As filed with the Securities and Exchange Commission on September 30, 1994
Registration No. 33-10860
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 7
to
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact name of trust:
Empire State Municipal Exempt Trust,
Guaranteed Series 31
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
---
| X | Check box if it is proposed that this filing will become effective
--- immediately upon filing pursuant to paragraph (b) of Rule 485.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
Prospectus, Part I 9,832 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 31
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
Aggregate Principal Amount of Bonds in the Trust: $ 7,895,000
Number of Units: 9,832
Fractional Undivided Interest in the Trust Per Unit: 1/9,832
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $10,077,862.45
--------------
Sponsors' Repurchase Price Per Unit: $ 1,025.01
Plus Sales Charge(1): 26.99
--------------
Public Offering Price Per Unit(2): $ 1,052.00
==============
Redemption Price Per Unit(3): $ 1,025.01
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 26.99
Weighted Average Maturity of Bonds in the Trust: 10.361 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: $16,886
Evaluator's Fee: $.55 for each issue of Bonds in the Trust
for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds
in the Trust, $1.24 under the monthly and
$.69 under the semi-annual distribution
plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of
underlying securities.
Date of Deposit: June 10, 1987
Date of Trust Agreement: June 10, 1987
Mandatory Termination Date:December 31, 2036
Minimum Principal Distribution:$1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated:$2,000,000
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 31
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1994
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $ 60.29 $ 60.29
Less Annual Premium on Portfolio Insurance 1.71 1.71
E Less Estimated Annual Expenses 1.84 1.16
-------- -------
R Estimated Net Annual Interest Income: $56.74 $ 57.42
======== =======
U Estimated Interest Distribution: $ 4.72 $ 28.71
N Estimated Current Return Based on Public
Offering Price (4): 5.39% 5.46%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.02% 5.09%
Estimated Daily Rate of Net Interest
Accrual: $.15761 $.15950
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
1.The sales charge is determined based on the maturities of the
underlying securities in the portfolio. See "Public Offering --
Offering Price" in Part II of this Prospectus.
2.Plus accrued interest to July 8, 1994, the expected date of
settlement, of $14.86 monthly and $20.54 semi-annually.
3.Based solely upon the bid side evaluations of the portfolio
securities. Upon tender for redemption, the price to be paid will
include accrued interest as described in Part II under "Rights of
Unit Holders -- Redemption -- Computation of Redemption Price per
Unit."
4.Estimated Current Return is calculated by dividing the estimated
net annual interest income received in cash per Unit by the Public
Offering Price. Interest income per Unit will vary with changes in
fees and expenses of the Trustee and the Evaluator, and with the
redemption, maturity, exchange or sale of Securities. This
calculation, which includes cash income accrual only, does not
include discount accretion on original issue discount bonds or on
zero coupon bonds or premium amortization on bonds purchased at a
premium. See "The Trust -- Tax Status" and "The Trust -- Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in
Part II of this Prospectus.
5.Estimated Long-Term Return is calculated by using a formula that
takes into account the yields (including accretion of discounts
and amortization of premiums) of the individual Bonds in the
Trust's portfolio, weighted to reflect the market value and time
to maturity (or, in certain cases, to earlier call date) of such
Bonds, adjusted to reflect the Public Offering Price (including
sales charge and expenses) per Unit. See "The Trust -- Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in
Part II of this Prospectus.
<PAGE>
Portfolio Information
On May 31, 1994, the bid side valuation of 100% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a
premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
The Portfolio consists of 12 issues of Bonds issued by entities
located in New York or certain United States territories or
possessions. The following information is being supplied to inform
Unit Holders of circumstances affecting the Trust. 6.3% 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. 36.7% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 57.0%
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, 2 (6.3%); Appropriations, 2 (36.7%); Revenue:
Higher Education, 2 (20.7%); Health Care, 3 (20.6%); Transportation,
2 (6.6%); and Municipal Assistance Corporation, 1 (9.1%). The Trust
is deemed to be concentrated in the Appropriations Bond category.1
Four issues, constituting 23.4% of the Bonds in the Portfolio, are
original issue discount bonds. On May 31, 1994, 7 issues (44.3%)
were rated AAA, 2 issues (9.9%) were rated AA, and 1 issue (19.7%)
was rated BBB by Standard & Poor's Corporation; 1 issue (17.0%) was
rated Aaa and 1 issue (9.1%) was rated Aa by Moody's Investors
Service, Inc.2 Subsequent to such date, such ratings may have
changed. See "Tax-Exempt Bond Portfolio." For a more detailed
discussion, it is recommended that Unit Holders consult the official
statements for each Security in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was
rendered on the Date of Deposit. Consult your tax advisor to
discuss any relevant changes in tax laws since the Date of
Deposit. See also "The Trust -- Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio
is, in the opinion of bond counsel to the issuing governmental
authorities, excludable from gross income under the Internal
Revenue Code of 1986, as amended. See "The Trust -- Portfolio"
in Part II of this Prospectus.
1 A Trust is considered to be "concentrated" in a particular
category or issuer when the Bonds in that category or of that issuer
constitute 25% or more of the aggregate face amount of the
Portfolio. See "The Trust -- General Considerations" in Part II of
this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings"
in Part II of this Prospectus.
<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 Guaranteed Series 31, issued an opinion as to the tax
status of the Trust. In part, the opinion stated:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and interest on the Bonds which is
exempt from Federal income tax under the Internal Revenue Code of
1986, as amended (the "Code") when received by the Trust will be
excludable from the Federal gross income of the Unit holders of the
Trust. Any proceeds paid under the insurance policy described in
the Prospectus, issued to the 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 Trust will be excludable from
Federal gross income if, and to the same extent as, such interest
would have been so excludable 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 other assets held in the 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 Trust on receipt (or earlier accrual, depending on
the Unit holder's method of accounting) by the Trust, and each Unit
holder will have a taxable event when an underlying Bond is disposed
of (whether by sale, redemption, or payment at maturity) or when the
Unit holder redeems or sells his Units. The total tax basis (i.e.,
cost) of each Unit to a Unit holder is allocated among each of the
Bonds held in the Trust (in accordance with the proportion of the
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. The entire
amount of net income, other than capital gains, distributed by the
Trust to Unit holders during the first year will represent interest
which in the opinion of bond counsel is excludable from gross income
for Federal income tax purposes. Some or all of the interest
received from the Portfolio may be includable in calculating the
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 the
Trust, taxable gain or loss will equal the difference between (i)
the amount received (excluding the portion representing accrued
interest) and (ii) the adjusted basis (including any accrued
original issue discount). A Unit holder may also realize taxable
gain or loss when a Unit is sold or redeemed. Taxable gain will
result if a Unit is sold or redeemed for an amount greater than its
adjusted basis to the Unit holder. The amount received when a Unit
is sold or redeemed is allocated among all the Bonds in the Trust in
the same manner as when the Trust disposes of Bonds, and the Unit
holder may exclude accrued interest but not amounts attributable to
market discount. The return of a Unit holder's tax basis is
otherwise a tax-free return of capital.
If the Trust purchases any units of a previously-issued series
then, based on the opinion of counsel with respect to such series,
the 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 the Trust. A Unit holder, however, will be
considered to have received income or gain with respect to bonds in
such previously-issued series on receipt (or earlier accrual,
depending on the Unit holder's method of accounting) by the
previously-issued series.
Under the income tax laws of the State and City of New York, the
Trust is not an association taxable as a corporation and the income
of the Trust will be treated as the income of the Unit holders
thereof.
A Unit holder who is a non-resident of New York will not be
subject to New York State or City income tax on any interest or gain
derived from his interest in the Trust 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 the 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 which represent
maturing interest on defaulted obligations held by the Trustee if,
and to the same extent as, such interest would have been so
excludable 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 31:
We have audited the accompanying statement of net assets of
Empire State Municipal Exempt Trust, Guaranteed Series 31,
including the bond portfolio, as of May 31, 1994, and the
related statements of operations and changes in net assets
for the years ended May 31, 1994 and 1993. These financial
statements are the responsibility of the Sponsors. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included
confirmation of securities owned as of 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Empire State Municipal Exempt Trust, Guaranteed
Series 31 as of May 31, 1994, and the results of its
operations and changes in net assets for the years ended
May 31, 1994 and 1993, in conformity with generally
accepted accounting principles.
BDO Seidman
Woodbridge, New Jersey
June 30, 1994 except for Note 5, which is as of September 1, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
STATEMENT OF NET ASSETS
MAY 31, 1994
ASSETS:
CASH $ 12 926
INVESTMENTS IN SECURITIES, at market
value (cost $8,906,183) 10 135 283
ACCRUED INTEREST RECEIVABLE 274 709
___________
Total trust property 10 422 918
LESS - ACCRUED EXPENSES 1 617
___________
NET ASSETS $10 421 301
===========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS $5 664 771 $4 441 590 $10 106 361
UNDISTRIBUTED NET INVESTMENT
INCOME 105 189 209 751 314 940
---------- ---------- -----------
Total value $5 769 960 $4 651 341 $10 421 301
========== ========== ===========
UNITS OUTSTANDING 5 508 4 324 9 832
========== ========== ===========
VALUE PER UNIT $1 047.56 $1 075.70
========== ==========
See accompanying notes to financial statements.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
STATEMENTS OF OPERATIONS
Year ended
May 31,
------------------------------------
1994 1993
INVESTMENT INCOME - INTEREST $734 913 $765 713
-------- --------
EXPENSES:
Trustee fees 11 666 12 382
Evaluation fees 1 887 2 297
Insurance premiums 17 489 18 240
Sponsors' advisory fees 2 415 2 525
Auditors' fees 1 800 1 800
-------- --------
Total expenses 35 257 37 244
-------- --------
NET INVESTMENT INCOME 699 656 728 469
REALIZED GAIN (LOSS) ON SECURITIES
SOLD OR REDEEMED (Note 3) 58 919 (7 916)
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (368 019) 411 072
--------- --------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $390 556 $1 131 625
========= ========
See accompanying notes to financial statements.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
STATEMENTS OF CHANGES IN NET ASSETS
Year ended
May 31,
------------------------------------
1994 1993
OPERATIONS:
Net investment income $ 699 656 $ 728 469
Realized gain (loss) on securities
sold or redeemed 58 919 (7 916)
Net change in unrealized market
appreciation (depreciation) (368 019) 411 072
------------ ----------
Net increase in net assets
resulting from operations 390 556 1 131 625
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income (714 354) (743 126)
Principal (157 198) (266 348)
------------ ----------
Total distributions (871 552) (1 009 474)
------------ ----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 325 and 171 units (342 648) (183 596)
------------ ----------
NET DECREASE IN NET ASSETS (823 644) (61 445)
NET ASSETS:
Beginning of year 11 244 945 11 306 390
End of year $10 421 301 $11 244 945
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan $69.55 $71.55
Semi-annual plan $70.75 $72.92
Principal:
Monthly plan $15.64 $26.10
Semi-annual plan $15.64 $26.10
See accompanying notes to financial statements.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by
an independent outside evaluator.
Taxes on income
The Trust is not subject to taxes on income and, accordingly,
no provision has been made.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit Holders
either semi-annually on the first day of June and December or, if
elected by the Unit Holder, on the first day of each month, after
deducting applicable expenses. Principal distributions, resulting from
the sale or redemption of securities, were made in March 1994.
NOTE 3 - BONDS SOLD OR REDEEMED
Port- Realized
folio Principal Date Net Gain
No. Amount Redeemed Description Proceeds Cost (Loss)
Year ended May 31, 1994:
12 $25 000 6/2/93 Triborough Bridge and Tunnel $27 094 $26 542 $ 552
Authority, General Purpose
Revenue Bonds, Series G
9 30 000 8/17/93 Metropolitan Transportation 31 275 27 296 3 979
Authority, Commuter
Facilities Service
Contract Bonds, Series J
5 25 000 10/26/93 Triborough Bridge and Tunnel 27 250 24 105 3 145
Authority, General Purpose
Revenue Bonds, Series One
7 15 000 11/22/93 Dormitory Authority of the 16 875 14 944 1 931
State of New York, City
University System
Consolidated Revenue
Bonds, Series 1987A
3 25 000 1/15/94 New York State Medical Care, 25 000 27 200 (2 200)
Facilities Finance Agency,
Insured Hospital Mortgage
Revenue Bonds, 1983 Series A
(Anticipated Redemption
Schedule Beginning 1/15/86)
9 20 000 2/1/94 Metropolitan Transportation 20 400 18 197 2 203
Authority, Commuter Facilities
Service Contract Bonds, Series J
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
NOTES TO FINANCIAL STATEMENTS
(Concluded)
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
Port- Realized
folio Principal Date Net Gain
No. Amount Redeemed Description Proceeds Cost (Loss)
Year ended May 31, 1994: (continued)
* $150 000 2/3/94 Battery Park City Authority $151 500 $124 500 $27 000
Public Benefit Corporation of
the State of New York),
Series A Bonds
9 165 000 3/30/94 Metropolitan Transportation 169 207 150 127 19 080
Authority, Commuter Facilities
Service Contract Bonds, Series J
9 30 000 5/24/94 Metropolitan Transportation 30 525 27 296 3 229
Authority, Commuter Facilities
Service Contract Bonds, Series J
-------- -------- -------- -------
$485 000 $499 126 $440 207 $58 919
======== ======== ======== =======
* Portfolio redeemed in its entirety
NOTE 4 - NET ASSETS
Cost of 12,000 units at Date of Deposit $11 997 581
Less gross underwriting commission 587 760
----------
Net cost - initial offering price 11 409 821
Realized net gain on securities sold or redeemed 133 252
Principal distributions (447 206)
Redemption of 2,168 units (2 218 606)
Unrealized market appreciation of securities 1 229 100
Undistributed net investment income 314 940
----------
Net assets $10 421 301
==========
NOTE 5 - SUBSEQUENT EVENTS
Through September 1, 1994, $1,650,000 of the par value of the Bonds
in the Trust were sold or redeemed.
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds May 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $ 500 000 The City of New 8.000% 08/01/04 No Sinking Fund $ 507 500 $ 556 674 $ 40 000
York, General 08/15/97 @ 102 Opt.
Obligation Bonds,
Fiscal 1987 Series
D (BIGI Insured)
2 AAA 1 015 000 Dormitory Authority 6.500 07/01/12 07/01/03 @ 100 S.F. 870 616 1 051 093 65 975
of the State of 07/01/97 @ 102 Opt.
New York, New York
Foundling Charitable
Corporation, Insured
Revenue Bonds,
Series 1987
(MBIA Insured)
3 AA 180 000 New York State 9.375 01/15/03 No Sinking Fund 195 840 182 686 16 875
Medical Care 07/15/94 @ 101 Opt.
Facilities Finance
Agency, Insured
Hospital Mortgage
Revenue Bonds,
1983 Series A
(Anticipated
Redemption
Schedule Beginning
1/15/86)
4 AA 765 000 New York State 8.000 02/15/25 No Sinking Fund 766 912 855 377 61 200
Medical Care 08/15/97 @ 102 Opt.
Facilities Finance
Agency, Hospital
Insured Mortgage
Revenue Bonds,
1987 Series A
Refunding
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(Continued)
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds May 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 AAA $ 615 000 Triborough Bridge 7.625% 01/01/14 01/01/07 @ 100 S.F. $ 592 977 $ 658 794 $ 46 894
and Tunnel 01/01/96 @ 102 Opt.
Authority, General
Purpose Revenue
Bonds, Series 1
6 AAA 250 000 New York State 8.000 05/01/11 05/01/07 @ 100 S.F. 250 000 305 408 20 000
Housing Finance No Optional Call
Agency, State
University
Construction
Refunding Bonds,
1986 Series A
7 AAA 1 720 000 Dormitory Authority 8.125 07/01/17 07/01/08 @ 100 S.F. 1 713 550 1 924 456 139 750
of the State of 07/01/97 @ 102 Opt.
New York, City
University System
Consolidated
Revenue Bonds,
Series 1987 A
8 Aa* 865 000 Municipal 7.250 07/01/08 07/01/97 @ 100 S.F. 791 207 910 957 62 713
Assistance 07/01/96 @ 102 Opt.
Corporation For
The City of New
York (A Public
Benefit
Corporation of
the State of New
York), Series 57
Bonds
9 Aaa* 1 615 000 Metropolitan 7.375 07/01/15 07/01/08 @ 100 S.F. 1 469 423 1 651 661 119 106
Transportation 07/01/94 @ 102 Opt.
Authority,
Commuter
Facilities Service
Contract Bonds,
Series J
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1994
(Continued)
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds May 31, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1994 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 BBB $1 870 000 New York State, 7.000% 01/01/13 01/01/07 @ 100 S.F. $1 640 233 $1 915 591 $130 900
Urban Development 01/01/96 @ 102 Opt.
Corporation
Project Revenue
Bonds (Center For
Industrial
Innovation), 1986
Refunding Series
11 AAA 100 000 Commonwealth of 7.125 07/01/02 07/01/98 @ 100 S.F. 92 000 106 857 7 125
Puerto Rico, 07/01/97 @ 102 Opt.
Public Improve-
ment Refunding
Bonds, Series
1987 (General
Obligation Bonds)
12 AAA 15 000 Triborough Bridge 8.750 01/01/15 01/01/06 @ 100 S.F. 15 925 15 729 1 312
and Tunnel 01/01/95 @ 102 Opt.
Authority, General
Purpose Revenue
Bonds, Series G
---------- ----------- ----------- --------
$9 510 000 $8 906 183 $10 135 283 $711 850
========== =========== =========== ========
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 31
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>
[MODULE]
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, PART II
Note: Part II of the Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit
investment trusts. Each Trust was created under the laws of the
State of New York pursuant to a Trust Indenture and Agreement
(the "Trust Agreement"), dated the Date of Deposit as set forth
in "Summary of Essential Financial Information" in Part I of this
Prospectus, among the Sponsors, the Trustee and the Evaluator.
The Bank of New York acts as successor trustee of Series 1
through 22 and as Trustee of Series 23 and subsequent Series.
Muller Data Corporation acts as successor Evaluator for all
Series. Glickenhaus & Co. and Lebenthal & Co., Inc. act as
co-Sponsors for all Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the
fractional undivided interest in the Trust set forth in Part I of
this Prospectus under "Summary of Essential Financial
Information." Thereafter, if any Units are redeemed by the
Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the
actual interest in the Trust represented by each such Unit will
remain essentially the same. Units will remain outstanding until
redeemed upon tender to the Trustee by any Unit holder, which may
include the Sponsors, or until the termination of the Trust
Agreement. See "Rights of Unit Holders - Redemption."
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 Trust is to obtain tax-exempt income
through an investment in a diversified, insured portfolio
consisting primarily of long-term municipal bonds. No assurance
can be given that the Trust's objective will be achieved because
the Trustee's ability to do so is subject to the continuing
ability of the issuers of the bonds in the Portfolio to meet
their obligations and of the Insurer to meet its obligations
under the insurance. In addition, an investment in the Trust can
be affected by interest rate fluctuations.
Series 1 through 5, Series 6 through 30 and Series 31 and
subsequent Series have obtained insurance guaranteeing the
payment of principal and interest on the Bonds in each respective
Trust from National Union Fire Insurance Company of Pittsburgh,
Pa. ("National Union"), Municipal Bond Insurance Association
("MBIA") and Municipal Bond Investors Assurance Corporation
("MBIAC"), respectively (National Union, MBIA and MBIAC are
collectively referred to herein as the "Insurer"). Insurance
obtained by the Trust applies only while Bonds are retained in
the Trust. As to Series 18 through Series 30 and Series 31 and
subsequent Series, however, pursuant to irrevocable commitments
of MBIA and MBIAC, respectively, in the event of a sale of a Bond
from the Trust the Trustee has the right to obtain permanent
insurance for such Bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of
such Bond. It is expected that the Trustee will exercise the
right to obtain permanent insurance for a Bond in such Series
upon instruction from the Sponsors whenever the value of that
Bond insured to its maturity less the applicable permanent
insurance premium and the related custodial fee exceeds the value
of the Bond without such insurance. Insurance relates only to
the payment of principal and interest on the Bonds in the Trust
but neither covers the nonpayment of any redemption premium on
the Bonds nor guarantees the market value of the Units. Certain
Bonds in the Trust may also be insured under insurance obtained
by the issuers of such Bonds or third parties ("Pre-insured
Bonds").
As a result of the insurance, Moody's Investors Service, Inc.
has assigned a rating of "Aaa" to all of the Bonds in Series 6 and
subsequent Series, as insured, and Standard & Poor's Corporation
has assigned a rating of "AAA" to the Units of the Trust, and to
the Bonds in Series 17 and subsequent Series, as insured. No
representation is made as to any insurer's ability to meet its
commitments. Insurance is not a substitute for the basic credit
of an issuer, but supplements the existing credit and provides
additional security therefor. A single or annual premium is paid
by the issuer or any other party for its insurance on Pre-insured
Bonds, and a monthly premium is paid by the Trust for the
insurance it obtains from the Insurer on the Bonds in the Trust
that are not pre-insured by such Insurer. No premium will be
paid by Series 1 through 5, Series 6 through 30 and Series 31 and
subsequent Series on Bonds pre-insured by National Union, MBIA
and MBIAC, respectively. See "The Trust - Insurance on the
Bonds."
Portfolio
In view of the Trust's objective, the following factors,
among others, were considered in selecting the Bonds: (1) all the
Bonds are obligations of the State of New York and counties,
municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and
their public authorities so that the interest on them will be
exempt from Federal, New York State and New York City income tax
under existing law; (2) the Bonds are diversified as to purpose
of issue; (3) in the opinion of the Sponsors, the Bonds are
fairly valued relative to other bonds of comparable quality and
maturity; and (4) availability of insurance for the payment of
principal and interest on the Bonds.[1] Subsequent to the Date
of Deposit, a Bond may cease to be rated or its rating may be
reduced. Neither event requires an elimination of such Bond from
the portfolio, but may be considered in the Sponsors'
determination to direct the Trustee to dispose of the Bonds. See
"Sponsors - Responsibility."
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate
bonds, including the risk that the value of such bonds (and,
therefore, of the Units) will decline with increases in interest
rates. Inflation and recession, as well as measures implemented
to address these and other economic problems, contribute to
fluctuations in interest rates and the values of fixed-rate bonds
generally. The Sponsors cannot predict future economic policies
or their consequences nor, therefore, can they predict the course
or extent of such fluctuations in the future.
Special Factors Affecting New York
Beginning in early 1975, New York State (the "State") and
several of its public benefit corporations that issue municipal
bonds under State legislation ("authorities") and municipalities,
particularly New York City (the "City"), faced serious financing
difficulties which impaired the borrowing abilities of the State
and the respective entities. If during the term of the Trust
there should be a default by any authority or municipality, or
other financial crisis relating to the State, its authorities or
municipalities, the market price and marketability of outstanding
Bonds in the Trust, and therefore the asset value of Units of the
Trust, could be adversely affected.
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements
prepared in connection with the issuance of New York municipal
bonds. The Sponsors have not independently verified this
information.
(1) New York City. The City, with a population of
approximately 7.3 million, is an international center of business
and culture. Its non-manufacturing economy is broadly based,
with the banking and securities, life insurance, communications,
publishing, fashion design, retailing and construction industries
accounting for a 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 fore-
cast 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 Assist 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's operating expenses is remitted
to the City or, in the case of the stock transfer taxes, rebated
to the taxpayers. The State is not, however, obligated to
continue the imposition of such taxes or to continue
appropriation of the revenues therefrom to MAC, nor is the State
obligated to continue to appropriate the State per capita aid to
the City which would be required to pay the debt service on
certain MAC obligations. MAC has no taxing power and MAC bonds do
not create an enforceable obligation of either the State or the
City. As of September 30, 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 in the current fiscal year
that are worse than predicted, with corresponding material and
adverse effects on the State's projections of receipts and
disbursements.
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 the Trust will retain for any
length of time its present size and composition. The inclusion
of unrated Bonds in certain Series of the Trust may result in
less flexibility in their disposal and a loss to the Trust upon
their disposition. Except as described in footnotes to "Summary
of Essential Financial Information" in Part I of this Prospectus,
interest accrues to the benefit of Unit holders commencing with
the expected date of settlement for purchase of the Units.
Neither the Sponsors nor the Trustee shall be liable in any way
for any default, failure or defect in any Security.
The following paragraphs discuss the characteristics of the
Bonds in the Trust and of certain types of issuers of the Bonds
in the Trust. See "Special Factors Concerning the Portfolio" in
Part I of this Prospectus. These paragraphs discuss, among other
things, certain circumstances which may adversely affect the
ability of such issuers to make payments of principal of and
interest on Bonds held in the portfolio of the Trust or which may
adversely affect the ratings of such Bonds. Because of the
insurance obtained by the Sponsors or by the issuers, however,
such changes should not adversely affect the Trust's ultimate receipt
of principal and interest, the Standard & Poor's or Moody's
ratings of the Bonds in the portfolio of a Trust, or the Standard
& Poor's rating of the Units of the Trust. An investment in
Units of the Trust should be made with an understanding of the
risks that such an investment may entail, certain of which are
described below. Unit holders may obtain additional information
concerning a particular Bond by requesting an official statement
from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of
principal and interest. The taxing power of any governmental
entity may be limited, however, by provisions of state
constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to
population declines, natural disasters, declines in the state's
industrial base or inability to attract new industries; economic
limits on the ability to tax without eroding the tax base; state
legislative proposals or voter initiatives to limit ad valorem
real property taxes; and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors
beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease
purchase obligations as a means for financing the acquisition of
capital projects (e.g., buildings or equipment, among other
things). Such obligations are often made subject to annual
appropriations. Certain Series of the Trust may contain Bonds in
the portfolio that are, in whole or in part, subject to and
dependent upon (1) the governmental entity making appropriations
from time to time or (2) the continued existence of special
temporary taxes which require legislative action for their
reimposition. The availability of any appropriation is subject
to the willingness of the governmental entity to continue to make
such special appropriations or to reimpose such special taxes.
The obligation to make lease payments exists only to the extent
of the monies available to the governmental entity therefor, and
no liability is incurred by the governmental entity beyond the
monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to
make lease rental payments is absolute and unconditional without
setoff or counterclaim, regardless of contingencies, whether or
not a given project is completed or used by the governmental
entity and notwithstanding any circumstances or occurrences which
might arise. In the event of non-appropriation, certificate
holders' or bondowners' sole remedy (absent credit enhancement)
generally is limited to repossession of the collateral for resale
or releasing, and the obligation of the governmental lessee is
not backed by a pledge of the general credit of the governmental
lessee. In the event of non-appropriation, the Sponsors may
instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may
contain Bonds in the portfolio that are secured by pledged
revenues and additionally by the so-called "moral obligations" of
the State or a local governmental body. Should the pledged
revenues prove insufficient, the payment of such Bonds is not a
legal obligation of the State or local government and is subject
to its willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage
revenue bonds". Under the Internal Revenue Code of 1986, as
amended, (the "Code") "mortgage revenue bonds" are obligations
all of the proceeds of which are used to finance owner-occupied
residences under programs which meet numerous statutory
requirements relating to residency, ownership, purchase price and
target area requirements, ceiling amounts for state and local
issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not
be introduced or that existing legislation will not be further
amended, revised, or enacted after delivery of these Bonds or
that certain required future actions will be taken by the issuing
governmental authorities, which action or failure to act would
cause interest on the Bonds to be subject to federal income tax.
If any portion of the Bonds proceeds are not committed for the
purpose of the issue, Bonds in such amount could be subject to
earlier mandatory redemption at par, including issues of Zero
Coupon Bonds.
Housing Bonds. Some of the aggregate principal amount of
Bonds may consist of obligations of state and local housing
authorities whose revenues are primarily derived from mortgage
loans to housing projects for low to moderate income families.
Since such obligations are not general obligations of a
particular state or municipality and are generally payable from
rents and other fees, economic developments including failure or
inability to increase rentals, fluctuations of interest rates and
increasing construction and operating costs may reduce revenues
available to pay existing obligations.
The housing bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until
ten years after the original issuance dates of such Bonds (often
referred to as "ten year call protection"), do contain provisions
which require the issuer to redeem such obligations at par from
unused proceeds of the issue within a stated period. In recent
periods of declining interest rates there have been increased
redemptions of housing bonds according to such redemption
provisions. In addition, the housing bonds in the Trust are also
subject to mandatory redemption in part at par at any time that
voluntary or involuntary prepayments of principal on the
underlying mortgages are made to the trustee for such Bonds or
that the mortgages are sold by the bond issuer. Prepayments of
principal tend to be greater in periods of declining interest
rates; it is possible that such prepayments could be sufficient
to cause a housing bond to be redeemed substantially prior to its
stated maturity date, earliest call date or sinking fund
redemption date.
Public Power Revenue Bonds. General problems of the
electric utility industry include difficulty in financing large
construction programs during an inflationary period; restrictions
on operations and increased costs and delays attributable to
environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the
availability of fuel for electric generation at reasonable
prices, including among other considerations the potential rise
in fuel costs and the costs associated with conversion to
alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric
generation, including among other considerations the problems
associated with the use of radioactive materials and the disposal
of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the
financing of nuclear generating facilities. In view of recent
developments in connection with such facilities, legislative and
administrative actions have been taken and proposed relating to
the development and operation of nuclear generating facilities.
The Sponsors are unable to predict whether any such actions or
whether any such proposals or litigation, if enacted or
instituted, will have an adverse impact on the revenues available
to pay debt service on the Bonds in the portfolio issued to
finance such nuclear projects.
Each of the problems referred to above could adversely
affect the ability of the issuers of public power revenue bonds
to make payments of principal of and/or interest on such bonds.
Certain municipal utilities or agencies may have entered into
contractual arrangements with investor-owned utilities and large
industrial users and consequently may be dependent in varying
degrees on the performance of such contracts for payment of bond
debt service.
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings
of hospital bonds are often initially based on feasibility
studies which contain projections of occupancy levels, revenues
and expenses. Actual experience may vary considerably from such
projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other
things, demand for hospital services and the ability of the
hospital to provide them, physicians' confidence in hospital
management capability, economic developments in the service area,
competition, actions by insurers and governmental agencies and
the increased cost and possible unavailability of malpractice
insurance. Additionally, a major portion of hospital revenue
typically is derived from federal or state programs such as
Medicare and Medicaid which have been revised substantially in
recent years and which are undergoing further review at the state
and federal level.
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,[2] including utilities, to
provide facilities for the treatment of air, water and solid
waste pollution. Repayment of these bonds is dependent upon
income from the specific pollution control facility and/or the
financial condition of the corporation. See also "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 corporation and revenues derived from
the collection of charges for disposal of solid waste. Repayment
of resource recovery bonds may also be dependent to various
degrees on revenues from the sale of electric energy or steam.
Bonds in this category may be subject to mandatory redemption in
the event of project non-completion, if the project is rendered
uneconomical or if it is considered an environmental hazard.
Transportation Revenue Bonds. Bonds in this category
include bonds issued for airport facilities, bridges, turnpikes,
port authorities, railroad systems or mass transit systems.
Generally, airport facility revenue bonds are payable from and
secured by the revenues derived from the ownership and operation
of a particular airport. Payment on other transportation bonds
is often dependent primarily or solely on revenues from financed
facilities, including user fees, charges, tolls and rents. Such
revenues may be adversely affected by increased construction and
maintenance costs or taxes, decreased use, competition from
alternative facilities, scarcity of fuel, reduction or loss of
rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on
Federal, state or local assistance including motor fuel and motor
vehicle taxes, fees and licenses and, therefore, may be subject
to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may
contain other Bonds that are "private activity bonds" (often
called industrial revenue bonds ("IRBs") if issued prior to
1987), which would be primarily of two types: (1) Bonds for a
publicly owned facility that a private entity may have a right to
use or manage to some degree, such as an airport, seaport
facility or water system and (2) Bonds for facilities deemed
owned or beneficially owned by a private entity but which were
financed with tax-exempt bonds of a public issuer, such as a
manufacturing facility or a pollution control facility. In the
case of the first type, bonds are generally payable from a
designated source of revenues derived from the facility and may
further receive the benefit of the legal or moral obligation of
one or more political subdivisions or taxing jurisdictions. In
most cases of project financing of the first type, issuers are
obligated to pay the principal of, any premium then due, or
interest on the private activity bonds only to the extent that
funds are available from receipts or revenues of the Issuer
derived from the project or the operator or from the unexpended
proceeds of the bonds. Such revenues include user fees, service
charges, rental and lease payments, and mortgage and other loan
payments.
The second type of issue will generally finance projects
which are owned by or for the benefit of, and are operated by,
corporate entities. Ordinarily, such private activity bonds are
not general
obligations of governmental entities and are not backed by the
taxing power of such entities, and are solely dependent upon the
creditworthiness of the corporate user of the project or
corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures
pursuant to which the revenues and receipts payable under the
issuer's arrangements with the users or the corporate operator of
a particular project have been assigned and pledged to the
holders of the private activity bonds. In certain cases a
mortgage on the underlying project has been assigned to the
holders of the private activity bonds or a trustee as additional
security. In addition, private activity bonds are frequently
directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds
secured primarily or solely by receipt of certain state or local
taxes, including sales and use taxes or excise taxes.
Consequently, such bonds may be subject to fluctuations in the
collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also
contain revenue bonds which are payable from and secured
primarily or solely by revenues from the ownership and operation
of particular facilities, such as correctional facilities,
parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on
bonds related to such facilities is, therefore, primarily or
solely dependent on revenues from such projects, including user
fees, charges and rents. Such revenues may be affected adversely
by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction
or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are
secured by direct obligations of the U.S. Government or, in some
cases, obligations guaranteed by the U.S. Government, placed in
an escrow account maintained by an independent trustee until
maturity or a predetermined redemption date. In a few isolated
instances to date, bonds which were thought to be escrowed to
maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain 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 Series of the Trust may contain original issue
discount bonds and zero coupon bonds. Original issue discount
bonds are bonds whose original issue prices are lower than their
stated redemption prices at maturity. Zero coupon bonds are
original issue discount bonds that do not provide for the payment
of current interest. For Federal income tax purposes, the
original issue discount on original issue discount bonds and zero
coupon bonds must be amortized over the term of such bonds. On
sale or redemption, the excess of (1) the amount realized (other
than amounts treated as tax-exempt income as described below),
over (2) the tax basis of such bonds (properly adjusted, in the
circumstances described below, for amortization of original issue
discount) will be taxable as capital gain or loss. See "The
Trust - Tax Status." The Tax Reform Act of 1984 requires holders
of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount
by using the constant interest method provided for the holders of
taxable obligations. In addition, the Tax Reform Act of 1984
provides that the basis of a tax-exempt obligation is increased
by the amount of accrued tax-exempt original issue discount.
These provisions are applicable to obligations issued after
September 3, 1982 and acquired after March 1, 1984. Original
issue discount on a tax-exempt obligation issued on or before
July 1, 1982 is deemed to accrue as tax-exempt interest ratably
over the life of the obligation. Original issue discount on any
other tax-exempt obligation is also deemed to accrue as
tax-exempt interest over the life of the obligation, although it
is not clear whether such accrual is ratable or is determined
under a formula based on the compounding of interest. The
Trust's tax basis in a Bond is increased by any accrued original
issue discount as is a Unit holder's tax basis in his Units. For
Bonds issued on or after June 9, 1980 that are redeemed prior to
maturity, the difference between the Trust's basis, as adjusted,
and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any such gain may be taxable as
ordinary income.
There can be no assurance that additional Federal
legislation will not be enacted or that existing legislation will
not be amended hereafter with the effect that interest on the
Bonds becomes subject to Federal income taxation. If the
interest on the Bonds should ultimately be deemed to be taxable, the
Sponsors may instruct the Trustee to sell them, and, since they would
be sold as taxable securities, it is expected that they would have
to be sold at a substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption
prior to their stated maturity date pursuant to sinking fund or
call provisions. A sinking fund is a reserve fund accumulated
over a period of time for retirement of debt. Sinking fund
provisions are designed to redeem a significant portion of an
issue gradually over the life of the issue. Obligations to be
redeemed are generally chosen by lot. A callable debt obligation
is one which is subject to redemption prior to maturity at the
option of the issuer. Obligations to be redeemed are generally
chosen by lot. To the extent that obligations in the Trust have
a bid side valuation higher than their par value, redemption of
such obligations at par would result in a loss of capital to a
purchaser of Units at the 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 the 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 "Special Factors Concerning the Portfolio" in Part I of this
Prospectus for a information for the number of bonds in the
Portfolio that are original issue discount and zero coupon bonds
and "Portfolio Information" in Part I of this Prospectus for a
breakdown of the percentage of Bonds in the Trust with offering
side valuations at a premium, discount or at par. See also
"Estimated Current Return and Estimated Long Term Return". The
portfolio and "Summary of Essential Financial Information" in
Part I of this Prospectus contain a listing of the sinking fund
and call provisions, if any, with respect to each of the Bonds
therein.
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
Trust. The Sponsors are unable to predict what effect, if any,
this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no
litigation pending as of the date hereof in respect of any
Securities which might reasonably be expected to have a material
adverse effect on the Trust, unless otherwise stated in Part I of
this Prospectus. At any time, however, litigation may be
initiated on a variety of grounds with respect to Securities in the
Trust. Such litigation as, for example, suits challenging the
issuance of pollution control revenue bonds under recently
enacted environmental protection statutes, may affect the validity
of such Securities or the tax-exempt nature of the interest
thereon. While the outcome of such litigation can never be entirely
predicted with certainty, bond counsel have given opinions to
the issuing authorities of each Bond on the date of issuance to the
effect that such Securities have been validly issued and that the
interest thereon is exempt from Federal income tax. Other
litigation or other factors may arise from time to time which
potentially may impair the ability of issuers to meet obligations
undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by
the Evaluator) plus a sales charge based on the maturity of each
Bond in the Trust. For the purpose of computing the sales
charge, Bonds are deemed to mature on their expressed maturity
dates, unless the Evaluator evaluates the price of the Bonds to a
different date, such as a call date or a mandatory tender date,
in which case the maturity will be deemed to be such other date.
This method of computing the sale charge will apply different
sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
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 1.0% 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.
Unless Securities are in default in payment of principal or
interest or in significant risk of such default, the Evaluator
will not attribute any value to the Units due to the insurance
obtained by the Trust. See also "Rights of Unit Holders -
Certificates" and "Rights of Unit Holders - Redemption" for
information relating to redemption of Units. The Evaluator will
consider in its evaluation of Defaulted Bonds which are covered
by insurance obtained by the Trust the value of the insurance
guaranteeing interest and principal payments as well as the
market value of the Securities and the market value of similar
securities of issuers whose securities, if identifiable, carry
identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or
risk of default. If such other securities are not identifiable,
the Evaluator will compare prices of securities with
substantially identical interest rates and maturities and are of
a creditworthiness of minimum investment grade. As to Series 18
and subsequent Series, the value of the insurance will be equal
to the difference between (i) the market value of Defaulted Bonds
assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of
Permanent Insurance and the related custodial fee) and (ii) the
market value of such Defaulted Bonds not covered by Permanent
Insurance. In any case the Evaluator will consider the ability
of the Insurer to meet its commitments under the Trust's
insurance policy and, in the case of Series 18 and subsequent
Series, MBIA's or MBIAC's commitment to issue Permanent
Insurance. For a description of the circumstances under which a
full or partial suspension of the right of Unit holders to redeem
their Units may occur, see "Rights of Unit Holders - Redemption."
It is the present intention of the Trustee (and, in the case
of Series 18 and subsequent Series, assuming the Trustee does not
exercise the right to obtain Permanent Insurance on any Defaulted
Bonds), so long as the Trust contains either some Bonds not in
default or any Pre-insured Bonds, not to sell Defaulted Bonds to
effect redemptions or for any other reason but rather to retain
them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE
OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance
obtained by the issuer of a Pre-insured Bond, or by some other
party, is effective so long as such Pre-insured Bond is
outstanding and the insurer of such Bond continues to fulfill its
obligations. Therefore, any such insurance may be considered to
represent an element of market value in regard to the Pre-insured
Bond, but the exact effect, if any, of this insurance on such
market value cannot be predicted. Regardless of whether the insurer
of a Pre-insured Bond continues to fulfill its obligations, however,
such Bond will in any case continue to be insured under the policy
obtained by the Trust from the Insurer as long as the Bond is held
in the Trust.
Certain commercial banks are making Units of the Trust
available to their customers on an agency basis. A portion of
the sales charge discussed above is retained by or remitted to
the banks. Under the Glass-Steagall Act, banks are prohibited
from underwriting Trust Units; however, the Glass-Steagall Act
does permit certain agency transactions, and banking regulators
have not indicated that these particular agency transactions are
not permitted under such Act.
Market for Units
Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the
Units and to continuously offer to purchase Units at prices based
on the aggregate bid price of the Securities. The Sponsors'
Repurchase Price shall be not less than the Redemption Price plus
accrued interest through the expected date of settlement. See
"Rights of Unit Holders - Redemption - Computation of Redemption
Price per Unit." There is no sales charge incurred when a Unit
holder sells Units back to the Sponsors. Any Units repurchased
by the Sponsors may be reoffered to the public by the Sponsors at
the Public Offering Price at the time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for
some other business reason, the Sponsors may discontinue
purchases of Units of such Series at prices based on the
aggregate bid price of the Securities. The Sponsors do not in
any way guarantee the enforceability, marketability or price of
any Security in the portfolio of the Trust or of the Units. In
the event that a market is not maintained for the Units, a Unit
holder desiring to dispose of his Units may be able to do so only
by tendering such Units to the Trustee for redemption at the
Redemption Price, which is based on the aggregate bid price of
the underlying Securities. The aggregate bid price of the
Securities in the Trust may be expected to be less than the
aggregate offering price. If a Unit holder wishes to dispose of
his Units, he should inquire of the Sponsors as to current market
prices prior to making a tender for redemption to the Trustee.
See "Rights of Unit Holders - Redemption" and "Sponsors."
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is
the Sponsors' intention to effect a public distribution of the
Units solely through their own organizations. Units may,
however, be sold to dealers who are members of the National
Association of Securities Dealers, Inc. at a discount. Such
discount is subject to change from time to time by the Agent for
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. It is the
Sponsors' intention to continue to qualify Units of the Trust for
sale where such qualification is necessary. In maintaining a
market for the Units (see "Public Offering - Market for Units"),
the Sponsors will realize profits or sustain losses in the amount
of any difference between the price at which they buy Units and
the price at which they resell such Units (the Public Offering
Price described in the currently effective Prospectus which
includes the sales charge set forth in Part I of this Prospectus
under "Summary of Essential Financial Information") or the price
at which they may redeem such Units (based on the aggregate bid
side evaluation of the Securities), as the case may be, and to
the extent that they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT
HOLDERS
Units of the Trust are offered on a "dollar price" basis.
In contrast, tax-exempt bonds customarily are offered on a "yield
price" basis. Therefore, the rate of return on each Unit is
measured in terms of both Estimated Current Return and Estimated
Long-Term Return. Estimated Current Return based on the Public
Offering Price per Unit and Estimated Long-Term Return per Unit
and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under
"Summary of Essential Financial Information" in Part I of this
Prospectus.
Estimated Current Return is computed by dividing the
Estimated Net Annual Interest Income per Unit by the Public
Offering Price. Estimated Net Interest Income per Unit will vary
with changes in fees and expenses of the Trustee and the
Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit
will vary with changes in the offering price of the Bonds.
Estimated Current Return takes into account only the interest
payable on the Bonds and does not involve a computation of yield
to maturity or to an earlier redemption date nor does it reflect
any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds
purchased at a premium are generally higher than current
interests rates on newly issued bonds of a similar type with
comparable ratings, the Estimated Current Return per Unit may be
affected adversely if such Bonds are redeemed prior to their
maturity. Therefore, there is no assurance that the Estimated
Return as set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus will be realized in
the future.
Estimated Long-Term Return is calculated using a formula
that (i) takes into consideration, and determines and factors in
the relative weightings of, the market values, yields (taking
into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all the Bonds in the
portfolio and (ii) takes into account the expenses and sales
charge associated with each Unit. The Estimated Long-Term Return
assumes that each Bond is retired on its pricing life date (i.e.,
that date which produces the lowest dollar price when yield price
calculations are done for each optional call date and the
maturity date of a callable security). If the Bond is retired on
any optional call or maturity date other than the pricing life
date, the yield to the holder of that Bond will be greater than
the initial quoted yield. Since the market values and estimated
retirements of the Bonds, the expenses of the Trust and the Net
Annual Interest Income and Public Offering Price per Unit may
change, there is no assurance that the Estimated Long-Term Return
as set forth under "Summary of Essential Financial Information"
in Part I of this Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Trust has been
obtained from the Insurer by the Trust. The Insurer has issued a
policy of insurance covering each of the Bonds in the Trust,
including Pre-insured Bonds. As to each Trust, the Insurer shall
not have any liability under the policy with respect to any Bonds
which do not constitute part of the Trust. In determining to
insure the Bonds, the Insurer has applied its own respective
standards which generally correspond to the standards it has
established for determining the insurability of new issues of
municipal bonds.
By the terms of its policy, the Insurer unconditionally
guarantees to the Trust the payment, when due, required of the
issuer of the Bonds of an amount equal to the principal of
(either at the stated maturity or by any advancement of maturity
pursuant to a mandatory sinking fund payment) and interest on the
Bonds as such payments shall become due but not paid. Except as
provided below with respect to small issue industrial development
Bonds and
pollution control revenue Bonds, in the event of any acceleration
of the due date of principal by reason of mandatory or optional
redemption (other than mandatory sinking fund redemption),
default or otherwise, the payments guaranteed will be made in
such amounts and at such times as would have been due had there
not been an acceleration. The Insurer will be responsible for
such payments less any amounts received by the Trust from any
trustee for the Bond issuers or from any other source. The
policy issued by the Insurer does not guarantee payment on an
accelerated basis, the payment of any redemption premium or the
value of the Units. The MBIA and MBIAC policies also do not
insure against nonpayment of principal of or interest on the
Bonds resulting from the insolvency, negligence or any other act
or omission of the trustee or other paying agent for the Bonds.
With respect to small issue industrial development Bonds and
pollution control revenue Bonds in Series 9 through Series 30 and
Series 31 and subsequent Series, however, MBIA and MBIAC,
respectively, guarantee the full and complete payments required
to be made by or on behalf of an issuer of such Bonds if there
occurs pursuant to the terms of the Bonds an event which results
in the loss of the tax-exempt status of interest on such Bonds,
including principal, interest or premium payments payable
thereon, if any, as and when required to be made by or on behalf
of the issuer pursuant to the terms of such Bonds. No assurance
can be given that the policy issued by the Insurer would insure
the payment of principal or interest on Bonds which is not
required to be paid by the issuer thereof because the Bonds were
not validly issued. At the respective times of issuance of the
Bonds, opinions relating to the validity thereof were rendered by
bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancelable
and will continue in force so long as the Trust is in existence
and the Securities described in the policy continue to be held in
and owned by the Trust. Failure to pay premiums on the policy
obtained by the Trust will not result in the cancellation of
insurance but will force the Insurer to take action against the
Trustee to recover premium payments due it. The Trustee in turn
will be entitled to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any
Bond which has been redeemed from or sold by the Trustee or the
Trust on the date of such redemption or on the settlement date of
such sale, and the Insurer shall not have any liability under the
policy as to any such Bond thereafter. If the date of such
redemption or the settlement date of such sale occurs between a
Record Date and a date of payment of any such Bonds, any MBIA or
MBIAC policy will terminate as to such Bond on the business day
next succeeding such date of payment. The termination of a MBIA
or MBIAC policy as to any Bond shall not affect MBIA's or MBIAC's
obligations regarding any other Bond in such Trust or any other
Trust which has obtained a MBIA or MBIAC insurance policy. The
policy issued by the Insurer will terminate as to all Bonds on
the date on which the last of the Bonds matures, is redeemed or
is sold by the Trust.
In the case of Series 18 through 30 and Series 31 and
subsequent Series, pursuant to irrevocable commitments of MBIA
and MBIAC, respectively, the Trustee upon the sale of a Bond in
the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bonds)
(the "Permanent Insurance") upon the payment of a single
predetermined insurance premium from the proceeds of the sale of
such Bond. Accordingly, any Bond in such Series of the Trust is
eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for
a Bond in the Trust upon instruction from the Sponsors only if
upon such exercise the Trust would receive net proceeds (sale of
Bond proceeds less the insurance premium attributable to the
Permanent Insurance and the related custodial fee) from such sale
in excess of the sale proceeds if such Bond was sold on an
uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the
Date of Deposit and will not be increased or decreased for any
change in the creditworthiness of such Bond unless such Bond is
in default as to payment of principal and/or interest. In such
event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from
the proceeds of the sale of such Bond.
Except as indicated below, insurance obtained by the Trust
has no effect on the price or redemption value of Units thereof.
It is the present intention of the Evaluator to attribute a value
to the insurance obtained by the Trust (including, as to Series
18 and subsequent Series, the right to obtain Permanent
Insurance) for the purpose of computing the price or redemption
value of Units thereof only if the Bonds covered by such
insurance are in default in payment of principal or interest or,
in the Sponsors' opinion, in significant risk of such default
("Defaulted Bonds"). The value of the insurance will be equal to
the difference between (1) the market value of a Defaulted Bond
insured by the Trust (as to Series 18 and subsequent Series, the
market value of a Defaulted Bond assuming the exercise of the
right to obtain Permanent Insurance less the insurance premium
attributable to the purchase of Permanent Insurance and the
related custodial fee) and (2) the market value of similar
securities not in default or significant risk thereof (as to
Series 18 and subsequent Series, the market value of such
Defaulted Bonds not covered by Permanent Insurance). Insurance
obtained by the issuer of a Bond or by other parties is effective
so long as such Pre-insured Bond is outstanding and the
insurer of such Pre-insured Bond continues to fulfill its
obligations.
Regardless of whether the insurer of a Pre-insured Bond
continues to fulfill its obligations, however, such Bond will
continue to be insured under the policy obtained by the Trust
from MBIA or MBIAC as long as the Bond is held in the Trust.
Insurance obtained by the issuer of a Bond or by other parties
may be considered to represent an element of market value in
regard to the Bonds thus insured, but the exact effect, if any,
of this insurance on such market value cannot be predicted.
In the event that interest on or principal of a Bond is due
for payment but is unpaid by reason of nonpayment by the issuer
thereof, the Insurer will make payments to its fiscal agent, as
identified in the insurance policy (the "Fiscal Agent"), equal to
such unpaid amounts of principal and interest not later than one
business day after the Insurer has been notified by the Trustee
that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the
Trustee the amount of principal and interest which is then due
for payment but is unpaid upon receipt by the Fiscal Agent of (1)
evidence of the Trust's right to receive payment of such
principal and interest and (2) evidence, including any
appropriate instruments of assignment, that all of the rights to
payment of such principal or interest then due for payment shall
thereupon vest in the Insurer. Upon payment by the Insurer of
any principal or interest payments with respect to any Bonds, the
Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
National Union, which was incorporated in Pennsylvania in
1901, is a stock insurance company which provides fire and
casualty insurance and is a wholly-owned subsidiary of American
International Group, Inc.
Each insurance company constituting MBIA will be severally
and not jointly obligated under any MBIA policy obtained by the
Trust in the following respective percentages: The Aetna Casualty
and Surety Company, 33%; Fireman's Fund Insurance Company, 30%;
The Travelers Indemnity Company, 15%; Aetna Insurance Company,
12%; and The Continental Insurance Company, 10%. As a several
obligor, each such insurance company will be obligated only to
the extent of its percentage of any claim under the MBIA policy
and will not be obligated to pay any unpaid obligations of any
other member of MBIA. Each insurance company's participation is
backed by all of its assets. Each insurance company is, however,
a multiline insurer involved in several lines of insurance other
than municipal bond insurance, and the assets of each insurance
company will also secure all of its other insurance policy and
surety bond obligations.
MBIAC is the principal operating subsidiary of MBIA Inc., a
New York Stock Exchange listed company. MBIAC is a separate and
distinct entity from MBIA. MBIAC has no liability to the
bondholders for the obligations of MBIA under any policy of
insurance. Neither MBIA Inc. nor its shareholders are obligated
to pay the debts of or claims against MBIAC. MBIAC is a limited
liability corporation rather than a several liability
association. MBIAC is domiciled in the State of New York and
licensed to do business in all 50 states, the District of
Columbia and the Commonwealth of Puerto Rico. Copies of the year
end financial statements of MBIAC prepared in accordance with
statutory accounting practices are available from the Insurer
upon request.
The contract of insurance relating to the Trust and the
negotiations in respect thereof (and, in the case of Series 18
and subsequent Series, certain agreements relating to Permanent
Insurance) represent the only significant relationship between
the Insurer and the Trust. Otherwise, neither the Insurer nor
any associate thereof has any material business relationship,
direct or indirect, with the Trust or the Sponsors, except that
the Sponsors may from time to time in the normal course of their
business participate as underwriters or as managers or as members
of underwriting syndicates in the distribution of new issues of
municipal bonds for which a policy of insurance guaranteeing the
payment of interest and principal has been obtained from the
Insurer, and except that James A. Lebenthal, Chairman of the
Board of Directors of Lebenthal & Co., Inc., is a director of
MBIA Inc. Although all issues contained in the portfolio of the
Trust are individually insured, neither the Trust, the Units nor
the portfolio is insured directly or indirectly by the Insurer.
A purpose of the insurance on the Bonds in the portfolio of
the Trust is to obtain a higher yield on the Trust portfolio than
would be available if all the Securities in such portfolio had
Standard & Poor's Corporation's "AAA" rating and/or Moody's
Investors Service's, Inc. "Aaa" rating but were uninsured and
yet at the same time to have the protection of insurance of
payment of interest and principal on the Securities. There is,
of course, no certainty that this result will be achieved. Any
Pre-insured Bonds in the Trust (all of which are rated "AAA" by
Standard & Poor's Corporation and/or "Aaa" by Moody's Investors
Service, Inc., respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's Corporation
and/or "Aaa" by Moody's Investors Service, Inc., respectively.
Because the Securities are insured by the Insurer as to the
payment of principal and interest, Standard & Poor's Rating
group, a division of McGraw Hill ("Standard & Poor's"), has
assigned its "AAA" investment rating to the Units of the Trust
and, in the case of Series 17 and subsequent Series, to all the
Bonds, as insured,
and, in the case of Series 6 and subsequent Series, Moody's
Investors Service, Inc. has assigned a rating of "Aaa" to all of
the Bonds in the Trust, as insured. See "Tax Exempt Bond
Portfolio" in Part I of this Prospectus. The obtaining of these
ratings by the Trust should not be construed as an approval of
the offering of the Units by Standard & Poor's or Moody's
Investors Service, Inc. or as a guarantee of the market value of
the Trust or of the Units. These ratings are not a
recommendation to buy, hold or sell and do not take into account
the extent to which Trust expenses or portfolio asset sales for
less than the Trust's acquisition price will reduce payment to
the Unit holders of the interest or principal.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust
portfolio is, in the opinion of bond counsel to the issuing
governmental authorities, which opinion was rendered at the time
of original issuance of the Bonds, excludable from gross income
under the Internal Revenue Code of 1954, as amended (the "1954
Code"), or the Internal Revenue Code of 1986, as amended (the
"Code"), depending upon the date of issuance of the Bonds in any
particular Series. See "The Trust - Portfolio."
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 is evidenced by registered certificates
executed by the Trustee and the Sponsors. The Trustee is
authorized to treat as the record owner of Units that person who
is registered as such owner on the books of the Trustee.
Certificates are transferable by presentation and surrender to
the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or
any multiple thereof. A Unit holder may be required to pay $2.00
per certificate reissued or transferred and to pay any
governmental charge that may be imposed in connection with each
such transfer or interchange. For new certificates issued to
replace destroyed, stolen or lost certificates, the Unit holder
must furnish indemnity satisfactory to the Trustee and must pay
such expenses as the Trustee may incur. Mutilated certificates
must be surrendered to the Trustee for replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly,
depending on the method of distribution chosen, principal,
including capital gains, will be distributed only semi-annually;
provided, however, that, other than for purposes of redemption,
no distribution need be made from the Principal Account if the
balance therein is less than $1.00 per Unit then outstanding, and
that, if at any time the pro rata share represented by the Units
of cash in the Principal Account exceeds $10.00 as of a Monthly
Record Date, the Trustee shall, on the next succeeding Monthly
Distribution Date, distribute the Unit holder's pro rata share of
the balance of the Principal Account. Interest (semi-annually or
monthly) and principal, including capital gains, if any
(semi-annually), received by the Trust will be distributed on
each Distribution Date to Unit holders of record of the Trust as
of the preceding Record Date who are entitled to such
distributions at that time under the plan of distribution chosen.
All distributions will be net of applicable expenses and funds
required for the redemption of Units. See "Summary of Essential
Financial Information" in Part I of this Prospectus, "The Trust -
Expenses and Charges" and "Rights of Unit Holders - Redemption."
The Trustee will credit to the Interest Account for the
Trust all interest received by the Trust, including that part of
the proceeds of any disposition of Securities which represents
accrued interest. Other receipts of the Trust will be credited
to the Principal Account for the Trust. The pro rata share of
the Interest Account of the Trust and the pro rata share of cash
in the Principal Account of the Trust represented by each Unit
thereof will be computed by the Trustee each month as of the
Record Date. See "Summary of Essential Financial Information" in
Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date
and prior to the next succeeding Distribution Date will be held
in the Principal Account for the Trust and will not be
distributed until the second succeeding Distribution Date.
Because interest on the Securities is not received by the Trust
at a constant rate throughout the year, any particular interest
distribution may be more or less than the amount credited to the
Interest Account of the Trust as of the Record Date. Persons who
purchase Units between a Record Date and a Distribution Date will
receive their first distribution on the second Distribution Date
following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal
Account if the balance therein is less than an amount sufficient
to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to
the first Record Date and to the related Distribution Date is an
asset of the respective Unit holder and will be realized in
subsequent distributions or upon the earlier of the sale of such
Units or the maturity, redemption or sale of Securities in the
Trust.
The plan of distribution selected by a Unit holder will
remain in effect until changed. Unit holders purchasing Units in
the secondary market will initially receive distributions in
accordance with the election of the prior owner. Each April, the
Trustee will furnish each Unit holder a card to be returned
together with the Certificate by May 15 of such year if the Unit
holder desires to change his plan of distribution, and the change
will become effective on May 16 of such year for the ensuing
twelve months. For a discussion of redemption of Units, see
"Rights of Unit Holders - Redemption - Tender of Units."
As of the fifteenth day of each month the Trustee will
deduct from the Interest Account and, to the extent funds are not
sufficient therein, from the Principal Account, amounts necessary
to pay the expenses of the Trust as of the first day of such
month.
See "The Trust - Expenses and Charges." The Trustee also may
withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be
considered a part of the Trust's assets until such time as the
Trustee shall return all or any part of such amounts to the
appropriate account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account such amounts as
may be necessary to cover redemption of Units by the Trustee.
See "Rights of Unit Holders - Redemption." Funds which are
available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to the
Unit holders and are available for use by the Trustee pursuant to
normal banking procedures.
Because interest on Securities in the Trust is payable at
varying intervals, usually in semi-annual installments, the
interest accruing to the Trust will not be equal to the amount of
money received and available monthly for distribution from the
Interest Account to Unit holders choosing the monthly payment
plan. On each monthly Distribution Date, therefore, the amount
of interest actually deposited in the Interest Account and
available for distribution may be slightly more or less than the
monthly interest distribution made. In addition, because of the
varying interest payment dates of the Securities constituting the
Trust portfolio, accrued interest at any point in time will be
greater than the amount of interest actually received by the
Trust and distributed to Unit holders. There will always remain,
therefore, an item of accrued interest that is added to the value
of the Units. If a Unit holder sells all or a portion of his
Units, he will be entitled to receive his proportionate share of
the accrued interest from the purchaser of his Units. Similarly,
if a Unit holder redeems all or a portion of his Units, the
Redemption Price per Unit which he is entitled to receive from
the Trustee will also include accrued interest on the Securities.
Thus, the accrued interest attributable to a Unit will not be
entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit
Holders - Redemption - Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the
cost of the initial preparation, printing and execution of the
Trust Agreement and the certificates for Units, legal expenses,
advertising and selling expenses, expenses of the Trustee and
other out-of-pocket expenses.
Fees
The Trustee's, Sponsors' and Evaluator's fees are set forth
under "Summary of Essential Financial Information" in Part I of
this Prospectus. The Sponsors' fee, if any, which is earned for
portfolio supervisory services, is based on the face amount of
Securities in the Trust at December 1 of each year. The
Sponsors' fee, which is not to exceed the maximum amount set
forth under "Summary of Essential Financial Information" in Part
I of this Prospectus, may exceed the actual costs of providing
portfolio supervisory services for a particular Series, but at no
time will the total amount received by the Sponsors for portfolio
supervisory services rendered to all Series of Empire State
Municipal Exempt Trust in any calendar year exceed the aggregate
cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services
to the Trust an annual fee in the amount set forth under "Summary
of Essential Financial Information" in Part I of this Prospectus.
There is no minimum fee and, except as hereinafter set forth, no
maximum fee. For a discussion of certain benefits derived by the
Trustee from the Trust's funds, see "Rights of Unit Holders -
Distribution of Interest and Principal." For a discussion of the
services performed by the Trustee pursuant to its obligations
under the Trust Agreement, reference is made to the material set
forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or
before each Distribution Date and the Sponsors' annual fee is
payable annually on December 1. These fees may be increased
without approval of the Unit holders by amounts not exceeding
proportionate increases in consumer prices for services as
measured by the United States Department of Labor's Consumer
Price Index entitled "All Services Less Rent."
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth
under "Summary of Essential Financial Information" in Part I of
this Prospectus is based on the aggregate amount of Bonds in the
Trust as of the date of such information. The premium, which is
an obligation of each respective Trust, is payable monthly by the
Trustee on behalf of the Trust. As Securities in the Trust
mature, are redeemed by their respective issuers or are sold by
the Trustee, the amount of the premium will be reduced in respect
of those Securities no longer owned by and held in the Trust.
The Trust does not incur any premium expense for any insurance
which has been obtained by an issuer of a Pre-insured Bond, since
the premium or premiums for such insurance have been paid by such
issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by
the Trust on Bonds which are also MBIAC Pre-insured Bonds or MBIA
Pre-insured Bonds. The premium payable for Permanent Insurance
and the related custodial fee will be paid solely from the
proceeds of the sale of a Bond from the Trust in the event that
the Trustee exercises the right to obtain Permanent Insurance on
such Bond.
Other Charges
The following additional charges are or may be incurred by
the Trust: all expenses (including audit and counsel fees) of the
Trustee incurred in connection with its activities under the
Trust Agreement, including the expenses and costs of any action
undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any
extraordinary services performed under the Trust Agreement;
indemnification of the Trustee for any loss or liability accruing
to it without willful misconduct, bad faith or gross negligence
on its part, arising out of or in connection with its acceptance
or administration of the Trust; and all taxes and other
governmental charges imposed upon the Securities or any part of
the Trust (no such taxes or charges are being levied or made or,
to the knowledge of the Sponsors, contemplated). The above
expenses, including the Trustee's fee, when paid by or owing to
the Trustee, are secured by a lien on the Trust. In addition,
the Trustee is empowered to sell Securities in order to make
funds available to pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders in connection with
each distribution a statement of the amount of interest, if any,
and the amount of other receipts, if any, which are being
distributed, expressed in each case as a dollar amount per Unit.
Within a reasonable time after the end of each calendar year, the
Trustee
will furnish to each person who at any time during the calendar
year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest
received (including amounts representing interest received upon
any disposition of Securities and any earned original issue
discount), and, if the issuers of the Securities are located in
different states or territories, the percentage of such interest
by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust
(including insurance costs), redemptions of Units and the balance
remaining after such distributions and deductions, expressed both
as a total dollar amount and as a dollar amount representing the
pro rata share of each Unit outstanding on the last business day
of such calendar year; (2) as to the Principal Account: the dates
of disposition of any Securities and the net proceeds received
therefrom (including any unearned original issue discount but
excluding any portion representing interest, the premium
attributable to the Trustee's exercise of the right to obtain
Permanent Insurance and any related custodial fee), deductions
for payments of applicable taxes and for fees and expenses of the
Trust, redemptions of Units, the amount of any "when issued"
interest treated as a return of capital and the balance remaining
after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro
rata share of each Unit outstanding on the last business day of
such calendar year; (3) a list of the Securities held and the
number of Units outstanding on the last business day of such
calendar year; (4) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (5)
amounts actually distributed during such calendar year from the
Interest Account and from the Principal Account, separately
stated, expressed both as total dollar amounts and as dollar
amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit
holders at all reasonable times during usual business hours books
of record and account of its transactions as Trustee, including
records of the names and addresses of Unit holders, certificates
issued or held, a current list of Securities in the portfolio and
a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the
secondary market, Units may also be tendered to the Trustee for
redemption at its corporate trust office at 101 Barclay Street,
New York, New York 10286, upon payment of any applicable tax. At
the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by
the Sponsors or the Trustee. Units redeemed by the Trustee will
be cancelled.
Certificates for Units to be redeemed must be delivered to
the Trustee and must be properly endorsed and accompanied by a
written instrument of transfer. Thus, redemption of Units cannot
be effected until certificates representing such Units have been
delivered to the person seeking redemption. See "Rights of Unit
Holders - Certificates." Unit holders must sign exactly as their
names appear on the face of the certificate with signature(s)
guaranteed by an officer of a national bank or trust company, a
member firm of either the New York, Midwest or Pacific Stock
Exchange, or in such other manner as may be acceptable to the
Trustee. In certain instances the Trustee may require additional
documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator
or certificates of corporate authority.
Within seven calendar days following such tender or, if the
seventh calendar day is not a business day, on the first business
day prior thereto, the Unit holder will be entitled to receive in
cash an amount for each Unit tendered equal to the Redemption
Price per Unit computed as of the Evaluation Time set forth in
Part I of this Prospectus under "Summary of Essential Financial
Information" as of the next subsequent Evaluation Time. See
"Redemption - Computation of Redemption Price per Unit." The
"date of tender" is deemed to be the date on which Units are
received by the Trustee, except that as regards Units received
after the Evaluation Time on the New York Stock Exchange, the
date of tender is the next day on which such Exchange is open for
trading or the next day on which there is a sufficient degree of
trading in Units of the Trust, and such Units will be deemed to
have been tendered to the Trustee on such day for redemption at
the Redemption Price computed on that day. For information
relating to the purchase by the Sponsors of Units tendered to the
Trustee for redemption at prices in excess of the Redemption
Price, see "Redemption - Purchase by the Sponsors of Units
Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from
the Interest Account or, if the balance therein is insufficient,
from the Principal Account. All other amounts paid on redemption
shall be withdrawn from the Principal Account. The Trustee is
empowered to sell Securities in order to make funds available for
redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities
are sold, the size and diversity of the Trust will be reduced.
As to Series 18 and subsequent Series, if the Trustee
exercises the right to obtain Permanent Insurance on a Bond, such
Bond will be sold from the Trust on an insured basis. In the
event that the Trustee does not exercise the right to obtain
Permanent Insurance on a Bond, such Bond will be sold from the
Trust on an uninsured basis since the insurance obtained by the
Trust covers the timely payment of principal and interest when
due on the Bonds only while the Bonds are held in and owned by
the Trust. If the Trustee does not obtain Permanent Insurance on
a Defaulted Bond, to the extent that (and, in the case of Series
18 and subsequent Series, assuming that the Trustee does not
exercise the right to obtain Permanent Insurance on a Defaulted
Bond) Bonds which are current in payment of interest are sold
from the Trust portfolio in order to meet redemption requests and
Defaulted Bonds are retained in the portfolio in order to
preserve the related insurance protection applicable to said
Bonds, the overall value of the Bonds remaining in the Trust will
tend to diminish. See "Sponsors - Responsibility" for the effect
of selling Defaulted Bonds to meet redemption requests.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption
Price per Unit for any period during which the New York Stock
Exchange is closed, other than weekend and holiday closings, or
during which trading on that Exchange is restricted or during
which (as determined by the Securities and Exchange Commission by
rule or regulation) an emergency exists as a result of which
disposal or evaluation of the underlying Bonds is not reasonably
practicable, or for such other periods as the Securities and
Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to
Bonds which are sold by the Trustee, and because the insurance
obtained by the Trust does not have a realizable cash value which
can be used by the Trustee to meet redemptions of Units
(assuming, in the case of Series 18 and subsequent Series, that
the Trustee does not exercise the right to obtain Permanent
Insurance on Defaulted Bonds), under certain circumstances the
Sponsors may apply to the Securities and Exchange Commission for
an order permitting a full or partial suspension of the right of
Unit holders to redeem their Units if a significant portion of
the Bonds in the portfolio is in default in payment of principal
or interest or in significant risk of such default. No
assurances can be given that the Securities and Exchange
Commission will permit the Sponsors to suspend the
rights of Unit holders to redeem their Units, and, without the
suspension of such redemption rights when faced with excessive
redemptions, the Sponsors may not be able to preserve the
benefits of the Trust's insurance on Defaulted Bonds.
Computation of Redemption Price per Unit
The Redemption Price per Unit is determined by the Trustee
on the basis of the bid prices of the Securities in the Trust, as
of the Evaluation Time stated under "Summary of Essential
Financial Information" in Part I of this Prospectus on the day
any such determination is made. The Redemption Price per Unit is
each Unit's pro rata share, determined by the Trustee, of (1) the
aggregate value of the Securities in the Trust (determined by the
Evaluator as set forth below), except for those cases in which
the value of insurance has been included, (2) cash on hand in the
Trust, and (3) accrued and unpaid interest on the Securities as
of the date of computation, less (a) amounts representing taxes
or governmental charges payable out of the Trust, (b) the accrued
expenses of the Trust, and (c) cash held for distribution to Unit
holders of record as of a date prior to the evaluation. The
Evaluator may determine the value of the Securities in the Trust
(i) on the basis of current bid prices for the Securities, (ii)
if bid prices are not available for any Securities, on the basis
of current bid prices for comparable bonds, (iii) by appraisal,
or (iv) by any combination of the above. In determining the
Redemption Price per Unit, no value will be assigned to the
portfolio insurance obtained by the Trust on the Bonds in the
Trust unless such Bonds are in default in payment of principal or
interest or in significant risk of such default. On the other
hand, Pre-insured Bonds are entitled at all times to the benefits
of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to
fulfill its obligations, and such benefits are reflected and
included in the market value of Pre-insured Bonds. For a
description of the situations in which the Evaluator may value
the
insurance obtained by the Trust, see "Public Offering - Market
for Units."
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the
Sponsors of any tender of Units for redemption. So long as the
Sponsors are maintaining a bid in the secondary market, the
Sponsors, prior to the close of business on the second succeeding
business day, will purchase any Units tendered to the Trustee for
redemption at the price so bid by making payment therefor to the
Unit holder in an amount not less than the Redemption Price on
the date of tender not later than the day on which the Units
would otherwise have been redeemed by the Trustee. See "Public
Offering - Market for Units." Units held by the Sponsors may be
tendered to the Trustee for redemption as any other Units,
provided that the Sponsors shall not receive for Units purchased
as set forth above a higher price than they paid, plus accrued
interest.
The offering price of any Units resold by the Sponsors will
be the Public Offering Price determined in the manner provided in
this Prospectus. See "Public Offering - Offering Price." Any
profit resulting from the resale of such Units will belong to the
Sponsors which likewise will bear any loss resulting from a lower
offering or redemption price subsequent to their acquisition of
such Units.
Exchange Option
The Sponsors of the Series of Empire State Municipal Exempt
Trust (including the Series of Municipal Exempt Trust, the
predecessor trust to Empire State Municipal Exempt Trust) (the
"Trust") are offering Unit holders of those Series of the Trust
for which the Sponsors are maintaining a secondary market an
option to exchange a Unit of any Series of the Trust for a Unit
of a different Series of the Trust being offered by the Sponsors
(other than in the initial offering period) at a Public Offering
Price generally based on the bid prices of the underlying
Securities divided by the number of Units outstanding (see
"Public Offering - Market for Units") plus a fixed sales charge
of $15 per Unit (in lieu of the normal sales charge). A Unit
holder must have held his Unit for a period of at least six
months, however, in order to exercise the exchange option or
agree to pay a sales charge based on the greater of $15 per Unit
or an amount which together with the initial sales charge paid in
connection with the acquisition of Units being exchanged equals
the normal sales charge of the Series into which the investment
is being converted, determined as of the date of the exchange.
Such exchanges will be effected in whole Units only. Any excess
proceeds from the Units being surrendered will be returned, and
the Unit holder will not be permitted to advance any new money in
order to complete an exchange. The Sponsors reserve the right to
modify, suspend or terminate this plan at any time without
further notice to the Unit holders. In
the event that the exchange option is not available to a Unit
holder at the time he wishes to exercise it, the Unit holder will
be immediately notified and no action will be taken with respect
to his Units without further instructions
from the Unit holder.
Unit holders are urged to consult their tax advisors as to
the tax consequences of exchanging Units.
<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 the Trust to elect to have
distributions from Units in the Trust automatically reinvested in
shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is
to seek as high a level of current income exempt from Federal
income tax and New York State and New York City income taxes as
is believed to be consistent with preservation of capital. It is
the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such
taxes.
The Empire Builder has an investment objective which differs
in certain respects from that of the Trust. The bonds purchased
by the Empire Builder will be of "investment grade" quality -
that is, at the time of purchase by the Empire Builder, such
bonds either will be rated not lower than the four highest
ratings of either Moody's Investors Service, Inc. (Aaa, Aa, A or
Baa) or Standard & Poor's Corporation (AAA, AA, A or BBB) or will
be unrated bonds which at the time of purchase are judged by the
Empire Builder's investment advisor to be of comparable quality
to bonds rated within such four highest grades. It is a
fundamental policy of the Empire Builder that under normal market
conditions at least 90% of the income distributed to its
shareholders will be exempt from Federal income tax and New York
State and New York City personal income taxes. During times of
adverse market conditions, however, when the Empire Builder is
investing for temporary defensive purposes in obligations other
than New York tax-exempt bonds, more than 10% of the Empire
Builder's income distributions could be subject to Federal income
tax, New York State income tax and/or New York City income tax,
as described in the current prospectus relating to the Empire
Builder (the "Empire Builder Prospectus"). Glickenhaus & Co.
("Glickenhaus"), a sponsor of the Trust, acts as the investment
advisor and distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the
"Plan Agent") a copy of the Empire Builder Prospectus describing
the Empire Builder and a form by which such Unit holder may elect
to become a participant ("Participant") in the Plan. Thereafter,
as directed by such person, distributions on the Participant's
Units will, on the applicable Distribution Date, automatically be
applied as of that date by the Trustee to purchase shares (or
fractions thereof) of the Empire Builder at a net asset value as
computed as of the close of trading on the New York Stock
Exchange on such date, as described in the Empire Builder
Prospectus. Unless otherwise indicated, new Participants in the
Empire Builder Plan will be deemed to have elected the monthly
distribution plan with respect to their Units. Confirmations of
all transactions undertaken for each Participant in the Plan will
be mailed to each such Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the Empire
Builder purchased on his behalf. A Participant may at any time
prior to 10 days preceding the next succeeding distribution date,
by so notifying the Plan Agent in writing, elect to terminate his
participation in the Plan and receive future distributions on his
Units in cash. There will be no charge or other penalty for such
termination. The Sponsors, the Trustee, the Empire Builder and
Glickenhaus, as investment advisor for Empire Builder each will
have the right to terminate this Plan at any time for any reason.
The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For
more complete information about investing in the Empire Builder
through the Plan, including charges and expenses, request a copy
of the Empire Builder Prospectus from The Bank of New York, Unit
Investment Trust Division, P.O. Box 988, Wall Street Station,
New York, New York 10268. Read it carefully before you decide to
participate.
<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 of the Trust to elect to have
distributions from Units in the Trust automatically reinvested in
shares of the Bond Fund. The Bond Fund is an open-end,
non-diversified investment company whose investment objective is
to maximize current income exempt from regular Federal income
tax, and from New York State and New York City income taxes
consistent with preservation of capital and with consideration
given to opportunities for capital gain. It is the policy of the
Bond Fund to invest primarily in long-term investment grade
tax-exempt securities the interest income from which is exempt
from such taxes.
The Bond Fund has an investment objective which differs in
certain respects from that of the Trust. The bonds purchased by
the Bond Fund will be of "investment grade" quality--that is, at
the time of purchase by the Bond Fund such bonds either will be
rated not lower than the four highest ratings of either Moody's
Investors Service, Inc., (Aaa, Aa, A, or Baa) or Standard &
Poor's Corporation (AAA, AA, A or BBB) or will be unrated bonds
which at the time of purchase are judged by the Bond Fund's
investment advisor to be of comparable quality to bonds rated
within such four highest grades. It is a fundamental policy of
the Bond Fund that under normal market conditions at least 80% of
the income distributed to its shareholders will be exempt from
regular Federal income tax, and from New York State and New York
City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income
distributions could be subject to Federal income tax, New York
State and/or New York City income taxes, as described in the
current prospectus relating to the Bond Fund (the "Bond Fund
Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust,
acts as the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the
"Plan Agent"), a copy of the Bond Fund Prospectus describing the
Bond Fund and a form by which such Unit holder may elect to
become a participant ("Participant") in the Plan. Thereafter, as
directed by such person, distributions on the Participant's Units
will, on the applicable distribution date, automatically be
applied as of that date by the Trustee to purchase shares (or
fractions thereof) of the Bond Fund at a net asset value as
computed as of the close of trading on the New York Stock
Exchange on such date, as described in the Bond Fund Prospectus.
Unless otherwise indicated,
new Participants in the Bond Fund Plan will be deemed to have
elected the monthly distribution plan with respect to the Units.
Confirmations of all transactions undertaken for each Participant
in the Plan will be mailed to each Participant by the Plan Agent
indicating distributions and shares (or fractions thereof) of the
Bond Fund purchased on his behalf. A Participant may at any time
prior to ten days preceding the next succeeding distribution
date, by so notifying the Plan Agent in writing, elect to
terminate his participation in the Plan and receive future
distributions on his Units in cash. There will be no charge or
other penalty for such termination. The Sponsors, the Trustee,
the Bond Fund and Lebenthal & Co., Inc., as manager for the Bond
Fund, each will have the right to terminate this Plan at any time
for any reason. The reinvestment of distributions from the Trust
through the Plan will not affect the income tax status of such
distributions. For more complete information about investing in
the Bond Fund through the Plan, including charges and expenses,
request a copy of the Bond Fund Prospectus from The Bank of New
York, Unit Investment Trust Division, P.O. Box 988, Wall Street
Station, New York, New York 10268. Read it carefully before you
decide to participate.
<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series,
including all Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in
the underwriting and securities brokerage business and in the
investment advisory business. It is a member of the New York
Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. and is an associate member of the American Stock
Exchange. Glickenhaus acts as a sponsor for successive Series of
The Municipal Insured National Trusts and for the prior Series of
Empire State Municipal Exempt Trust (including those sold under
the name of Municipal Exempt Trust, New York Exempt Series 1, New
York Series 2 and New York Series 3). Glickenhaus, in addition
to participating as a member of various selling groups of other
investment companies, executes orders on behalf of investment
companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity
as a broker or dealer in securities. The principal offices of
Glickenhaus are located at 6 East 43rd Street, New York, New York
10017.
Lebenthal, a New York corporation originally organized as a
New York partnership in 1925, has been buying and selling
municipal bonds for its own account as a dealer for over 60
years; Lebenthal also buys and sells securities as an agent and
participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor for Empire State Tax Exempt Bond
Trust, Series 8 and successive Series of The Municipal Insured
National Trust through Series 28. Lebenthal is registered as a
broker/dealer with the Securities and Exchange Commission and
various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and
Securities Investors Protection Corp. The principal offices of
Lebenthal are located at 120 Broadway, New York, New York 10271.
Limitations on Liability
The Sponsors are jointly and severally liable for the
performance of their obligations arising from their
responsibilities under the Trust Agreement, but will be under no
liability to the Unit holders for taking any action or refraining
from any action in good faith or for errors in judgment; nor will
they be responsible in any way for depreciation or loss incurred
by reason of the sale of any Bonds, except in cases of their
willful misconduct, bad faith or gross negligence. See "The
Trust - Portfolio" and "Sponsors - Responsibility."
Responsibility
The Trustee shall sell, for the purpose of redeeming Units
tendered by any Unit holder, and for the payment of expenses for
which funds may not be available, such of the Bonds in a list
furnished by the Sponsors as the Trustee in its sole discretion
may deem necessary. In the event that the Trustee does not
exercise the right to obtain Permanent Insurance on a Defaulted
Bond or Bonds, to the extent that Bonds are sold which are
current in payment of principal and interest in order to meet
redemption requests and Defaulted Bonds are retained in the
portfolio in order to preserve the related insurance protection
applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's portfolio will tend to diminish. As to
Series 18 and subsequent Series, in the event that the Trustee
does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond or Bonds, except as described below and in certain
other unusual circumstances for which it is determined by the
Trustee to be in the best interests of the Unit holders or if
there is no alternative, the Trustee is not empowered to sell
Defaulted Bonds for which value has been attributed for the
insurance obtained by the Trust. Because of such restrictions on
the Trustee, under certain circumstances the Sponsors may seek a
full or partial suspension of the right of Unit holders to redeem
their Units. See "Rights of Unit Holders - Redemption." The
Sponsors are empowered, but not obligated, to direct the Trustee
to dispose of Bonds in the event of advance refunding. It is the
responsibility of the Sponsors to instruct the Trustee to reject
any offer made by an issuer of any of the Securities to issue new
obligations in exchange and substitution for any Securities
pursuant to a refunding or refinancing plan, except that the
Sponsors may instruct the Trustee to accept such an offer or to
take any other action with respect thereto as the Sponsors may
deem proper if the issuer is in default with respect to such
Securities or in the judgment of the Sponsors the issuer will
probably default with respect to such Securities in the
foreseeable future.
Any obligations so received in exchange or substitution will
be held by the Trustee subject to the terms and conditions of the
Trust Agreement to the same extent as Securities originally
deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to
each Unit holder, identifying the obligations eliminated and the
Securities substituted therefor. Except as stated in this and
the preceding paragraph, the acquisition by the Trust of any
securities other than the Securities initially deposited is
prohibited.
If any default in the payment of principal or interest on
any Bond occurs and no provision for payment is made therefor
either pursuant to the portfolio insurance or otherwise within 30
days, the Trustee is required to notify the Sponsors thereof. If
the Sponsors fail to instruct the Trustee to sell or to hold such
Bond within 30 days after notification by the Trustee to the
Sponsors of such default, the Trustee may in its discretion sell
the Defaulted Bond and not be liable for any depreciation or loss
thereby incurred. See "The Trust - Insurance on the Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon
default in the payment of principal or interest, institution of
certain legal proceedings or the existence of certain other
impediments to the payment of Bonds, default under other
documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same
issuer, decline in projected income pledged for debt service on
revenue Bonds, or decline in price or the occurrence of other
market factors, including advance refunding, so that in the
opinion of the Sponsors the retention of such Bonds in a Trust
would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal
Account of the affected Trust for distribution to the Unit
holders.
Notwithstanding the foregoing, in connection with final
distributions to Unit holders (if, as to Series 18 and subsequent
Series, the Trustee does not exercise the right to obtain
Permanent Insurance on any Defaulted Bond), because the portfolio
insurance obtained by the Trust is applicable only while Bonds so
insured are held by the Trust, the price to be received by the
Trust upon the disposition of any such Defaulted Bond will not
reflect any value based on such insurance. In connection with
any liquidation, therefore, it shall not be necessary for the
Trustee to, and the Trustee does not currently intend to, dispose
of any Bonds if retention of such Bonds, until due, shall be
deemed to be in the best interest of Unit holders, including, but
not limited to, situations in which Bonds so insured are in
default and situations in which Bonds so insured have a
deteriorated market price resulting from a significant risk of
default. Since the Pre-insured Bonds will reflect the value of
the insurance obtained by the Bond issuer, it is the present
intention of the Sponsors not to direct the Trustee to hold any
Pre-insured Bonds after the date of termination. All proceeds
received, less applicable expenses, from insurance on Defaulted
Bonds not disposed of at the date of termination will ultimately
be distributed to Unit holders of record as of such date of
termination as soon as practicable after the date such Defaulted
Bonds become due and applicable insurance proceeds have been
received by the Trustee. See "Summary of Essential Financial
Information" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of
Essential Information" in Part I of this Prospectus has been
appointed by the other Sponsor as agent for purposes of taking
action under the Trust Agreement. In those Trusts for which
there is a sole Sponsor, references herein to the Agent for
Sponsors shall be deemed to refer to such sole Sponsor. If the
Sponsors are unable to agree with respect to action to be taken
jointly by them under the Trust Agreement and they cannot agree
as to which Sponsor shall act as sole Sponsor, then the Agent for
Sponsors shall act as sole Sponsor. If one of the Sponsors fails
to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities, that Sponsor is automatically
discharged under the Trust Agreement and the other Sponsor acts
as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time
of such resignation one remaining Sponsor maintains a net worth
of $1,000,000 and all the remaining Sponsors are agreeable to
such resignation. Concurrent with or subsequent to such
resignation, a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If, at any time, only one Sponsor is acting under the
Trust Agreement and that Sponsor shall resign or fail to perform
any of its duties thereunder or becomes incapable of acting or
becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or
terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 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
RELATED TO THE SPONSORS ONLY, AND NOT TO ANY SERIES OF EMPIRE
STATE MUNICIPAL EXEMPT TRUST. SUCH INFORMATION IS INCLUDED IN
THIS PROSPECTUS ONLY FOR THE PURPOSE OF INFORMING INVESTORS AS TO
THE FINANCIAL RESPONSIBILITY OF THE SPONSORS AND THEIR ABILITY TO
CARRY OUT THEIR CONTRACTUAL OBLIGATIONS SHOWN HEREIN. MORE
COMPREHENSIVE FINANCIAL INFORMATION CAN BE OBTAINED UPON REQUEST
FROM ANY SPONSOR.
TRUSTEE
The Trustee is The Bank of New York, a trust company
organized under the laws of New York, having its offices at 101
Barclay Street, New York, New York 10286, (212) 815-2000. The
Bank of New York is subject to supervision and examination by the
Superintendent of Banks of the State of New York and the Board of
Governors of the Federal Reserve System, and its deposits are
insured by the Federal Deposit Insurance Corporation to the
extent permitted by law. The Trustee must be a corporation
organized under the laws of the United States or the State of New
York, which is authorized under such laws to exercise corporate
trust powers, and must have at all times an aggregate capital,
surplus and undivided profits of not less than $5,000,000 and its
principal office and place of business in the Borough of
Manhattan, New York City. The duties of the Trustee are
primarily ministerial in nature. The Trustee did not participate
in the selection of Securities for the portfolio of any Series of
the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way
for depreciation or loss incurred by reason of the disposition of
any moneys, Securities or certificates or in respect of any
evaluation or for any action taken in good faith reliance on
prima facie properly executed documents except in cases of its
willful misconduct, bad faith, gross negligence or reckless
disregard of its obligations and duties. In addition, the
Trustee shall not be personally liable for any taxes or other
governmental charges imposed upon or in respect of the Trust
which the Trustee may be required to pay under current or future
law of the United States or any other taxing authority having
jurisdiction. See "The Trust - Portfolio."
Responsibility
For information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the
material set forth under "Rights of Unit Holders," "Sponsors -
Responsibility" and "Sponsors - Resignation."
Resignation
By executing an instrument in writing and filing the same
with the Sponsors, the Trustee and any successor may resign. In
such an event the Sponsors are obligated to appoint a successor
trustee as soon as possible. If the Trustee becomes incapable of
acting or becomes bankrupt or its affairs are taken over by
public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the
Unit holders, the Sponsors may remove the Trustee and appoint a
successor as provided in the Trust Agreement. Such resignation
or removal shall become effective upon the acceptance of
appointment by the successor trustee. If, upon resignation or
removal of a trustee, no successor has been appointed and has
accepted the appointment within thirty days after notification,
the retiring trustee may apply to a court of competent
jurisdiction for the appointment of a successor. The resignation
or removal of a trustee becomes effective only when the successor
trustee accepts its appointment as such or when a court of
competent jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York
corporation, with main offices at 395 Hudson Street, New York,
New York 10014. Muller Data Corporation is a wholly owned
subsidiary of Thomson Publishing Corporation, a Delaware
corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for
the accuracy thereof. Determinations by the Evaluator under the
Trust Agreement shall be made in good faith upon the basis of the
best information available to it; provided, however, that the
Evaluator shall be under no liability to the Trustee, the
Sponsors or the Unit holders for errors in judgment. This
provision shall not protect the Evaluator in cases of its willful
misconduct, bad faith, gross negligence or reckless disregard of
its obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day
after the initial offering period, when any Unit is tendered for
redemption and on any other day such evaluation is desired by the
Trustee or is requested by the Sponsors. For information
relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public
Offering - Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors
and the Trustee, and the Sponsors and the Trustee are to use
their best efforts to appoint a satisfactory successor. Such
resignation or removal shall become effective upon the acceptance
of appointment by the successor evaluator. If upon resignation
of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply
to a court of competent jurisdiction for the appointment of a
successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the
Trust Agreement without the consent of any of the Unit holders
when such an amendment is (1) to cure any ambiguity or to correct
or supplement any provision of the Trust Agreement which may be
defective or inconsistent with any other provision contained
therein, or (2) to make such other provisions as shall not
adversely affect the interest of the Unit holders; and the
Sponsors and the Trustee may amend the Trust Agreement with the
consent of the holders of certificates evidencing 66-2/3% of the
Units then outstanding, provided that no such amendment will
reduce the interest in a Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units
required to consent to any such amendment without the consent of
all the Unit holders. In no event shall the Trust Agreement be
amended to increase the number of Units issuable thereunder or to
permit the deposit or acquisition of securities either in
addition to or in substitution for any of the Bonds initially
deposited in the Trust, except in accordance with the provisions
of the Trust Agreement. In the event of any amendment, the
Trustee is obligated to notify promptly all Unit holders of the
substance of such amendment.
The Trust shall terminate upon the maturity, redemption,
sale or other disposition, as the case may be, of the last of the
Securities. The Trustee shall notify all Unit holders when the
value of the Trust as shown by any evaluation is less than
$2,000,000 or less than 20% of the value of the Trust as of the
Date of Deposit, whichever is lower, at which time the Trust may
be terminated (i) by the consent of the holders of 66-2/3% of the
Units or (ii) by the Trustee; provided, however, that the holders
of at least 33-1/3% of the Units may instruct the Trustee not to
terminate the Trust. In no event, however, may the Trust
continue beyond the Mandatory Termination Date set forth in Part
I of this Prospectus under "Summary of Essential Financial
Information"; provided, however, as to Series 9 and subsequent
Series, that prior to the Mandatory Termination Date the Trustee
shall not dispose of any Bonds if the retention of such Bonds,
until due, shall be deemed to be in the best interest of the Unit
holders of the affected Trust. In the event of termination,
written notice thereof will be sent by the Trustee to all Unit
holders. Within a reasonable period after termination, the
Trustee will sell any remaining Securities and, after paying all
expenses and charges incurred by the Trust, will distribute to
each Unit holder, upon surrender for cancellation of his
certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Hall,
McNicol, Hamilton & Clark, The News Building, 220 East 42nd
Street, New York, New York 10017, as counsel for the Sponsors as
to Series 1 through 8, by Brown & Wood, One World Trade Center,
New York, New York 10048, as special counsel for the Sponsors as
to Series 9 through 64 and by Battle Fowler, 280 Park Avenue, New
York, New York 10017 as special counsel for the Sponsors as to
Series 65 and subsequent Series of Empire State Municipal Exempt
Trust, Guaranteed Series. Tanner, Propp, Fersko & Sterner, 99
Park Avenue, New York, New York 10016, acts as counsel for the
Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus have been audited by BDO Seidman, independent
certified public accountants, as stated in their report with
respect thereto, and are included therein in reliance upon such
report given upon the authority of that firm as experts in
accounting and auditing.
DESCRIPTION OF BOND RATINGS
All ratings except those identified by an asterisk (*) are
by Standard & Poor's Corporation ("Standard & Poor's"). A
Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. This assessment of creditworthiness may
take into consideration obligors such as guarantors, insurers or
lessees.
The bond rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market
price or suitability for a particular investor.
The ratings are based on current information furnished to
Standard & Poor's by the issuer and obtained by Standard & Poor's
from other sources it considers reliable. Standard & Poor's does
not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings
may be changed, suspended or withdrawn as a result of changes in,
or unavailability of, such information or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangement under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned
by Standard & Poor's to a debt obligation. Capacity to pay
interest and repay principal is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay
interest and repay principal and differ from the highest
rated issues only in small degree.
A: Bonds rated "A" have a strong capacity to pay
interest and repay principal, although they are somewhat
more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher
rated categories.
BBB: Bonds rated "BBB" are regarded as having an
adequate capacity to pay interest and repay principal.
Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC"
are regarded, on balance, as predominantly speculative with
respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates
the lowest degree of speculation and "CC" the highest degree
of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse
conditions.
Plus (+) or Minus (-): To provide more detailed
indications of credit quality, the ratings from "AA" to "B"
may be modified by the addition of a plus or minus sign to
show relative standing within the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the
successful completion of the project being financed by the
bonds being rated and indicates that payment of debt service
requirements is largely or entirely dependent upon the
successful and timely completion of the project. This
rating, however, while addressing credit quality subsequent
to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his
own judgment with respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that
there is insufficient information on which to base a rating
or that Standard & Poor's does not rate a particular type of
obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal
and interest. Those issues determined to possess
overwhelming safety characteristics will be given a plus (+)
designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's Investors Service, Inc. ("Moody's") rating. A summary
of the meaning of the applicable rating symbols as published by
Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be of
the best quality. They carry the smallest degree of
investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group
they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of
protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa"
securities.
A: Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper
medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered as
medium grade obligations; i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as
well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may be
small.
Con.(...): Bonds for which the security depends upon
the completion of some act or the fulfillment of some
condition are rated conditionally. These bonds are secured
by (a) earnings of projects under construction, (b) earnings
of projects unseasoned in operating experience, (c) rentals
which begin when facilities are completed, or (d) payments
to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of
condition.
Moody's applies numerical modifiers "1," "2" and "3" in each
rating classification from "Aa" through "B" in its corporate
rating system. The modifier "1" indicates that the security
ranks in the higher end of its generic rating category; the
modifier "2" indicates a mid-range ranking; and the modifier "3"
indicates that the security ranks in the lower end of its generic
rating category.
**FOOTNOTES**
[1]: For the meanings of ratings, including the symbols "p" and
"Con.(...)," see "Description of Bond Ratings." Security letter
ratings may be modified by the addition of a plus or minus sign,
when appropriate, to show relative standing within the major
rating categories. There can be no assurance that the economic
and political conditions on which the ratings of the Bonds in any
Trust are based will continue or that particular Bond issues may
not be adversely affected by changes in economic, political or
other conditions that do not affect the above ratings. See "The
Trust - Special Factors Affecting New York" and "The Trust -
General Considerations."
[2]: 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- EMPIRE STATE
tion concerning the Trust and the MUNICIPAL EXEMPT TRUST
Sponsors, but does not contain
all the information set forth in GUARANTEED SERIES
the registration statements and
exhibits relating thereto, which Prospectus, Part II
the Trust has filed with the Sponsors:
Securities and Exchange Glickenhaus & Co.
Commission, Washington, D.C., 6 East 43rd Street
under the Securities Act of 1933 New York, New York 10017
and the Investment Company Act of 212-953-7532
1940, and to which reference is Lebenthal & Co., Inc.
hereby made. 120 Broadway
New York, New York 10271
212-425-6116
INDEX
Page
The Trust 1
Public Offering 19
Estimated Current Return and
Estimated Long-Term Return to
Unit Holders 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.
<PAGE>
PART II. ADDITIONAL INFORMATION NOT REQUIRED IN PROSPECTUS
Contents of Registration Statement
This Post-Effective Amendment to the Registration Statement on Form
S-6 comprises the following papers and documents:
(i) The facing sheet of Form S-6.
The Cross-Reference Sheet (previously filed).
The Prospectus.
Signatures.
(ii) Written consent of the following persons:
Brown & Wood (previously filed).
BDO Seidman.
Muller Data Corporation (filed herewith 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 State 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
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Guaranteed Series 31,
certifies that it meets all of the requirements for effectiveness of this
Post-Effective Amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned 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
this Post-Effective Amendment to the Registration Statement pursuant to
powers of attorney on file with the Commission authorizing the person
signing this Post-Effective Amendment to the Registration Statement to do
so on behalf of such persons.
A majority of the Board of Directors of Lebenthal & Co., Inc. have
signed this Post-Effective Amendment to the Registration Statement
pursuant to powers of attorney on file with the Commission authorizing the
person signing this Post-Effective Amendment to the Registration Statement
to do so on behalf of such persons.
II-2
<PAGE>
Empire State Municipal Exempt Trust,
Guaranteed Series 31
By: GLICKENHAUS & CO.
(Sponsor)
By: /s/ Brian C. Laux
(Brian C. Laux, Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
ROBERT SANTORO* General Partner
(Robert Santoro)
ALFRED FEINMAN* General Partner
(Alfred Feinman)
SETH M. GLICKENHAUS* General Partner
(Seth M.Glickenhaus)
STEVEN B. GREEN* General Partner,
(Steven B. Green) Chief Financial Officer
ARTHUR WINSTON* General Partner
(Arthur Winston)
JEFFREY L. LEDERER* General Partner
(Jeffrey L. Lederer)
*By: /s/ Brian C. Laux September 30, 1994
(Brian C. Laux,
Attorney-in-Fact)
II-3
<PAGE>
Empire State Municipal Exempt Trust,
Guaranteed Series 31
By:LEBENTHAL & CO., INC.
(Sponsor)
By: /s/ James A. Lebenthal
(James A. Lebenthal,
Chairman of the Board)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
H. GERARD BISSINGER, II* Director
(H. Gerard Bissinger, II)
JEFFREY M. JAMES* Director
(Jeffrey M. James)
D. WARREN KAUFMAN* Director
(D. Warren Kaufman)
JAMES E. McGRATH* Chief Financial
(James E. McGrath) Officer
/s/ James A. Lebenthal Director, Chief 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)
II-4
<PAGE>
CONSENT OF COUNSEL
The consent of Brown & Wood 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, GUARANTEED SERIES 31:
We hereby consent to the use in Post-Effective Amendment No. 7 to
Registration Statement No. 33-10860 of our report dated June 30, 1994
(except for Note 5, which is as of September 1, 1994), relating to the
financial statements of Empire State Municipal Exempt Trust, Guaranteed
Series 31; and to the references to our firm under the heading "Auditors"
in the Prospectus which is part of such Registration Statement.
/s/ BDO Seidman
BDO SEIDMAN
Woodbridge, New Jersey
September 30, 1994
II-5
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCICAL STATEMENTS OF THE TRUST FOR THE YEAR ENDED MAY 30, 1994, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000807962
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 31
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1994
<PERIOD-END> MAY-31-1994
<INVESTMENTS-AT-COST> 8906183
<INVESTMENTS-AT-VALUE> 10135283
<RECEIVABLES> 274709
<ASSETS-OTHER> 12926
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10422918
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1617
<TOTAL-LIABILITIES> 1617
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9832
<SHARES-COMMON-PRIOR> 10157
<ACCUMULATED-NII-CURRENT> 341940
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1229100
<NET-ASSETS> 10421301
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 734913
<OTHER-INCOME> 0
<EXPENSES-NET> 35257
<NET-INVESTMENT-INCOME> 699656
<REALIZED-GAINS-CURRENT> 58919
<APPREC-INCREASE-CURRENT> (368019)
<NET-CHANGE-FROM-OPS> 390556
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 714354
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 157198
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 325
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (823644)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</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
Guaranteed Series 31 -- Amendment No. 7
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-10860 for the above captioned trust. We
hereby acknowledge that Muller Data Corporation is currently
acting as the evaluator for the trust. We hereby consent to the
use in the Amendment of the reference to Muller Data Corporation
as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above reference Amendment to the Registration Statement for the
respective bonds comprising the trust portfolio 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
