year.
The General Fund is the general operating fund of the State
and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the
State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes. In the
State's 1994-95 fiscal year, the General Fund is expected to
account for approximately 52 percent of total governmental-fund
receipts and 51 percent of total governmental-fund disbursements.
General Fund moneys are also transferred to other funds,
primarily to support certain capital projects and debt service
payments in other fund types.
New York State's financial operations have improved during
recent fiscal years. During the period 1989-90 through 1991-92,
the State incurred General Fund operating deficits that were
closed with receipts from the issuance of tax and revenue
anticipation notes ("TRANs"). First, the national recession, and
then the lingering economic slowdown in the New York and regional
economy, resulted in repeated shortfalls in receipts and three
budget deficits. For its 1992-93 and 1993-94 fiscal years, the
State recorded balanced budgets on a cash basis, with substantial
fund balances in each year as described below.
The State ended its 1993-94 fiscal year with a balance of
$1.140 billion in the tax refund reserve account, $265 million in
its Contingency Reserve Fund ("CRF") and $134 million in its Tax
Stabilization Reserve Fund. These fund balances were primarily
the result of an improving national economy, State employment
growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the
personal income tax refund reserve have the effect of reducing
reported personal income tax receipts in the fiscal year when
made and withdrawals from such reserve increase receipts in the
fiscal year when made. The balance in the tax refund reserve
account will be used to pay taxpayer refunds, rather than drawing
from 1994-95 receipts.
Of the $1.140 billion deposited in the tax refund reserve
account, $1.026 billion was available for budgetary planning
purposes in the 1994-95 fiscal year. The remaining $114 million
will be redeposited in the tax refund reserve account at the end
of the State's 1994-95 fiscal year to continue the process of
restructuring the State's cash flow as part of the Local
Government Assistance Corporation ("LGAC") program. The balance
in the CRF will be used to meet the cost of litigation facing the
State. The Tax Stabilization Reserve Fund may be used only in the
event of an unanticipated General Fund cash-basis deficit during
the 1994-95 fiscal year.
Before the deposit of $1.140 billion in the tax refund
reserve account, General Fund receipts in 1993-94 exceeded those
originally projected when the State Financial Plan for that year
was formulated on April 16, 1993 by $1.002 billion.
Greater-than-expected receipts in the personal income tax, the
bank tax, the corporation franchise tax and the estate tax
accounted for most of this variance, and more than offset
weaker-than-projected collections from the sales and use tax and
miscellaneous receipts. Collections from individual taxes were
affected by various factors including changes in Federal business
laws, sustained profitability of banks, strong performance of
securities firms, and higher-than-expected consumption of tobacco
products following price cuts.
Disbursements and transfers from the General Fund were $303
million below the level projected in April 1993, an amount that
would have been $423 million had the State not accelerated the
payment of Medicaid billings, which in the April 1993 State
Financial Plan were planned to be deferred into the 1994-95
fiscal year. Compared to the estimates included in the State
Financial Plan formulated in April 1993, lower disbursements
resulted from lower spending for Medicaid, capital projects, and
debt service (due to refundings) and $114 million used to
restructure the State's cash flow as part of the LGAC program.
Disbursements were higher-than-expected for general support for
public schools, the State share of income maintenance, overtime
for prison guards, and highway snow and ice removal.
In certain prior fiscal years, the State has failed to enact
a budget prior to the beginning of the State's fiscal year. A
delay in the adoption of the State's budget beyond the statutory
April 1 deadline and the resultant delay in the State's Spring
borrowing has in certain prior years delayed the projected
receipt by the City of State aid, and there can be no assurance
that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
On January 14, 1992, S&P downgraded the State's general
obligation bonds from A to A-. Also downgraded was certain of the
State's variously rated moral obligation, lease purchase,
guaranteed and contractual obligation debt, including debt issued
by certain State agencies. On June 6, 1990, Moody's changed its
rating of the State's outstanding general obligation bonds from
AA- 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 S&P. On
January 6, 1992, Moody's changed its rating of certain
appropriations-backed debt of the State from A to Baa1. Moody's
also placed the State's general obligation, State guaranteed and
New York State Local Government Assistance Corporation bonds
under review for possible downgrading in coming months. Any
action taken by S&P 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.
As of March 31, 1994, the State had approximately $5.370
billion in general obligation bonds, excluding refunding bonds
and $294 million in bond anticipation notes outstanding. On May
24, 1993, the State issued $850 million in tax and revenue
anticipation notes all of which matured on December 31, 1993.
Principal and interest due on general obligation bonds and
interest due on bond anticipation notes and on tax and revenue
anticipation notes were $782.5 million for the 1993-94 fiscal
year, and are estimated to be $786.3 million for the 1994-95
fiscal year. These figures do not include interest on refunding
bonds issued in July 1992, to the extent that such interest is to
be paid from escrowed funds.
The 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. As of September 30, 1992, there were 18
authorities that had outstanding debt of $100 million or more.
The aggregate outstanding debt, including refunding bonds, of
these 18 authorities was $63.5 billion as of September 30, 1993.
As of March 31, 1994, aggregate public authority debt outstanding
as State-supported debt was $21.1 billion and as State-related
debt was $29.4 billion.
The authorities are generally supported by revenues
generated by the projects financed or operated, such as fares,
user fees on bridges, highway tolls and rentals for dormitory
rooms and housing. In recent years, however, the State has
provided financial assistance through appropriations, in some
cases of a recurring nature, to certain of the 18 authorities for
operating and other expenses and, in fulfillment of its
commitments on moral obligation indebtedness or otherwise for
debt service. This assistance is expected to continue to be
required in future years.
The Metropolitan Transit Authority ("MTA") oversees the
operation of New York City's subway and bus system, the Transit
Authority or (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 $507
million in calendar year 1992, of which the MTA was entitled to
receive approximately 90% or approximately $456 million. For the
1994-95 State fiscal year, total State assistance to the MTA is
estimated at approximately $1.3 billion.
In 1993, State legislation authorized the funding of a
five-year $9.56 billion MTA capital plan for the five-year
period, 1992 through 1996 (the "1992-96 Capital Program"). The
MTA has received approval of the 1992-96 Capital Program based on
this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the
Legislature authorized procedures for the adoption, approval and
amendment of a five-year plan in 1981 for a capital program
designed to upgrade the performance of the MTA's transportation
systems and to supplement, replace and rehabilitate facilities
and equipment. The MTA, the TBTA and the TA are collectively
authorized to issue an aggregate of $3.1 billion of bonds (net of
certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be
financed in significant part through the dedication of State
petroleum business taxes.
There can be no assurance that all the necessary
governmental actions for the Capital Program will be taken, that
funding sources currently identified will not be decreased or
eliminated, or that the 1992-96 Capital Program, or parts
thereof, will not be delayed or reduced. Furthermore, the power
of the MTA to issue certain bonds expected to be supported by the
appropriation of State petroleum business taxes is currently the
subject of a court challenge. If the Capital Program is delayed
or reduced, ridership and fare revenues may decline, which could,
among other things, impair the MTA's ability to meet its
operating expenses without additional State assistance.
The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and
the Authorities to obtain financing in the public credit markets
and the market price of the State's outstanding bonds and notes
may be adversely affected. The Housing Finance Agency ("HFA") and
the Urban Development Corporation ("UDC") have in the past
required substantial amounts of assistance from the State to meet
debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for
these, or other, Authorities in the future. In addition, certain
statutory arrangements provide for State local assistance
payments otherwise payable to localities to be made under certain
circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local
assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance
payments are so diverted, the affected localities could seek
additional State funds.
A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant
generally involve state programs and miscellaneous tort, real
property, and contract claims and the monetary damages sought are
substantial. Adverse development in these proceedings or the
initiation of new proceedings could affect the ability of the
State to maintain a balanced State Financial Plan in the 1994-95
fiscal year or thereafter. The State believes that the 1994-95
State Financial Plan includes sufficient reserves for the payment
of judgments that may be required during the 1994-95 fiscal year.
Although other litigation is pending against the State, except as
described below, no current litigation involves the State's
authority, as a matter of law, to contract indebtedness, issue
its obligations, or pay such indebtedness when it matures, or
affects the State's power or ability, as a matter of law, to
impose or collect significant amounts of taxes and revenues.
In addition to the proceedings noted below, the State is
party to other claims and litigation which its legal counsel has
advised are not probable of adverse court decisions. Although the
amounts of potential losses, if any, are not presently
determinable, it is the State's opinion that its ultimate
liability in these cases is not expected to have a material
adverse effect on the State's financial position in the 1994-95
fiscal year or thereafter.
On May 31, 1988 the United States Supreme Court 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 were 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). All 50 states and the District of Columbia
moved to intervene, 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. In a
decision dated March 30, 1993, the 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. New York and Delaware have executed a
settlement agreement which provides for payments by New York to
Delaware of $35 million in the State's 1993-94 fiscal year and
five annual payments thereafter of $33 million. New York and
Massachusetts have executed a settlement agreement which provides
for aggregate payments by New York of $23 million, payable over
five consecutive years. The claims of the other states and the
District of Columbia remain.
Among the more significant of these claims still pending
against the State at various procedural stages, are those that
challenge: (1) the validity of agreements and treaties by which
various Indian tribes transferred title to the State of certain
land in central New York; (2) certain aspects of the State's
Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services; (3)
contamination in the Love Canal area of Niagara Falls; (4) 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; (5) challenges to the practice of reimbursing
certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (6) a challenge to the methods
by which the State reimburses localities for the administrative
costs of food stamp programs; (7) alleged responsibility of State
officials to assist in remedying racial segregation in the City
of Yonkers; (8) 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; (9) 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; (10) a challenge to the constitutionality of
financing programs of the Thruway Authority authorized by
Chapters 166 and 410 of the Laws of 1991; (11) a challenge to the
constitutionality of financing programs of the Metropolitan
Transportation Authority and the Thruway Authority authorized by
Chapter 56 of the Laws of 1993; (12) challenges to the delay by
the State Department of Social Services in making two one-week
Medicaid payments to the service providers; (13) challenges to
provisions of Section 2807-C of the Public Health Law, which
impose a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and
portions of Chapter 55 of The Laws of 1992 which require
hospitals to impose and remit to the State an 11% surcharge on
hospital bills paid by commercial insurers; (14) challenges to
the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid
recipients; (15) a challenge to State implementation of a program
which reduces Medicaid benefits to certain home-relief
recipients; and (16) challenges to the rationality and
retroactive application of State regulations recalibrating
nursing home Medicaid rates.
(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.
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 either Trust will retain for any
length of time its present size and composition. Except as
described in footnotes to 'summary of Essential Financial
Information" for the Uninsured Trust and the Insured Trust
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 either of the Trusts and of certain types of issuers of
the Bonds in either of the Trusts. These paragraphs discuss,
among other things, certain circumstances which may adversely
affect the ability of such issuers to make payment of principal
of and interest on Bonds held in the portfolio of either of the
Trusts or which may adversely affect the ratings of such Bonds.
Because of the insurance obtained by the Sponsors or by the
issuers for the Insured Trust, however, such changes should not
adversely affect the Insured Trust's ultimate receipt of
principal and interest, the Standard & Poor's or Moody's ratings
of the Bonds in the portfolio, or the Standard & Poor's rating of
the Units of the Trust. An investment in Units of either of the
Trusts 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 Bonds in either of the Trusts may be
Bonds that are, in whole or in part, subject to and dependent
upon (i) the governmental entity making appropriations from time
to time or (ii) 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,
certificateholders" 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 of the Bonds in either of
the Trusts may be 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"), (and under similar provisions of the prior
tax law) "mortgage revenue bonds" are obligations 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 could
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 (see "Original Issue Discount and Zero Coupon
Bonds").
Housing Bonds. Some of the aggregate principal amount of
Bonds of each Trust 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 each of the Trusts, 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 pursuant to such
redemption provisions. In addition, the housing bonds in each of
the Trusts 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.
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 of each Trust 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.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care
costs are under consideration in Congress and many states.
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[1], 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 project corporation. See also
"Private Activity 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 project 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 either of the
Trusts may contain other Bonds that are "private activity bonds,"
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 either of the Trusts 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 of the Bonds in either of the
Trusts may be 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 of the Bonds in either of the Trusts 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 of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which 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 1991, 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 1991, Puerto Rico experienced a $2,325.5 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. It ranks second only to manufacturing in
contribution to the gross domestic product and leads all sectors
in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the
expansion of the manufacturing sector. Since fiscal 1987,
personal income has increased consistently in each fiscal year.
In fiscal 1991, aggregate personal income was $21.4 billion
($18.7 billion in 1987 prices) and personal income per capita was
$6.038 ($5.287 in 1987 prices). Real personal income showed a
small decrease in fiscal 1991 principally as a result of a
decline in real transfer payments. Real transfer payments grew at
an above normal rate in fiscal 1990 due to the receipt of
non-recurrent relief of federal funds for hurricane Hugo victims.
Personal income includes transfer payments to individuals in
Puerto Rico under various social programs. Total federal payments
to Puerto Rico, which include many types in addition to federal
transfer payments, are lower on a per capita basis in Puerto Rico
than in any state. Transfer payments to individuals in fiscal
1991 were $4.6 billion, of which $3.0 billion, or 65.4%,
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
1991. Unemployment, although at the lowest level since the late
1970s, remains above the average for the United States. In fiscal
1991, the unemployment rate in Puerto Rico was 15.2%. From fiscal
1987 through fiscal 1990, 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. Real gross product amounted
to approximately $19.2 billion in fiscal 1991, or .9% above the
fiscal 1990 level. The economy continued its growth during fiscal
1991 but at a slower rate. The Puerto Rico Planning Board's
economic activity index, a composite index for thirteen economic
indicators, increased .4% for the first eleven months of fiscal
1992 compared to the same period in fiscal 1991, which period
showed a decrease of .5% over the same period in fiscal 1990.
Growth in the Puerto Rico economy in fiscal 1993 depends on
several factors, including the state of the United States economy
and the relative stability in the price of oil imports, the
exchange value of the U.S. dollar and the cost of borrowing.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain of the Bonds in either of the Trusts may be original
issue discount bonds and/or zero coupon bonds. Original issue
discount bonds are bonds that were originally issued at less than
the market interest rate. Zero coupon bonds are original issue
discount bonds that do not provide for the payment of current
interest. For Federal income tax purposes, original issue
discount on such bonds must be amortized over the term of such
bonds. On sale or redemption, the excess of (i) the amount
realized (other than amounts treated as tax-exempt income as
described below) over (ii) 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 Trusts--Tax Status" in this Part II. 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. In addition, the Code
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. Each 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 after June 9, 1980 that are redeemed prior to maturity,
the difference between the Trusts" basis, as adjusted, and the
amount received will be taxable gain or loss to the Unit holders:
all or a portion of any 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 bonds
becomes subject to Federal income taxation. If the interest on
the Bonds in either Trust should ultimately be deemed to be
taxable, the Trustee may 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 price.
Bonds Subject to Sinking Fund Provisions
Bonds in either of the Trusts may be 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. Obligations to be
redeemed are generally chosen by lot. On the Date of Deposit, the
offering valuations of some of the Bonds in either of the Trusts
may have been at a premium and subject to retirement or refunding
within ten years of the Date of Deposit. A callable debt
obligation is one which is subject to redemption prior to
maturity at the option of the issuer. To the extent that
obligations are deposited in either Trust at a price higher than
their par value, such redemption at par would result in a loss of
capital to a purchaser of Units at their original public offering
price. The estimated current return of the Units might also be
adversely affected if the return on the retired Bonds is greater
than the average return on the Bonds in either Trust. In general,
call provisions are more likely to be exercised when the offering
side valuation is at a premium over par than when it is at a
discount from par. See "The Portfolios" in Part I for a list of
original issue discount and/or zero coupon bonds and for a
breakdown of the percentage of Bonds in each Trust with offering
side valuations at a premium, discount or at par. See also
"Estimated Current Return and Estimated Long Term Return" in Part
I. The portfolio contains a listing of the sinking fund and call
provisions, if any, with respect to each of the Bonds therein.
Other Matters
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
Trusts. The Sponsors are unable to predict what effect, if any,
this legislation will have on the Trusts.
To the best knowledge of the Sponsors, there is no
litigation pending as of this Prospectus in respect of any
Securities which might reasonably be expected to have a material
adverse effect upon either Trust, unless otherwise stated in Part
I of this Prospectus, litigation may be initiated on a variety of
grounds with respect to Securities in the Trusts. 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 has given or will give 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 regular Federal income tax. In
addition, 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.
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.
Secondary Market Period
Sales Charge
Years to Maturity Percentage of Public Percentage of Net
Per Bond Offering Price Amount Invested
0 Months to 2 Year 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 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 1% 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.
The Evaluator will consider in its evaluation of Securities
which are in default in payment of principal or interest or, in
the Sponsor's opinion, in significant risk of such default
("Defaulted Bonds") and which are covered by insurance obtained
by the Insured Trust the value of the insurance guaranteeing
interest and principal payments. 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 Municipal Bond Investors Assurance
Corporation to meet its commitments under the Insured Trust's
insurance policy, including the commitment to issue Permanent
Insurance. The Evaluator intends to use a similar valuation
method with respect to Securities insured by the Insured Trust if
there is a significant risk of default and a resulting decrease
in the market value. 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".
If the Trustee does not exercise the right to obtain
Permanent Insurance as to any Defaulted Bonds in the Insured
Trust, it is the present intention of the Trustee, so long as the
Insured Trust 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 INSURED TRUST CANNOT BE REALIZED UPON SALE.
Insurance obtained by the issuer of a Pre-insured Bond, or by
some party other than the Insured Trust, 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 Insured
Trust from Municipal Bond Investors Assurance Corporation as long
as the Bond is held in the Insured Trust.
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 of each Trust and continuously to offer to purchase Units
of each Trust during the initial offering period at prices based
upon the aggregate offering price of the Securities in each
Trust; and thereafter at prices based on the aggregate bid price
of the related Securities. After the initial offering period 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" in Part II). 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 either Series exceeds demand, or
for some other business reason, the Sponsors may discontinue
purchases of Units of either 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 or of the Units of either Trust. In the
event that a market is not maintained for the Units of either
Trust, 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 upon the
aggregate bid price of the underlying Securities. The aggregate
bid price of the Securities in either of the Trusts 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" IN PART II.
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
discounts are subject to change from time to time by the Agent
for the 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. In maintaining a market for the
Units, the Sponsors will realize profits or sustain losses in the
amount of any difference between the price at which they buy the
Units and the price at and the price at which they sell such
units or the price at which they redeem such Units and to the
extent that they earn sales changes on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT
HOLDERS
Units of each 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,
each as of the business day prior to the Date of Deposit, is set
forth under "Summary of Essential Financial Information " in Part
I for each Trust. Information regarding the estimated monthly
distributions of principal and interest to Unit holders of each
Trust is available from the Sponsors on request.
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 interest
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 for each Trust 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 either
of the Trusts and (ii) takes into account the expenses and sales
charge associated with each Unit of each Trust. 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 for each Trust will be realized
in the future.
INSURANCE ON THE BONDS IN THE INSURED TRUST
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Insured Trust has been
obtained from the Insurer by the Insured Trust. The Insurer has
issued a policy of insurance covering each of the Bonds in the
Insured Trust, including Pre-insured Bonds. The Municipal Bond
Investors Assurance Corporation insurance obtained by the Insured
Trust is only effective as to Bonds owned by and held in the
Insured Trust and, consequently, does not cover Bonds for which
the contract for purchase fails. A "when issued" Bond will be
covered under the Municipal Bond Investors Assurance Corporation
policy upon the settlement date of the issue of such "when
issued" Bond. The Municipal Bond Investors Assurance Corporation
policy shall continue in force only with respect to Bonds held in
and owned by the Insured Trust, and the Insurer shall not have
any liability under the policy with respect to any Bonds which do
not constitute part of the Insured Trust. In determining to
insure the Bonds, the Insurer has applied its own standards which
generally correspond to the standards it has established for
determining the insurability of new issues of municipal bonds.
See "Notes to Portfolios" in Part I of this Prospectus.
By the terms of its policy, the Insurer unconditionally
guarantees to the Insured 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 issues of small 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 by reason of mandatory or
optional redemption (other than a mandatory sinking fund
redemption). The Insurer will be responsible for such payments
less any amounts received by the Insured Trust from any trustee
for the Bond issuers or from any other source. Except as provided
below, the Municipal Bond Investors Assurance Corporation policy
does not guarantee payment on an accelerated basis, the payment
of any redemption premium or the value of the Units of the
Insured Trust. The Municipal Bond Investors Assurance Corporation
policy also does 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. However, with respect to small issue industrial
development Bonds and pollution control revenue Bonds covered by
the policy, the Insurer guarantees any accelerated 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 Municipal Bond Investors Assurance
Corporation policy 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 Municipal Bond Investors Assurance Corporation insurance
policy is non-cancelable and will continue in force so long as
the Insured Trust is in existence and the Securities described in
the policy continue to be held in and owned by the Insured Trust
(see "The Trust--Insurance" in Part I of this Prospectus).
Failure to pay premiums on the Municipal Bond Investors Assurance
Corporation policy obtained by the Insured 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 Insured Trust.
The Municipal Bond Investors Assurance Corporation policy
shall terminate as to any Bond which has been redeemed from the
Insured Trust or sold by the Trustee 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, the Municipal Bond Investors
Assurance Corporation policy will terminate as to such Bond on
the business day next succeeding such date of payment. The
termination of the Municipal Bond Investors Assurance Corporation
policy as to any Bond shall not affect the Insurer's obligations
regarding any other Bond in the Insured Trust or any other Trust
which has obtained a Municipal Bond Investors Assurance
Corporation insurance policy. The Municipal Bond Investors
Assurance Corporation policy will terminate as to all Bonds on
the date on which the last of the Bonds matures, is redeemed or
is sold by the Insured Trust.
Pursuant to an irrevocable commitment of the Insurer, the
Trustee upon the sale of a Bond in the Insured Trust has the
right to obtain permanent insurance with respect to such Bond
(i.e., insurance to maturity of the Bond) (the "Permanent
Insurance") upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. Accordingly,
any Bond in the Insured 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 Insured
Trust upon instruction from the Sponsors only if upon such
exercise the Insured 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 were sold on an
uninsured basis.
The Permanent Insurance premium with respect to each Bond in
the Insured Trust 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. See footnote
7 to the "Summary of Essential Financial Information" in Part I
for the Insured Trust for the cost of Permanent Insurance as of
the Date of Deposit.
Except as indicated below, insurance obtained by the Insured
Trust has no effect on the price or redemption value of Units
thereof. lt is the present intention of the Evaluator to
attribute a value to the insurance obtained by the Insured Trust
(including 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. The value of the
insurance will be equal to the difference between (i) the market
value of a Bond which is in default in payment of principal or
interest or in significant risk of such default 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 Bonds not covered by Permanent Insurance. See
"Public Offering--Offering Price" in this Part II for a more
complete description of the Evaluator's method of valuing
defaulted Bonds and Bonds which have a significant risk of
default. Insurance obtained by the issuer of a Bond or by parties
other than the Insured Trust 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 Insured
Trust from the Insurer as long as the Bond is held in the Insured
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,
Citibank, N.A., New York, New York (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 (i)
evidence of the Trust's right to receive payment of such
principal and interest and (ii) 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.
The Insurer is the principal operating subsidiary of MBIA
Inc., a New York Stock Exchange listed company. MBIA Inc. is not
obligated to pay the debts of or claims against the Insurer. The
Insurer is a limited liability corporation rather than a several
liability association. The Insurer 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.
As of December 31, 1992, the Insurer had admitted assets of
$2.6 billion (audited), total liabilities of $1.7 billion
(audited), and total capital and surplus of $896 million
(audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1993, the Insurer had admitted
assets of $2.7 billion (unaudited), total liabilities of $1.8
billion (unaudited), and total capital and surplus of $918
million (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance
regulatory authorities. Copies of the Insurer's year end
financial statements prepared in accordance with statutory
accounting practices are available from the Insurer. The address
of the Insurer is 113 King Street, Armonk, New York 10504.
No representation is made herein as to the accuracy or
adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date
thereof. The Sponsors are not aware that the information herein
is inaccurate or incomplete as of the date hereof.
Standard & Poor's Corporation has assigned to the Units and
Bonds in the Insured Trust a rating of "AAA." Moody's Investors
Service has assigned a rating of "Aaa" to all of the Bonds in the
Insured Trust, as insured. These ratings apply to the Bonds only
while they are held in the Insured Trust. Also, these ratings
reflect Standard & Poor's and Moody's current assessments of the
creditworthiness of the Insurer and their ability to pay claims
on their policies of insurance.
Battle Fowler, special counsel for the Sponsors, have
rendered an opinion to the effect that the payment of proceeds
from the insurance will be excludible from Federal gross income
if, and to the same extent as, such interest would have been so
excludible if paid by the issuer of the defaulted obligations.
See "Tax Status" in this Part II.
The contract of insurance relating to the Insured Trust,
certain agreements relating to the Permanent Insurance and the
negotiations in respect thereof represent the only significant
relationship between the Insurer and the Insured 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 the
Insurer's parent company, MBIA Inc. Although all issues contained
in the Insured Trust are individually insured, neither the
Insured 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
obtained by the Insured 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 "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 Insured Trust (all of
which are rated "AAA" by Standard & Poor's Corporation and/or
"Aaa" by Moody's Investors Service, 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,
respectively. In selecting Pre-insured Bonds for the portfolio of
the Insured Trust, the Sponsors have applied the criteria
hereinbefore described.
Because the Securities in the Insured Trust are insured by
Municipal Bond Investors Assurance Corporation as to the payment
of principal and interest, Standard & Poor's Corporation has
assigned its "AAA" investment rating to the Units and Bonds in
the Insured Trust and Moody's Investors Service has assigned a
rating of "Aaa" to all of the Bonds in the Insured Trust, as
insured. See "Statement of Condition--Notes to Portfolios" in
Part I. The obtaining of these ratings by the Insured Trust
should not be construed as an approval of the offering of the
Units by Standard & Poor's Corporation or Moody's Investors
Service or as a guarantee of the market value of the Insured
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
Insured 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."
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.
Among other things, the Code 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 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 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.
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.
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 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.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units of each Trust 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 each Trust will be distributed on
each Distribution Date to Unit holders of record of each 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 for each Trust, "The
Trust--Expenses and Charges" and "Rights of Unit
Holders--Redemption" in Part II.
The Trustee will credit to the Interest Account for each
Trust all interest received by such Trust, including that part of
the proceeds of any disposition of Securities which represents
accrued interest. Other receipts of each Trust will be credited
to the Principal Account for such Trust. The pro rata share of
the Interest Account of each Trust and the pro rata share of cash
in the Principal Account (other than amounts representing failed
contracts as previously discussed) 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 for each Trust. 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 each Trust and will not be distributed
until the second succeeding Distribution Date. Because interest
on the Securities is not received by each 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 such Trust as of the Record Date. It may take up to
four or five months after the Date of Deposit for the Trustee to
receive sufficient interest payments on the Securities to
generate enough cash to make distributions to Unit holders. See
"Summary of Essential Financial Information" in Part I for each
Trust. 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.
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" in Part
II.
The Trustee will, as of the fifteenth day of each month,
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 each Trust as of the first day of such
month. See "The Trusts--Expenses and Charges" in Part II. 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 each Trust. Amounts so
withdrawn shall not be considered a part of each 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" in Part II.
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 each Trust is payable at
varying intervals, usually in semi-annual installments, the
interest accruing to each 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. Therefore, on each monthly Distribution Date, 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 each Trust and distributed to Unit
holders. Therefore, there will always remain 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
holder either redeems or sells such Unit or until the Trust is
terminated.
Expenses and Charges
Initial Expenses
At no cost to either 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, Sponsor's and Evaluator's fees are set forth
under the "Summary of Essential Financial Information" in Part I
for each Trust. The Sponsors" fee, which is earned for portfolio
supervisory services, is based on the face amount of Securities
in each Trust at December 1 of each year. The Sponsors" fee,
which is not to exceed the maximum amount set forth under the
"Summary of Essential Financial Information" for each Trust, may
exceed the actual costs of providing portfolio supervisory
services for each Trust, but at no time will the total amount the
Sponsors receive 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 each Trust an annual fee in the amount set forth in the
"Summary of Essential Financial Information" for each Trust;
provided, however, that such fees may be adjusted as set forth
under the "Summary of Essential Financial Information" for each
Trust. 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" in Part II.
For a discussion of the services performed by the Trustee
pursuant to its obligations under the Trust Agreements, reference
is made to the material set forth under "Rights of Unit Holders"
in Part II.
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, each from the Interest Account to
the extent funds are available and then from the Principal
Account. 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"; except no such increase in the Trustee's fee will be
so made for the sole purpose of making up any downward adjustment
therein as described in "Summary of Essential Financial
Information" for each Trust. If the balances in the Principal and
Interest Accounts are insufficient to provide for amounts payable
by either Trust, or amounts payable to the Trustee which are
secured by its prior lien on such Trust, the Trustee is permitted
to sell Bonds to pay such amounts.
Insurance Premiums
The cost of the Municipal Bond Investors Assurance
Corporation insurance obtained by the Insured Trust, based on the
aggregate amount of Bonds in the Insured Trust as of the Date of
Deposit, is set forth in the "Summary of Essential Financial
Information" for the Insured Trust. Premiums, which are
obligations of the Insured Trust, are payable monthly by the
Trustee on behalf of the Insured Trust. As Securities in the
portfolio 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
Insured Trust. The Insured 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
Insured Trust. No premium will be paid by the Insured Trust on
Bonds which are also Municipal Bond Investors Assurance
Corporation Pre-insured Bonds or Municipal Bond Insurance
Association 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 Insured Trust in the
event the Trustee exercises the right to obtain Permanent
Insurance on such Bond.
Other Charges
The following additional charges are or may be incurred by
either of the Trusts: all expenses (including audit and counsel
fees) of the Trustee incurred in connection with its activities
under the Trust Agreements, including annual audit expenses by
independent public accountants selected by the Sponsors (so long
as the Sponsors maintain a secondary market, the Sponsors will
bear any audit expense which exceeds 50 cents per Unit), the
expenses and costs of any action undertaken by the Trustee to
protect each Trust and the rights and interests of the Unit
holders; fees of the Trustee for any extraordinary services
performed under the Trust Agreements; 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
each Trust; and all taxes and other governmental charges imposed
upon the Securities or any part of such 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 pertinent Trust. In addition, the Trustee is
empowered to sell Securities in order to make funds available to
pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders of each Trust 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 for the Insured
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, with respect to the Insured Trust
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, purchase of Replacement Bonds, 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 of
each Trust, certificates issued or held, a current list of
Securities in each Trust and a copy of each 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" in Part II). 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
the "Summary of Essential Financial Information" for each Trust
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 each 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" in Part II.
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 each Trust will be reduced.
If the Trustee exercises the right to obtain Permanent
Insurance on a Bond in the Insured Trust, such Bond will be sold
from the Insured Trust on an insured basis. In the event the
Trustee does not exercise the right to obtain Permanent Insurance
on a Bond, such Bond will be sold from the Insured Trust on an
uninsured basis, since the Municipal Bond Investors Assurance
Corporation insurance obtained by the Insured Trust covers the
timely payment of principal and interest when due on the Bonds
only while the Bonds are held in and owned by the Insured Trust.
If the Trustee does not obtain Permanent Insurance on a Defaulted
Bond, to the extent that Bonds which are current in payment of
interest are sold from the Insured 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 Insured Trust will tend to diminish. See
"Sponsors--Responsibility" in Part II 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 Insured Trust terminates
as to Bonds which are sold by the Trustee, and because the
insurance obtained by the Insured Trust does not have a
realizable cash value which can be used by the Trustee to meet
redemptions of Units, 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 Insured Trust 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 Insured 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 each Trust,
as of the Evaluation Time on the day any such determination is
made. The bid prices of the Securities may be expected to be less
than the offering prices. This Redemption Price per Unit is each
Unit's pro rata share, determined by the Trustee, of: (1) the
aggregate value of the Securities in each 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 each Trust (other than cash covering contracts to purchase
Securities), 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 each
Trust, (b) the accrued expenses of each 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 each Trust (1) on the basis of current bid prices
for the Securities, (2) if bid prices are not available for any
Securities, on the basis of current bid prices for comparable
bonds, (3) by appraisal, or (4) 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 Insured Trust
on the Bonds in the Insured 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 in the
Insured Trust 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 Insured Trust, see "Public
Offering--Offering Price" in this Part II.
Purchase by the Sponsors of Units Tendered for Redemption
Each 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" in this Part II). 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" in Part
II). 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
its acquisition of such Units (see "Public Offering--Sponsors"
and Underwriters" Profits" in this Part II).
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
"Exchange Trusts") are offering Unit holders of the Exchange
Trusts for which the Sponsors are maintaining a secondary market
an option to exchange a Unit of any series of the Exchange Trusts
for a Unit of a different series of the Exchange Trusts 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--Markets for Units") plus
a fixed sales charge of $15 per Unit (in lieu of the normal sales
charge). However, a Unit holder must have held his Unit for a
period of at least six months 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
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 own tax advisors as
to the tax consequences of exchanging Units.
<PAGE>
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 each Trust to elect to have
distributions from Units in each 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, 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 either 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, New York
State and New York City personal income taxes. However, during
times of adverse market conditions, 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 and/or New York City income taxes, 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
adviser 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 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 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 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, return the enclosed card for a copy of the
Empire Builder Prospectus. Read it carefully before you decide to
participate.
<PAGE>
THE FOLLOWING ALTERNATE TEXT OF "AUTOMATIC ACCUMULATION
ACCOUNT" APPEARS ONLY IN PROSPECTUSES DISTRIBUTED
TO CLIENTS OF LEBENTHAL & CO., INC.
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 in each Trust to elect to have
distributions from Units in each 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 either 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.
<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors of 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 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 67
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 of 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.
Limitations on Liability
The Sponsors are jointly and severally liable for the
performance of their obligations arising from their
responsibilities under each 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, gross negligence or reckless
disregard for their obligations and duties. See "The
Trusts--Portfolios" and "Sponsors-- Responsibility" in Part II.
The principal offices of Lebenthal are located at 25 Broadway,
New York, New York 10004.
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 are not 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 the Trustee does not exercise
the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds in the Insured Trust, 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 Insured Trust in order to preserve the related insurance
protection applicable to said Bonds, the overall value of the
Bonds remaining in the Insured Trust's Portfolio will tend to
diminish. In the event 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 Insured 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" in Part II. The Sponsors are
empowered, but not obligated, to direct the Trustee to dispose of
Bonds in the event of advanced 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 in 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 and in the discussion under
"Portfolio--General Considerations" in Part II regarding the
substitution of Replacement Bonds for Failed Bonds, the
acquisition by each 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 with respect to the
Insured Trust 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 Trusts--Insurance on the Bonds in the
Insurance Trust" in Part II.
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 each Trust
would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal
Account for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final
distributions to Unit holders, if the Trustee does not exercise
the right to obtain Permanent Insurance on any Defaulted Bond,
because the portfolio insurance obtained by the Insured Trust is
applicable only while Bonds so insured are held by the Insured
Trust, the price to be received by the Insured Trust upon the
disposition of any such Defaulted Bond will not reflect any value
based on such insurance. Therefore, in connection with any
liquidation prior to December 31, 2042, with respect to the
Insured Trust, 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 a significant risk of default. Since the
Pre-insured Bonds in the Insured Trust 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 in the Insured Trust 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" for the Insured
Trust).
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of
Essential Financial Information" for each Trust has been
appointed by the other Sponsors as agent for purposes of taking
action under each Trust Agreement. If the Sponsors are unable to
agree with respect to action to be taken jointly by them under
each 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 each 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 each
Trust Agreement and the other Sponsors act 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 each
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 each Trust Agreement and liquidate each Trust.
Financial Information
At September 30, 1993, the total partners" capital of
Glickenhaus was $132,308,000 (audited); and at March 31, 1994,
the total stockholders" equity of Lebenthal was $4,519,070
(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 banking
corporation organized under the laws of the United States or any
state 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. The
duties of the Trustee are primarily ministerial in nature. The
Trustee did not participate in the selection of Securities for
each 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 monies, 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 for 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 either 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 Trusts--Portfolios") in Part I.
Responsibility
For information relating to the responsibilities of the
Trustee under each Trust Agreement, reference is made to the
material set forth in Part II under "Rights of Unit Holders,"
"Sponsors--Responsibility" and "Sponsors-- Resignation" in this
Part II.
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 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 each Trust Agreement. Such
resignation or removal shall become effective upon the acceptance
of appointment by the successor trustee. If, upon resignation 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
Both during and after the initial offering period, the
Evaluator shall be Muller Data Corporation ("Muller Data"), a New
York corporation with main offices located at 395 Hudson Street,
New York, New York 10014. Muller Data 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 each
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 Unit holders for errors in judgement. But 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.
Responsibility
Each 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" in Part II.
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 each
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 a 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 each Trust, except in accordance with the provisions
of each Trust Agreement. In the event of any amendment, the
Trustee is obligated to notify promptly all Unit holders of the
substance of such amendment.
Each 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 each Trust as shown by any evaluation is less than
$2,000,000 or less than 20% of the value of each Trust as of the
date hereof, whichever is lower, at which time each Trust may be
terminated (i) by the consent of 66 2/3% of the Units or (ii) by
the Trustee; provided, however, that upon affirmative written
notice to the Sponsors and the Unit holders at least 33 1/3% of
the Units may instruct the Trustee not to terminate such Trust.
In no event, however, may a Trust continue beyond the Mandatory
Termination Date set forth in Part I; provided, however, that
prior to such 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. 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 such 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
such Trust.
LEGAL OPINIONS
Certain legal matters will be passed upon by Battle Fowler,
280 Park Avenue, New York, New York 10017, as special counsel for
the Sponsors, and Tanner, Propp & Farber, 99 Park Avenue, New
York, New York 10016, acting as counsel for the Trustee.
AUDITORS
The statement of condition of each Trust included in this
Prospectus has been audited by BDO Seidman, independent certified
public auditors, as stated in their report appearing herein, and
has been so included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
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.
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.
Indicates that continuance of the rating is contingent upon
Standard & Poor's receipt of an executed copy of the escrow
agreement or closing documentation confirming investments and
cash flows.
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 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 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 are bonds 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.
**FOOTNOTES**
[1]: For purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
This Prospectus contains informa-
tion concerning the Trust and the
Sponsors, but does not contain
all the information set forth in
the registration statements and
exhibits relating thereto, which
the Trust has filed with the
Securities and Exchange
Commission, Washington, D.C.,
under the Securities Act of 1933
and the Investment Company Act of
1940, and to which reference is
hereby made.
INDEX
Page
The Trust 1
Public Offering 19
Estimated Current Return and
Estimated
Long-Term Return to Unit Hold-
ers 21
Insurance on the Bonds 22
Tax Status 25
Rights of Unit Holders 31
Automatic Accumulation Account 36
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 informa-
tion or representation not con-
tained 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.
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
PROSPECTUS, PART II
Sponsors:
GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
(212) 953-7532
LEBENTHAL & CO., INC.
25 Broadway
New York, New York 10004
(212) 425-6116
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
SERIES 71
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
Contents of Registration Statement
These Post-Effective Amendments 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:
Battle Fowler (previously filed).
BDO Seidman.
Muller Data Corporation (included as Exhibit 99.5.1)
(iii) The following exhibits:
*27-Financial Data Schedule.
*99.5.1-Consent of Muller Data Corporation, as Evaluator.
99.6.1-Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-58492
of Empire State Municipal Exempt Trust, Guaranteed Series 95 on
May 12, 1993, and as Exhibit 5.2(a) to Amendment No. 1 to Form
S-6 Registration Statement No. 33-78036 of MINT Group 11 on
May 3, 1994, and incorporated herein by reference).
99.6.2-Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 5.2 to
Amendment No. 1 to Form S-6 Registration Statement No. 33-26577
of Empire Sate Municipal Exempt Trust, Guaranteed Series 46 on
April 19, 1989, and 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
incorporated herein by reference).
__________________
*Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Series 71
and Empire State Municipal Exempt Trust, Guaranteed Series 99, certify
that they meet all of the requirements for effectiveness of these
Post-Effective Amendments to the Registration Statements pursuant to Rule
485(b) under the Securities Act of 1933 and have duly caused the
Post-Effective Amendments to the Registration Statements 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 30th day of September, 1994.
Signatures appear on pages II-3 and II-4
A majority of the General Partners of Glickenhaus & Co. have signed
these Post-Effective Amendments to the Registration Statements pursuant to
powers of attorney on file with the Commission authorizing the person
signing these Post-Effective Amendments to the Registration Statements to
do so on behalf of such persons.
A majority of the Board of Directors of Lebenthal & Co., Inc. have
signed these Post-Effective Amendments to the Registration Statements
pursuant to powers of attorney on file with the Commission authorizing the
person signing these Post-Effective Amendments to the Registration
Statements to do so on behalf of such persons.
<PAGE>
Empire State Municipal Exempt Trust,
Series 71 and Guaranteed Series 99
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. 1 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
ROBERT SANTORO* General Partner
(Robert Santoro)
ALFRED FEINMAN* General Partner
(Alfred Feinman)
SETH M. GLICKENHAUS* General Partner
(Seth M.Glickenhaus)
STEVEN B. GREEN* General Partner,
(Steven B. Green) Chief Financial Officer
ARTHUR WINSTON* General Partner
(Arthur Winston)
JEFFREY L. LEDERER* General Partner
(Jeffrey L. Lederer)
*By: /s/ Brian C. Laux September 30, 1994
(Brian C. Laux,
Attorney-in-Fact)
<PAGE>
Empire State Municipal Exempt Trust,
Series 71 and Guaranteed Series 99
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. 1 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 September 30, 1994
(James A. Lebenthal) Executive Officer
DUNCAN K. SMITH* Director
(Duncan K. Smith)
PETER J. SWEETSER* Director
(Peter J. Sweetser)
*By: /s/ James A. Lebenthal September 30, 1994
(James A. Lebenthal,
Attorney-in-Fact)
<PAGE>
CONSENT OF COUNSEL
The consent of Battle Fowler 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 71 AND GUARANTEED SERIES 99
We hereby consent to the use in Post-Effective Amendment No. 1 to
Registration Statement No. 33-49993 of our report dated June 30, 1994
relating to the financial statements of Empire State Municipal Exempt
Trust, Series 71; the use in Post-Effective Amendment No. 1 to
Registration Statement No. 33-49993 of our report dated June 30, 1994
relating to the financial statements of Empire State Municipal Exempt
Trust, Guaranteed Series 99; and to the references to our firm under the
heading "Auditors" in the Prospectuses which are part of such Registration
Statement.
/s/ BDO Seidman
BDO SEIDMAN
Woodbridge, New Jersey
September 30, 1994
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 31, 1994, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000910389
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
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<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-START> SEP-15-1993
<PERIOD-END> MAY-31-1994
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<INVESTMENTS-AT-VALUE> 3435649
<RECEIVABLES> 69889
<ASSETS-OTHER> 9295
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3514833
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</TABLE>
MULLER DATA CORPORATION
A Thomson Financial Services Company
September 30, 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 71 and Guaranteed Series 99 -- Amendment No. 1
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-49993 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 Amendments of the reference to Muller Data Corporation
as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above reference Amendment to the Registration Statement for the
respective bonds comprising the trust portfolios are the ratings
currently indicated in our Muniview data base.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
s/NEIL EDELSTEIN
Neil Edelstein
Executive Vice President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MAY 31, 1994, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000910389
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99
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</TABLE>
