As filed with the Securities and Exchange Commission on January 28, 1997
Registration No. 33-10863*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 9
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 34 AND
GUARANTEED SERIES 35
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, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Battle Fowler LLP
New York, NY 10017 New York, NY 10271 75 East 55th Street
New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on January 31, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
================================================================================
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Empire State
Municipal Exempt Trust, Guaranteed Series 34 and Guaranteed Series 35
covered by prospectuses heretofore filed as part of separate registration
statements on Form S-6 (Registration Nos. 33-10863 and 33-19566,
respectively) under the Act.
332284.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 34 AND GUARANTEED SERIES 35
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
I. Organization and General Information
<S> <C> <C>
1. (a) Name of trust................... Prospectus front cover
(b) Title of securities issued...... "
2. Name and address of each depositor.. Sponsors
3. Name and address of trustee......... Trustee
4. Name and address of principal
underwriters...................... Sponsors; Public Offering --
Distribution of Units; Back Cover
5. State of organization of trust...... The Trust
6. Execution and termination of
trust agreement................... The Trust; Amendment and Termination of
the Trust Agreement
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities..................... Rights of Unit Holders
(b) Cumulative or distributive
securities..................... "
(c) Redemption...................... "
(d) Conversion, transfer, etc....... "
(e) Periodic payment plan........... Not Applicable
(f) Voting rights................... Amendment and Termination of the Trust
Agreement
(g) Notice to certificateholders.... Rights of Unit Holders--Reports and
Records; Sponsors--Responsibility;
Trustee--Resignation; Amendment and
Termination of the Trust Agreement
(h) Consents required............... Sponsors--Responsibility; Amendment and
Termination of the Trust Agreement
(i) Other provisions................ The Trust--Tax Status
11. Type of securities
comprising units.................. Prospectus front cover; The Trust--
Portfolio
12. Certain information regarding
periodic payment certificates..... Not Applicable
13. (a) Load, fees, expenses, etc....... Prospectus front cover; Summary of
Essential Financial Information;
Rights of Unit Holders--Expenses and
Charges; Public Offering--Offering
Price; Public Offering--Market for
Units
</TABLE>
ii
332284.1
<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<S> <C> <C>
(b) Certain information regarding
periodic payment certificates... Not Applicable
(c) Certain percentages............. Public Offering--Offering Price
(d) Certain other fees, etc. payable Rights of Unit Holders--Certificates
by holders......................
(e) Certain profits receivable by
depositors, principal
underwriters, trustee or
affiliated persons.............. Public Offering--Offering Price; Rights
of Unit Holders--Redemption--Purchase by
the Sponsors of Units Tendered for
Redemption
(f) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... The Trust; Rights of Unit Holders--
Certificates
15. Receipt and handling of payments
from purchasers................... Public Offering--Offering Price;
Amendment and Termination of the Trust
Agreement
16. Acquisition and disposition of
underlying securities............. The Trust--Portfolio; Sponsors--
Responsibility
17. Withdrawal or redemption............ Public Offering--Market for Units;
Rights of Unit Holders--Redemption
18. (a) Receipt, custody and
disposition of income........... The Trust--Portfolio--General
Considerations; Insurance on the
Bonds; Public Offering--Offering
Price; Rights of Unit Holders--
Distribution of Interest and
Principal; Rights of Unit Holders--
Reports and Records; Amendment and
Termination of the Trust Agreement
(b) Reinvestment of distributions... Automatic Accumulation Account
(c) Reserves or special funds....... Rights of Unit Holders; Rights of Unit
Holders--Distribution of Interest and
Principal; Expenses and Charges--Other
Charges; Amendment and Termination of
the Trust Agreement
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and
Principal; Amendment and Termination
of the Trust Agreement
20. Certain miscellaneous provisions
of trust agreement................ Sponsors--Resignation; Trustee--
Resignation; Trustee--Limitations on
Liability; Amendment and Termination
of the Trust Agreement
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... "
(e) and (f) Depositor, removal
and successor................... "
21. Loans to security holders........... Not Applicable
</TABLE>
iii
332284.1
<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<S> <C> <C>
22. Limitations on liability............ The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
23. Bonding arrangements................ Additional Information--Item A
24. Other material provisions
of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......... Sponsors
26. Fees received by depositors........ Not Applicable
27. Business of depositors............. Sponsors
28. Certain information as to
officials and affiliated
persons of depositor.............. Contents of Registration Statement
29. Voting securities of depositors..... Not Applicable
30. Persons controlling depositors...... "
31. Payments by depositors for certain
services rendered to trust........ "
32. Payment by depositors for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositors for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states.............. Public Offering--Distribution of Units
36. Suspension of sales of trust's
securities........................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Public Offering--Distribution of Units
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation............. Prospectus front cover; Public
Offering--Offering Price; Public
Offering-- Distribution of Units
(b) Schedule as to offering price... Not Applicable
</TABLE>
iv
332284.1
<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<S> <C> <C>
(c) Variation in offering price
to certain persons.............. Public Offering--Offering Price; Public
Offering-- Distribution of Units
45. Suspension of redemption rights..... Not Applicable
46. (a) Redemption valuation............ Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption
price................ Not Applicable
47. Maintenance of position in
underlying securities............. Public Offering--Market for Units;
Rights of Unit Holders--Redemption--
Purchase by the Sponsors of Units
Tendered for Redemption; Rights of
Unit Holders--Redemption--Computation
of Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................ Trustee
49. Fees and expenses of trustee........ Rights of Unit Holders--Expenses and
Charges; Rights of Unit Holders--
Distribution of Interest and Principal
50. Trustee's lien...................... Rights of Unit Holders--Expenses and
Charges--Other Charges; Rights of Unit
Holders--Distribution of Interest and
Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................ Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Prospectus front cover;
Sponsors--Responsibility
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsors--Responsibility
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Prospectus front cover; Tax
Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Certain information regarding
periodic payment certificates..... "
56. Certain information regarding
periodic payment certificates..... "
</TABLE>
v
332284.1
<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
----------- ---------------------
<S> <C> <C>
57. Certain information regarding
periodic payment certificates..... "
58. Certain information regarding
periodic payment certificates..... "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Net Assets; Statements of
Operations; Statements of Changes in
Net Assets
</TABLE>
vi
332284.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
Prospectus, Part I 9,099 Units Dated: January 31, 1997
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of October 31, 1996
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of September 30, 1996. The second part
of this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
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 "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 Ratings Services, a Division of The McGraw-Hill
Companies ("Standard & Poor's").
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 Tax Status."
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.
332699.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 34
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 4,730,000
Number of Units: 9,099
Fractional Undivided Interest in the Trust Per Unit: 1/9,099
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $5,068,821.91
=================
Sponsors' Repurchase Price Per Unit: $ 557.07
Plus Sales Charge(1): 18.68
Public Offering Price Per Unit(2): $ 575.75
=================
Redemption Price Per Unit(3): $ 557.07
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 18.68
Weighted Average Maturity of Bonds in the Trust: 10.272 years
Evaluation Time: 2:00 p.m., New York Time, on the next day 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: $7,726
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily
valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.24
under the monthly and $.69 under the semi-annual distribution
plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying Securities.
Date of Deposit: January 6, 1988
Date of Trust Agreement: January 6, 1988
Mandatory Termination Date: December 31, 2037
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the Trust as of the date of
deposit, whichever is lower.
</TABLE>
2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 34
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1996
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $40.34 $40.34
Less Annual Premium on Portfolio Insurance .85 .85
E Less Estimated Annual Expenses 1.32 .92
------ ------
R Estimated Net Annual Interest Income: $38.17 $38.57
====== ======
U Estimated Interest Distribution: $ 3.18 $19.29
N Estimated Current Return Based on Public
Offering Price (4): 6.63% 6.70%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.54% 5.61%
Estimated Daily Rate of Net Interest
Accrual: $.10603 $.10714
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to November 5, 1996, the expected date of settlement,
of $9.64 monthly and $26.73 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 "Tax Status" and "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 "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
3
<PAGE>
Portfolio Information
On September 30, 1996, the bid side valuation of 100.0% 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
On September 30, 1996, the Portfolio consisted of five 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. 81.1% of the aggregate principal amount of
the Bonds in the Portfolio are payable from appropriations. 18.9% 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: Appropriations, three (81.1%);
Revenue: Health Care, one (6.3%); and Municipal Assistance Corporation, one
(12.6%). The Trust is deemed to be concentrated in the Appropriations Bonds
category.1 Four issues (87.4%) were rated AAA by Standard & Poor's; one issue
(12.6%) was rated Aa by Moody's Investors Service, Inc. ("Moody's").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 "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.
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. In the case of Bonds acquired at a market
discount, gain will be treated as ordinary income to the extent of accrued
market discount. 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).
- -------------------
(1) A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
(2) For the meanings of ratings, see "Description of Bond Ratings" in Part
II of this Prospectus.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 34:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 34, including the tax-exempt bond
portfolio, as of September 30, 1996, and the related statements of operations
and changes in net assets for the years ended September 30, 1996 and 1995. These
financial statements are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by correspondence
with the Trustee. An audit also includes assessing the accounting principles
used and significant estimates made by the Trustee, 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 34 as of September 30, 1996, and the results of its
operations and changes in net assets for the years ended September 30, 1996 and
1995 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
October 31, 1996
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1996
=========================================================================================
<CAPTION>
ASSETS:
<S> <C> <C> <C>
CASH............................................................................................ $ 64 060
INVESTMENTS IN SECURITIES, at market value (cost $4,643,415) (Note 1)........................... 5 130 671
ACCRUED INTEREST RECEIVABLE..................................................................... 88 608
-------------
Total trust property...................................................................... 5 283 339
LESS - ACCRUED EXPENSES......................................................................... 1 346
--------------
NET ASSETS...................................................................................... $5 281 993
==============
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS........................................ $ 3 304 330 $ 1 826 003 $5 130 333
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 76 469 75 191 151 660
------------- ------------- ----------
Total value................................ $ 3 380 799 $ 1 901 194 $5 281 993
============= ============= ==========
UNITS OUTSTANDING.................................... 5 921 3 272 9 193
============= ============= ==========
VALUE PER UNIT....................................... $ 570.98 $ 581.05
============= =============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
STATEMENTS OF OPERATIONS
=========================================================================================
<CAPTION>
Year ended
September 30,
-------------------------------------------
1996 1995 1994
-------------- -------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST..................................... $ 527 904 $ 824 141 $ 865 377
--------- --------- ---------
EXPENSES:
Trustee fees................................................. 10 213 13 287 13 585
Evaluation fees.............................................. 1 088 1 486 1 483
Insurance premiums........................................... 12 077 20 434 21 517
Sponsors' advisory fees...................................... 1 327 2 504 2 771
Auditors' fees............................................... 1 800 1 800 1 800
----------- ----------- -----------
Total expenses............................... 26 505 39 511 41 156
----------- ----------- -----------
NET INVESTMENT INCOME............................................ 501 399 784 630 824 221
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Notes 1 and 3).................................. 383 057 93 791 50 378
NET CHANGE IN UNREALIZED MARKET
DEPRECIATION (Note 1)......................................... (672 754) (237 321) (697 705)
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.............................................. $ 211 702 $ 641 100 $ 176 894
========= ========= =========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
STATEMENTS OF CHANGES IN NET ASSETS
=========================================================================================
<CAPTION>
Year ended
September 30,
---------------------------------
1996 1995 1994
-------------- -------------- ----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 501 399 $ 784 630 $ 824 221
Realized gain on securities sold or redeemed
(Notes 1 and 3)......................................... 383 057 93 791 50 378
Net change in unrealized market depreciation
(Note 1)................................................ (672 754) (237 321) (697 705)
-------------- ------------- -------------
Net increase in net assets resulting
from operations................................ 211 702 641 100 176 894
-------------- ------------- -------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income..................................... (652 909) (801 684) (829 278)
Principal................................................. (4 778 551) (16 137) -
------------- --------------- ------------------
Total distributions.............................. (5 431 460) (817 821) (829 278)
------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 1,124, 698 and 286 units
September 30, 1996, 1995 and 1994,
respectively............................................ (891 142) (749 744) (317 829)
-------------- ------------ ------------
NET DECREASE IN NET ASSETS.................................... (6 110 900) (926 465) (970 213)
NET ASSETS:
Beginning of year......................................... 11 392 893 12 319 358 13 289 571
------------ ------------ ------------
End of year............................................... $ 5 281 993 $11 392 893 $12 319 358
============ =========== ===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.......................................... $ 61.44 $73.42 $73.30
Semi-annual plan...................................... $ 69.59 $74.11 $74.01
Principal:
Monthly plan.......................................... $486.96 $ 1.54 -
Semi-annual plan...................................... $486.96 $ 1.54 -
</TABLE>
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
NOTES TO FINANCIAL STATEMENTS
========================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2037.
If the value of the Trust falls below $2,000,000, or 20% of the value of the
Trust as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
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 result from the sale or redemption of securities.
9
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
NOTES TO FINANCIAL STATEMENTS
(Continued)
=========================================================================================
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port-
folio Principal Date Realized
No. Description Amount Redeemed Net Proceeds Cost Gain
- ---------------------------------------------------------- -------- ------------ ------------ ------
Year ended September 30, 1996:
<S> <C> <C> <C> <C> <C>
* New York City Municipal Water $ 335 000 10/30/95 $ 345 720 $ 291 805 $ 53 915
Finance Authority, Water and 85 000 02/12/96 87 125 74 040 13 085
Sewer System Revenue Bonds, 10 000 03/08/96 10 150 8 711 1 439
Fiscal 1987 Series A 40 000 04/25/96 40 560 34 842 5 718
890 000 05/14/96 907 800 775 244 132 556
* Power Authority of The State 575 000 12/22/95 586 500 519 944 66 556
of New York General Purpose
Bonds, Series U (FGIC Insured)
* New York State Urban 2 425 000 12/01/95 2 473 500 2 406 812 66 688
Development Corporation,
Correctional Facilities Revenue
Bonds, Series B
* Dormitory Authority of The State 700 000 06/06/96 714 000 671 615 42 385
of New York, City University
System Consolidated Revenue
Bonds, Series 1986A
4 Metropolitan Transportation 20 000 08/27/96 20 750 20 700 50
Authority, Commuter Facilities
1987 Service Contract Bonds,
Series 1
5 Metropolitan Transportation 70 000 09/18/96 73 115 72 450 665
Authority, Transit Facilities
1987 Service Contract Bonds,
Series 1
---------- ---------- ---------- --------
$5 150 000 $5 259 220 $4 876 163 $383 057
========== ========== ========== ========
</TABLE>
- -------------------------------------
* Portfolio redeemed in its entirety.
10
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
NOTES TO FINANCIAL STATEMENTS
(Concluded)
=========================================
NOTE 4 - NET ASSETS
Cost of 13,000 units at Date of Deposit $13 198 685
Less gross underwriting commission 646 620
--------------
Net cost - initial offering price 12 552 065
Realized net gain on securities sold or redeemed 619 986
Principal distributions (4 794 688)
Redemption of 3,807 units (3 734 286)
Unrealized market appreciation of securities 487 256
Undistributed net investment income 151 660
--------------
Net assets $ 5 281 993
==============
11
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $2 100 000 Dormitory Authority 7.375% 07/01/16 07/01/00 @ 100 S.F.
of The State of No Optional Call
New York, Judicial
Facilities Lease
Revenue Bonds
(Suffolk County
Issue) Series 1986
(BIG Insured)
2 AAA 300 000 New York State 8.300 02/15/22 No Sinking Fund
Medical Care 02/15/98 @ 102 Opt.
Facilities Finance
Agency, Hospital
and Nursing Home
FHA-Insured
Mortgage Revenue
Bonds, 1987
Series A
3 Aa* 600 000 Municipal 6.750 07/01/06 07/01/01 @ 100 S.F.
Assistance 07/01/97 @ 102 Opt.
Corporation For
The City of
New York (A
Public Benefit
Corporation of
The State of
New York),
Series 62 Bonds
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
1 $1 975 743 $2 319 849 $154 875
2 307 500 322 773 24 900
3 528 222 621 372 40 500
12
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 890 000 Metropolitan 8.500% 07/01/17 07/01/07 @ 100 S.F.
Transportation 07/01/97 @ 102 Opt.
Authority,
Commuter
Facilities 1987
Service Contract
Bonds, Series 1
5 AAA 880 000 Metropolitan 8.500 07/01/17 07/01/07 @ 100 S.F.
Transportation 07/01/97 @ 102 Opt.
Authority,
Transit Facilities
1987 Service
Contract Bonds,
Series 1
----------
$4 770 000
==========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
4 $ 921 150 $ 938 612 $ 75 650
5 910 800 928 065 74 800
---------- --------- --------
$4 643 415 $5 130 671 $370 725
========== ========== ========
13
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 34
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
(Concluded)
===================================================================
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, except for those indicated by (*), which are by
Moody's. 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 or Moody's.
(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.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 34:
We have audited the statement of net assets (not included) of Empire State
Municipal Exempt Trust, Guaranteed Series 34, including the bond portfolio, as
of September 30, 1994, and the related statements of operations and changes in
net assets for the year ended September 30, 1994. These financial statements are
the responsibility of the Trustee. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1994, by correspondence
with the Trustee. An audit includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 34 as of September 30, 1994, and the results of its
operations and changes in net assets for the year ended September 30, 1994, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
October 31, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
Prospectus, Part I 7,793 Units Dated: January 31, 1997
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of October 31, 1996
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of September 30, 1996. The second part
of this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
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 "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 Ratings Services, a Division of The McGraw-Hill
Companies ("Standard & Poor's").
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 Tax Status."
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.
332704.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 35
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 7,645,000
Number of Units: 7,793
Fractional Undivided Interest in the Trust Per Unit: 1/7,793
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $ 8,006,657.12
=================
Sponsors' Repurchase Price Per Unit: $ 1,027.42
Plus Sales Charge(1): 27.84
-----------------
Public Offering Price Per Unit(2): $ 1,055.26
=================
Redemption Price Per Unit(3): $ 1,027.42
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 27.84
Weighted Average Maturity of Bonds in the Trust: 13.903 years
Evaluation Time: 2:00 p.m., New York Time, on the next day 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: $8,824
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: March 3, 1988
Date of Trust Agreement: March 3, 1988
Mandatory Termination Date: December 31, 2037
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the Trust as of the date of
deposit, whichever is lower.
</TABLE>
2
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 35
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1996
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $72.91 $72.91
Less Annual Premium on Portfolio Insurance 1.13 1.13
E Less Estimated Annual Expenses 2.00 1.42
------ ------
R Estimated Net Annual Interest Income: $69.78 $70.36
====== ======
U Estimated Interest Distribution: $ 5.82 $35.18
N Estimated Current Return Based on Public
Offering Price (4): 6.61% 6.67%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 4.76% 4.82%
Estimated Daily Rate of Net Interest
Accrual: $.19383 $.19544
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to November 5, 1996, the expected date of settlement,
of $14.07 monthly and $43.78 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 "Tax Status" and "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 "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
3
<PAGE>
Portfolio Information
On September 30, 1996, the bid side valuation of 11.7% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 88.3% 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
On September 30, 1996, the Portfolio consisted of seven issues of Bonds
issued by entities located in New York or certain United States territories or
possessions. The following information is being supplied to inform Unit Holders
of circumstances affecting the Trust. 27.5% of the aggregate principal amount of
the Bonds in the Portfolio are general obligations of the governmental entities
issuing them and are backed by the taxing power thereof. 21.0% of the aggregate
principal amount of the Bonds in the Portfolio are payable from appropriations.
51.5% 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, two
(27.5%); Appropriations, two (21.0%); Revenue: Housing, one (21.1%); and Health
Care, two (30.4%). The Trust is deemed to be concentrated in the General
Obligation and Health Care Bonds categories.1 Five issues (81.8%) were rated AAA
by Standard & Poor's; and one issue (11.7%) was rated A by Moody's Investors
Service, Inc. ("Moody's). One issue was partially refunded. The partially
refunded portion (2.7%) was rated AAA and the remaining portion (3.8%) was rated
BBB+ by Standard & Poor's.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 "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.
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. In the case of Bonds acquired at a market
discount, gain will be treated as ordinary income to the extent of accrued
market discount. 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).
- -------------------
(1) A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
(2) For the meanings of ratings, see "Description of Bond Ratings" in Part
II of this Prospectus.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 35:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 35, including the tax-exempt bond
portfolio, as of September 30, 1996, and the related statements of operations
and changes in net assets for the years ended September 30, 1996 and 1995. These
financial statements are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1996, by correspondence
with the Trustee. An audit also includes assessing the accounting principles
used and significant estimates made by the Trustee, 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 35 as of September 30, 1996, and the results of its
operations and changes in net assets for the years ended September 30, 1996 and
1995 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
October 31, 1996
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1996
=========================================================================================
<CAPTION>
ASSETS:
<S> <C> <C> <C>
CASH............................................................................................ $ 70 682
INVESTMENTS IN SECURITIES, at market value (cost $7,481,114) (Note 1)........................... 8 132 662
ACCRUED INTEREST RECEIVABLE..................................................................... 132 313
----------
Total trust property...................................................................... 8 335 657
LESS - ACCRUED EXPENSES......................................................................... 2 077
----------
NET ASSETS...................................................................................... $8 333 580
==========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS........................................ $ 5 059 493 $ 3 065 924 $ 8 125 417
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 98 157 110 006 208 163
------------- ------------- -------------
Total value................................ $ 5 157 650 $ 3 175 930 $ 8 333 580
============= ============= =============
UNITS OUTSTANDING.................................... 4 921 2 982 7 903
============= ============= =============
VALUE PER UNIT....................................... $ 1 048.09 $ 1 065.03
============= =============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
STATEMENTS OF OPERATIONS
=========================================================================================
<CAPTION>
Year ended
September 30,
1996 1995 1994
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST..................................... $ 611 403 $637 148 $ 658 079
--------- -------- ---------
EXPENSES:
Trustee fees................................................. 10 545 10 539 10 792
Evaluation fees.............................................. 1 485 1 515 1 272
Insurance premiums........................................... 9 405 10 033 10 692
Sponsors' advisory fees...................................... 1 942 2 081 2 173
Auditors' fees............................................... 1 800 1 800 1 800
----------- ----------- ------------
Total expenses............................... 25 177 25 968 26 729
--------- ---------- -----------
NET INVESTMENT INCOME............................................ 586 226 611 180 631 350
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Notes 1 and 3).................................. 24 690 40 743 50 794
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (Note 1)......................... (164 053) 29 097 (382 551)
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.............................................. $ 446 863 $681 020 $ 299 593
========= ======== =========
</TABLE>
See Notes to Financial Statements
7
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
STATEMENTS OF CHANGES IN NET ASSETS
=========================================================================================
<CAPTION>
Year ended
September 30,
------------------------------------
1996 1995 1994
-------------- -------------- ----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 586 226 $ 611 180 $ 631 350
Realized gain on securities sold or redeemed
(Notes 1 and 3)......................................... 24 690 40 743 50 794
Net change in unrealized market appreciation
(depreciation) (Note 1)................................. (164 053) 29 097 (382 551)
------------ -------------- ------------
Net increase in net assets resulting
from operations................................ 446 863 681 020 299 593
------------ ------------- --------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income..................................... (601 428) (618 761) (638 271)
Principal................................................. (222 562) - -
------------ ------------- --------------
Total distributions.............................. (823 990) (618 761) (638 271)
------------ ------------ -------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 387, 290 and 316 units at
September 30, 1996, 1995 and 1994,
respectively............................................ (404 646) (309 284) (347 109)
------------ ------------ -------------
NET DECREASE IN NET ASSETS.................................... (781 773) (247 025) (685 787)
NET ASSETS:
Beginning of year......................................... 9 115 353 9 362 378 10 048 165
----------- ----------- ------------
End of year............................................... $8 333 580 $9 115 353 $ 9 362 378
========== ========== ============
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.......................................... $72.17 $71.83 $71.83
Semi-annual plan...................................... $72.99 $72.52 $72.58
Principal:
Monthly plan.......................................... $27.37 - -
Semi-annual plan...................................... $27.37 - -
</TABLE>
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
NOTES TO FINANCIAL STATEMENTS
=======================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2037.
If the value of the Trust falls below $2,000,000 or 20% of the value of the
Trust as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
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 result from the sale or redemption of securities.
9
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
NOTES TO FINANCIAL STATEMENTS
(Concluded)
=========================================================================================
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Description Amount Redeemed Net Proceeds Cost (Loss)
- ---------------------------------------------------------- -------- ------------ ----------- ---------
Year ended September 30, 1996:
<S> <C> <C> <C> <C> <C>
* New York City Municipal Water $ 50 000 10/30/95 $ 51 600 $ 45 038 $ 6 562
Finance Authority, Water and 15 000 2/12/96 15 375 13 512 1 863
Sewer System Revenue Bonds, 25 000 3/08/96 25 375 22 519 2 856
Fiscal 1987 Series A 25 000 4/25/96 25 350 22 519 2 831
115 000 5/14/96 117 300 103 589 13 711
* Dormitory Authority of the State 150 000 6/18/96 153 000 150 602 2 398
of New York, City University
Refunding Bonds, 1986
Issue (MBIA Insured)
6 Metropolitan Transportation 75 000 8/27/96 78 750 79 927 (1 177)
Authority Commuter Facilities,
1987 Service Contract Bonds,
Series I
1 New York Housing Corporation, 135 000 9/18/96 143 235 147 589 (4 354)
Revenue Bonds, 1987 Series A
(MBIA Insured)
-------- -------- -------- -------
$590 000 $609 985 $585 295 $24 690
======== ======== ======== =======
* Portfolio redeemed in its entirety.
NOTE 4 - NET ASSETS
Cost of 10,000 units at Date of Deposit $10 246 433
Less gross underwriting commission 502 000
------------
Net cost - initial offering price 9 744 433
Realized net gain on securities sold or redeemed 150 066
Principal distributions (231 666)
Redemption of 2,097 units (2 188 964)
Unrealized market appreciation of securities 651 548
Undistributed net investment income 208 163
------------
Net assets $ 8 333 580
============
</TABLE>
10
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $1 625 000 New York Housing 8.625% 11/01/06 11/01/00 @ 100 S.F.
Corporation, 11/01/97 @ 102 Opt.
Revenue Bonds,
1987 Series A
(MBIA Insured)
2 AAA 1 845 000 New York State 7.100 02/15/27 08/15/02 @ 100 S.F.
Medical Care 02/15/97 @ 102 Opt.
Facilities
Finance Agency,
Secured Hospital
Revenue Bonds,
1987 Series A
(BIG Insured)
3 AAA 1 225 000 The City of New 7.000 02/01/13 No Sinking Fund
York, General 02/01/97 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1987
Series C
(FGIC Insured)
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
1 $1 776 531 $1 740 131 $140 156
2 1 719 356 1 898 099 130 995
3 1 143 256 1 425 545 85 750
11
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
4 A* $ 900 000 State of New York 4.750% 02/15/16 No Sinking Fund
Serial Bonds 02/15/98 @ 102 Opt.
(Callable)
(General Obliga-
tion) Series 1988
5a AAA 205 000 New York State 8.875 08/15/07 02/15/00 @ 100 S.F.
Medical Care 08/15/97 @ 102 Opt.
Facilities
Finance Agency,
Mental Health
Services Facili-
ties Improvement
Revenue Bonds,
1987 Series A
Refunding
5b BBB+ 295 000 New York State 8.875 08/15/07 02/15/00 @ 100 S.F.
Medical Care 08/15/97 @ 102 Opt.
Facilities
Finance Agency,
Mental Health
Services Facili-
ties Improvement
Revenue Bonds,
1987 Series A
Refunding
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
4 $ 612 099 $ 790 848 $ 42 750
5a 225 872 217 981 18 194
5b 325 037 310 458 26 181
12
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
6 AAA $1 240 000 Metropolitan 8.500% 07/01/17 07/01/07 @ 100 S.F.
Transportation 07/01/97 @ 102 Opt.
Authority Com-
muter Facilities,
1987 Service
Contract Bonds,
Series 1
7 AAA 380 000 Dormitory Authority 7.375 07/01/16 No Sinking Fund
of The State of No Call Option
New York, Judicial
Facilities Lease
Revenue Bonds
(Suffolk County
Issue) Series
1986
----------
$7 715 000
==========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds September 30, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
6 $1 321 468 $1 307 729 $105 400
7 357 495 441 871 28 025
---------- ---------- --------
$7 481 114 $8 132 662 $577 451
========== ========== ========
13
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 35
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1996
(Concluded)
==================================================================
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, except for those indicated by (*), which are by
Moody's. 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 or Moody's.
(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.
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 35:
We have audited the statement of net assets (not included) of Empire State
Municipal Exempt Trust, Guaranteed Series 35, including the bond portfolio, as
of September 30, 1994, and the related statements of operations and changes in
net assets for the year ended September 30, 1994. These financial statements are
the responsibility of the Trustee. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1994, by correspondence
with the Trustee. An audit includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 35 as of September 30, 1994, and the results of its
operations and changes in net assets for the year ended September 30, 1994, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
October 31, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
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 Series 1 through 90 and as Evaluator for Series 91 and
subsequent 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 for the related Trust. 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 gain. Any 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 interest
income through an investment in a fixed, insured portfolio consisting primarily
of various long-term municipal bonds. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective 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 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, P.A. ("National Union"), MBIA Inc. and MBIA Insurance Corporation
("MBIA Corp."), respectively (National Union, MBIA Inc. and MBIA Corp. are
279831.7
<PAGE>
collectively referred to herein as the "Insurer"). Insurance obtained by the
Trust applies only while Bonds are retained in the Trust. Pursuant to
irrevocable commitments of MBIA Inc. and MBIA Corp., however, 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. ("Moody's") has assigned a rating of "Aaa" to all of the
Bonds in the Trust, as insured, and Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"), has assigned
a rating of "AAA" to the Units and Bonds while in the Trust. 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 the Trust on Bonds pre-insured by National Union, MBIA
Inc. and MBIA Corp. See "Insurance on the Bonds."
Portfolio
In view of the Trust's objectives, the following factors,
among others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of the State of New York and counties, municipalities, authorities
or political subdivisions thereof or issued by certain United States territories
or possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) availability of
insurance for the payment of principal and interest on the Bonds. Subsequent to
the Date of Deposit, a Bond may cease to be rated or its rating may be reduced.
Neither event requires an elimination of such Bond from the portfolio, but such
an event may be considered in the Sponsors' determination to direct the Trustee
to dispose of the Bonds. See "Sponsors--Responsibility."
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 value 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
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
- 2 -
279831.7
<PAGE>
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York
(the "State") and the City of New York (the "City") 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.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its localities.
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. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and printing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, the City experienced job losses in 1990 and 1991 and real Gross
City Product ("GCP") fell in those two years. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. After noticeable improvements in the City's economy during
calendar year 1994, economic growth slowed in calendar year 1995, and the City's
current four-year financial plan assumes that moderate economic growth will
continue through calendar year 2000.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"). The City was required 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 reductions in City services, which could adversely affect the
City's economic base.
- 3 -
279831.7
<PAGE>
Pursuant to the New York State Financial Emergency Act for the
City of New York, the City prepares an annual four-year financial plan, which is
reviewed and revised on a quarterly basis and which includes the City's capital,
revenue and expense projections and outlines proposed gap-closing programs for
years with projected budget gaps. The City's current four-year financial plan
projects substantial budget gaps for each of the 1998 through 2000 fiscal years.
The City is required to submit its financial plans to review bodies, including
the New York State Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline and that such reductions or delays will not
have adverse effects on the City's cash flow or expenditures. In addition, the
Federal Budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1997 through
2000 fiscal years (the "1997-2000 Financial Plan" or "Financial Plan"). The
City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in the Financial Plan, employment growth, the results of a pending
actuarial audit of the City's pension system which is expected to significantly
increase the City's annual pension costs, the ability to implement proposed
reductions in City personnel and other cost reduction initiatives, which may
require in certain cases the cooperation of the City's municipal unions, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset reduced revenues, the
ability to complete revenue generating transactions and provision of State and
Federal aid and mandate relief and the impact on City revenues of proposals for
Federal and State welfare reform and any future legislation affecting Medicare
or other entitlements.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1997 through 2000 contemplates the issuance of $7.7
billion of general obligation bonds and $5.0 billion of bonds to be issued by
the proposed New York City Infrastructure Finance Authority ("Infrastructure
Finance Authority") to finance education and transportation projects. The
creation of Infrastructure Finance Authority, which is subject to the enactment
of State legislation, is being proposed by the Mayor and the Speaker of the City
Council as part of the City's effort to assist in keeping the City's
indebtedness within the forecast level of the constitutional restrictions on the
amount of debt the City is authorized to incur. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. Depending on a number of factors, including whether the
Legislature is expected to enact legislation creating the Infrastructure Finance
Authority or to take other action that would provide relief under the general
debt limit, the City may find it necessary to curtail its currently defined
capital program before the end of fiscal year 1997 to ensure that there is
ongoing capacity to enter into capital contracts
- 4 -
279831.7
<PAGE>
necessary to preserve projects designed to safeguard health and safety in the
City. Without the Infrastructure Finance Authority or other legislative relief,
the City's general obligation financed capital program with respect to new
projects would be virtually brought to a halt during the Financial Plan period.
General obligation borrowing would continue to reimburse the City's general fund
for ongoing costs of existing contractual commitments. 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 and Infrastructure Finance Authority bonds will be subject to prevailing
market conditions, and no assurance can be given that such sales will be
completed. If the City were unable to sell its general obligation bonds and
notes or bonds of the proposed Infrastructure Finance Authority, it would be
prevented from meeting its planned capital and operating expenditures. Future
developments concerning the City and public discussion of such developments, as
well as prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
On November 14, 1996, the City submitted to the Control Board
the Financial Plan for the 1997 through 2000 fiscal years, which relates to the
City, the BOE and the City University of New York ("CUNY"). The Financial Plan
is a modification to the financial plan submitted to the Control Board on June
21, 1996 (the "June Financial Plan").
The June Financial Plan identified actions to close a
previously projected gap of approximately $2.6 billion for the 1997 fiscal year.
The proposed actions in the June Financial Plan for the 1997 fiscal year
included (i) agency actions totaling $1.2 billion; (ii) a revised tax reduction
program which would increase projected tax revenues by $369 million due to the
four year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional proposed State aid of $75 million;
(iv) the assumed receipt of revenues relating to rent payments for the City's
airports, which are currently the subject of a dispute with the Port Authority
of New York and New Jersey (the "Port Authority"); (v) the sale of the City's
television station for $207 million; and (vi) pension costs savings totaling
$134 million resulting from a proposed increase in the earnings assumption for
pension assets from 8.5% to 8.75%.
The 1997-2000 Financial Plan published on November 14, 1996
reflects actual receipts and expenditures and changes in forecast revenues and
expenditures since the June Financial Plan. The 1997-2000 Financial Plan
projects revenues and expenditures for 1997 fiscal year balanced in accordance
with GAAP, and projects gaps of $1.2 billion, $2.1 billion and $3.0 billion for
the 1998, 1999 and 2000 fiscal years, respectively. Changes since the June
Financial Plan include (i) an increase in projected tax revenues of $450
million, $120 million, $50 million and $45 million in fiscal years 1997 through
2000, respectively; (ii) a delay in the assumed receipt of $304 million relating
to projected rent payments for the City airports from the 1997 fiscal year to
the 1998 and 1999 fiscal years, and a $34 million reduction in assumed State and
Federal aid for the 1997 Fiscal year; (iii) an approximately $200 million
increase in projected overtime and other expenditures in each of the fiscal
years 1997 through 2000; (iv) a $70 million increase in expenditures for BOE in
the 1997 fiscal year for school text books; (v) a reduction in projected pension
costs of $34 million, $50 million, $49 million and $47 million in fiscal years
1997 through 2000, respectively; and (vi) additional agency actions totaling
$179 million, $386 million, $473 million and $589 million in fiscal years 1997
through 2000, including personnel reductions through attrition and early
retirement.
The Financial Plan assumes (i) approval by the Governor and
the State Legislature of the extension of the 12.5% personal income tax
surcharge, which is projected to provide revenue of $170 million, $463 million,
$492
- 5 -
279831.7
<PAGE>
million, and $521 million, in the 1997 through 2000 fiscal years, respectively;
(ii) collection of the projected rent payments for the City's airports,
totalling $270 million and $180 million in the 1998 and 1999 fiscal years,
respectively, which may depend on the successful completion of negotiations with
the Port Authority or the enforcement of the City's rights under the existing
leases thereto through pending legal actions; (iii) the ability of HHC and BOE
to identify actions to offset substantial City and State revenue reductions and
the receipt by BOE of additional State aid; (iv) State approval of the cost
containment initiatives and State aid proposed by the City; and (v) a reduction
in City funding for labor settlements for certain public authorities or
corporations. Legislation extending the 12.5% personal income tax surcharge
beyond December 31, 1996, was not enacted in the special legislative session
held in December 1996. Such legislation may be enacted in the 1997 State
Legislative Session. The Financial Plan does not reflect any increased costs
which the City might incur as a result of welfare legislation recently enacted
by Congress or legislation proposed by the Governor, which would, if enacted,
implement such Federal welfare legislation. In addition, the economic and
financial condition of the City may be affected by various financial, social,
economic and political factors which could have a material effect on the City.
In January 1997, the Mayor is expected to publish a
modification (the "January Modification") to the financial plan for the City's
1997 through 2001 fiscal years and a preliminary budget for the City's 1998
fiscal year. The January Modification will reflect changes since the Financial
Plan, including the City's program to address the currently forecast gap of
approximately $1.2 billion in the 1998 fiscal year.
The City's financial plans have been the subject of extensive
public comment and criticism. On July 16, 1996, the staff of the City
Comptroller issued a report on the June Financial Plan. The report concluded
that the City's fiscal situation remains serious, and that the City faces
budgetary risks of approximately $787 million to $941 million for the 1997
fiscal year, which increase to $4.16 billion to $4.31 billion for fiscal year
2000.
The projections for the 1997 through 2000 fiscal years reflect
the costs of the settlements with the United Federation of Teachers ("UFT") and
a coalition of unions headed by District Council 37 of the American Federation
of State, County and Municipal Employees, which together represent approximately
two-thirds of the City's workforce, and assume that the City will reach
agreement with its remaining municipal unions under terms which are generally
consistent with such settlements. The settlement provides for a wage freeze in
the first two years, followed by a cumulative effective wage increase of 11% by
the end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City-funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not yet reached a settlement with the City on the terms contained in the
Financial Plan.
In the event of a collective bargaining impasse, the terms of
wage settlements could be determined through statutory impasse procedures, which
can impose a binding settlement except in the case of collective bargaining with
the UFT, which may be subject to non-binding arbitration. On January 23, 1996,
the City requested the Office of Collective Bargaining to declare an impasse
against the Patrolmen's Benevolent Association and the Uniformed Firefighters
Association.
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On July 10, 1995, Standard & Poor's revised downward its
rating on City general obligation bonds from A- to BBB+ and removed City bonds
from CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
On March 1, 1996, Moody's stated that the rating for City
general obligation bonds remains under review pending the outcome of the
adoption of the City's budget for the 1997 fiscal year, and, in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown. Since July 15, 1993, Fitch Investors Service, L.P. ("Fitch")
has rated City bonds A-. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. On November 5, 1996,
Fitch removed the City's general obligation bonds from FitchAlert, although
Fitch stated that the outlook remains negative.
New York State and its Authorities. The State's current fiscal
year commenced on April 1, 1996, and ends on March 31, 1997, and is referred to
herein as the State's 1996-97 fiscal year. The State's budget for the 1996-97
fiscal year was enacted by the Legislature on July 13, 1996, more than three
months after the start of the fiscal year. The State Financial Plan for the
1996-97 fiscal year was formulated on July 25, 1996 and is based on the State's
budget as enacted by the Legislature and signed into law by the Governor, as
well as actual results for the first quarter of the current fiscal year. The
State's prior fiscal year commenced on April 1, 1995, and ended on March 31,
1996, and is referred to herein as the State's 1995-96 fiscal year.
The State closed projected budget gaps of $5.0 billion and
$3.9 billion for its 1995-96 and 1996-97 fiscal years, respectively. The 1997-98
gap was projected at $1.44 billion, based on the Governor's proposed budget of
December 1995. As a result of changes made in the enacted budget, that gap is
now expected to be larger. The gap, however, is not expected to be as large as
those faced in the prior two fiscal years. The Governor has indicated that he
will propose to close any potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of scheduled
tax reductions.
The 1996-97 State Financial Plan is projected to be balanced
on a cash basis. As compared to the Governor's proposed budget as revised on
March 20, 1996, the State's adopted budget for 1996-97 increases General Fund
spending by $842 million, primarily from increases for education, special
education and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund these
additional expenditures include $540 million in increased revenues projected for
1996-97 based on higher-than-projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources. The
total amount of non-recurring resources included in the 1996-97 State budget is
projected by the State Division of the Budget ("DOB") to be $1.3 billion, or 3.9
percent of total General Fund receipts.
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The State issued its first update to the cash-basis 1996-97
State Financial Plan (the "Mid-Year Update") on October 25, 1996. The Mid-Year
Update reflects a balanced 1996-97 State Financial Plan, with a reserve for
contingencies in the General Fund of $300 million. This reserve will be utilized
to help offset a variety of potential risks and other unexpected contingencies
that the State may face during the balance of the 1996-97 fiscal year.
The State Financial Plan is based on a June 1996 projection by
DOB of national and State economic activity. The national economy has resumed a
more robust rate of growth after a "soft landing" in 1995, with over 11 million
jobs added nationally since early 1992. The State economy has continued to
expand, but growth remains somewhat slower than in the nation. Although the
State has added approximately 240,000 jobs since late 1992, employment growth in
the State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking industries.
Government downsizing has also moderated these job gains.
In its Mid-Year Update the State revised its forecast of
national and State economic activity through the end of calendar year 1997 to
reflect the stronger-than-expected growth in the first half of 1996. The
national economic forecast has been changed slightly from the initial forecast
on which the original 1996-97 State Financial Plan was based. The revised
forecast projects real Gross Domestic Product growth in the nation of 2.5
percent for 1996 and 2.4 percent in 1997. The inflation rate is expected to be
3.0 percent in 1996 and 2.9 percent in 1997. The annual rate of job growth is
expected to slow gradually to about 1.8 percent in 1997, down from 2.2 percent
in 1996. Growth in personal income and wages are expected to slow accordingly.
The State economic forecast has been changed slightly from the
one formulated with the July 1996-97 State Financial Plan. Moderate growth is
projected to continue through the second half of 1996, with employment, wages
and incomes continuing their modest rise. Personal income is projected to
increase by 5.2 percent in 1996 and 4.7 percent in 1997, reflecting robust
projected wage growth fueled in part by financial sector bonus payments. Overall
employment growth will continue as a modest rate, reflecting the slowdown in the
national economy, continued spending restraint in government, and restructuring
in the health care and financial sectors.
The forecast for continued moderate growth, and any resultant
impact on the State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could
over- or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could fail to correctly account for
expected declines in government and banking employment and the direction of
employment change that is likely to accompany telecommunications deregulation.
The 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.
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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. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections.
The General Fund is the principal 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 1996-97 fiscal year, the General Fund is expected to account for
approximately 47 percent of total governmental-fund receipts and 71 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.
The General Fund is projected to be balanced on a cash basis
for the 1996-97 fiscal year. Actual receipts through the first two quarters of
the 1996-96 State fiscal year reflect stronger-than-expected growth in most
taxes, with actual receipts exceeding expectations by $276 million. Based on the
revised economic outlook and actual receipts for the first six months of
1996-97, projected General Fund receipts for the 1996-97 State fiscal year have
been increased by $420 million. Most of this projected increase is in the yield
of the personal income tax ($241 million), with additional increases now
expected in business taxes ($124 million) and other tax receipts ($49 million).
Projected collections from user taxes and fees have been revised downward
slightly ($5 million). Revisions were also made to both miscellaneous receipts
and in transfers from other funds (an $11 million combined projected increase).
Disbursements through the first six months of the fiscal year
were $415 million less than projected, primarily because of delays in processing
payments following delayed enactment of the State budget. As a result, no
savings are included in the Mid-Year Update from this slower-than-expected
spending. Projections of 1996-97 General Fund disbursements are increased by
$120 million, since increased General Fund disbursements for education are
required to replace a projected decrease in lottery receipts. This modification
is shown in the form of an increased transfer of General Fund monies to the
Lottery Fund in the Special Revenue fund type. The projected closing fund
balance in the General Fund of $337 million reflects a balance of $252 million
in the Tax Stabilization Reserve Fund (following a payment of $15 million during
the current fiscal year) and a deposit of $85 million to the Contingency Reserve
Fund.
On January 13, 1992, Standard & Poor's reduced its ratings on
the State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on August 5,
1996, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 26, 1996, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
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Litigation. The court actions in which the State is a
defendant generally involve State programs and miscellaneous tort, real
property, and contract claims. While the ultimate outcome and fiscal impact, if
any, on the State of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse effect
upon the State's ability to maintain a balanced 1996-97 State Financial Plan.
The claims involving the City other than routine litigation
incidental to the performance of their governmental and other functions and
certain other litigation arise out of alleged constitutional violations, torts,
breaches of contract and other violations of law and condemnation proceedings.
While the ultimate outcome and fiscal impact, if any, on the City of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out the 1997-2000 Financial Plan. The City has estimated that its
potential future liability on account of outstanding claims against it as of
June 30, 1996 amounted to approximately $2.8 billion.
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, 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.
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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 obligation" of the State or a local
governmental body. Should the pledged revenues prove insufficient, the payment
of such Bonds is not a legal obligation of the State or local government, and is
subject to its willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds". Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bond proceeds is not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Original Issue Discount and Zero Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds
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 primarily or solely
from rents and other fees, adverse economic developments including failure or
inability to increase rentals, fluctuations of interest
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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 pursuant to such redemption provisions. In addition, the
housing bonds in the Trust are also subject to mandatory redemption in part at
par at any time that voluntary or involuntary prepayments of principal on the
underlying mortgages are made to the trustee for such Bonds or that the
mortgages are sold by the bond issuer. Prepayments of principal tend to be
greater in periods of declining interest rates; it is possible that such
prepayments could be sufficient to cause a housing bond to be redeemed
substantially prior to its stated maturity date, earliest call date or sinking
fund redemption date.
Public Power Revenue Bonds. General problems of the electric
utility industry include difficulty in financing large construction programs
during an inflationary period; restrictions on operations and increased costs
and delays attributable to environmental considerations; the difficulty of the
capital markets in absorbing utility debt and equity securities; the
availability of fuel for electric generation at reasonable prices, including
among other considerations the potential rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal; technical
cost factors and other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including among other considerations the problems associated with the use of
radioactive materials and the disposal of radioactive waste; and the effects of
energy conservation. Certain Bonds may have been issued in connection with the
financing of nuclear generating facilities. In view of recent developments in
connection with such facilities, legislative and administrative actions have
been taken and proposed relating to the development and operation of nuclear
generating facilities. The Sponsors are unable to predict whether any such
actions or whether any such proposals or litigation, if enacted or instituted,
will have an adverse impact on the revenues available to pay the debt service on
the Bonds in the portfolio issued to finance such nuclear projects.
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
third-party payors and government programs such as Medicare and Medicaid. Both
private third-party payors and government
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programs have undertaken cost containment measures designed to limit payments.
Furthermore, government programs are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings and government
funding restrictions, all of which may materially decrease the rate of program
payments for health care facilities. There can be no assurance that payments
under governmental programs will remain at levels comparable to present levels
or will, in the future, be sufficient to cover the costs allocable to patients
participating in such programs. In addition, there can be no assurance that a
particular hospital or other health care facility will continue to meet the
requirements for participation in such programs.
The health care delivery system is undergoing considerable
alteration and consolidation. Consistent with that trend, the ownership or
management of a hospital or health care facility may change, which could result
in (i) an early redemption of bonds, (ii) alteration of the facilities financed
by the Bonds or which secure the Bonds, (iii) a change in the tax exempt status
of the Bonds or (iv) an inability to produce revenues sufficient to make timely
payment of debt service on the Bonds. 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,* including utilities, to provide facilities for the
treatment of air, water and solid waste pollution. Repayment of these bonds is
dependent upon income from the specific pollution control facility and/or the
financial condition of the project corporation. See also "Private Activity
Bonds."
Other Utility Revenue Bonds. Bonds in this category include
securities issued to finance natural gas supply, distribution and transmission
facilities, public water supply, treatment and distribution facilities, and
sewage collection, treatment and disposal facilities. Repayment of these bonds
is dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this
category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and revenues
derived from the collection of charges for disposal of solid waste.
- --------
* For the purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
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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, receipts or revenues of
the Issuer are 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
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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
1995, approximately 89% of Puerto Rico's exports were to the United States
mainland, which was also the source of 65% of Puerto Rico's imports. In fiscal
1995, Puerto Rico experienced a $4.6 billion 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, wholesale and
retail trade, and hotel and related services, 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 1985,
personal income, both aggregate and per capita, has increased consistently in
each fiscal year. In fiscal 1995, aggregate personal income was $27.0 billion
($22.5 billion in 1987 prices) and personal income per capita was $7,296 ($6,074
in 1987 prices). 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 1994 were $5.9 billion, of which $4.0 billion, or
67.6%, 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 during
fiscal 1996 averaged 1,092,300, an increase of 3.9% over fiscal 1995. The
unemployment rate in Puerto Rico for fiscal 1996 remained the same. The Puerto
Rico Planning Board's most recent gross product forecast for fiscal 1997, made
in February 1996, showed an increase of 2.7%. The Planning Board's Economic
Activity Index, a composite index for thirteen economic indicators, increased
1.6% for fiscal 1996 compared to fiscal 1995, and 2.0% for fiscal 1995, compared
to fiscal 1994. During the first three months of fiscal 1997 the Index decreased
0.9% compared to the same period in fiscal 1996, which period showed an increase
of 1.7% over the same period of fiscal 1995. Growth in the Puerto Rico economy
in fiscal 1997 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, the level of federal transfers and the cost
of borrowing.
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Original Issue Discount Bonds and Zero Coupon Bonds
Certain Series of the Trust may contain original issue
discount bonds and/or zero coupon bonds. Original issue discount bonds are bonds
that were originally issued at less than the market interest rate. Zero coupon
bonds are original issue discount bonds that do not provide for the payment of
current interest. For Federal income tax purposes, original issue discount on
such bonds must be amortized over the term of such bonds. On sale or redemption,
the excess of (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 treated as taxable income or loss. See "The Trust--Tax
Status." The Code requires holders of tax-exempt obligations issued with
original issue discount, such as the Trust, to accrue tax-exempt original issue
discount by using the constant interest method provided for the holders of
taxable obligations. In addition, the Code provides that the basis of a
tax-exempt obligation is increased by the amount of accrued tax-exempt original
issue discount. These provisions are applicable to obligations issued after
September 3, 1982 and acquired after March 1, 1984. 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 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 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. 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 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" in Part I of this Prospectus
contains a listing of the sinking fund and call provisions, if any, with respect
to each of the Bonds therein.
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<PAGE>
Other Matters
An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. 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-free 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
regular Federal income tax. In addition, other litigation or other factors may
arise from time to time which potentially may impair the ability of issuers to
meet obligations undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth below,
which is based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. 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 sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
0 Months to 2 Years 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%
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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 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.
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<PAGE>
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 or of the Units of the Trust. 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 upon 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."
Employees (and their immediate families) of the Sponsors may,
pursuant to employee benefit arrangements, purchase Units of the Trust at a
price equal to the bid side evaluation of the underlying securities in the
Trust, divided by the number of Units outstanding. Such arrangements result in
less selling effort and selling expenses than sales to employee groups of other
companies. Resales or transfers of Units purchased under the employee benefit
arrangements may only be made through the Sponsors' secondary market, so long as
it is being maintained.
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
upon the aggregate bid side evaluation of the Securities), as the case may be,
and to the extent that they earn sales charges on resales.
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<PAGE>
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 interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part I 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 of the Trust. The Estimated Long-Term Return assumes
that each Bond is retired on its pricing life date (i.e., that date which
produces the lowest dollar price when yield price calculations are done for each
optional call date and the maturity date of a callable security). If the Bond is
retired on any optional call or maturity date other than the pricing life date,
the yield to the holder of that Bond will be greater than the initial quoted
yield. Since the market values and estimated retirements of the Bonds, the
expenses of the Trust and the Net Annual Interest Income and Public Offering
Price per Unit may change, there is no assurance that the Estimated Long-Term
Return as set forth under "Summary of Essential Financial Information" in Part I
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
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<PAGE>
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, however, MBIA Inc. and MBIA Corp.,
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 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 Inc. or MBIA Corp. policy
will terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA Inc. or MBIA Corp. policy as to any Bond
shall not affect MBIA Inc.'s or MBIA Corp.'s obligations regarding any other
Bond in such Trust or any other Trust which has obtained a MBIA Inc. or MBIA
Corp. 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.
Pursuant to an irrevocable commitment of the Insurer, 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.
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<PAGE>
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 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 Bond which is in default in payment of principal or
interest or a significant risk of default assuming the exercise of the right to
obtain Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of such Bonds not covered by Permanent Insurance. Insurance
obtained by the issuer of a Bond or by parties other than the Trust is effective
so long as such Pre-insured Bond is outstanding and the insurer of such
Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond
continues to fulfill its obligations, however, such Bond will continue to be
insured under the policy obtained by the 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 provided fire and casualty insurance
and is a wholly-owned subsidiary of American International Group, Inc.
Municipal Bond Insurance Association ("MBIA", also known as
the "Association") is an association of five insurance companies which joined
together to insure severally (and not jointly) new issues of municipal bonds.
Each insurance company comprising MBIA will be severally and not jointly
obligated under the MBIA policy in the following respective percentages: The
Aetna Casualty and Surety Company, 33%; Fireman's Fund Insurance Company, 30%;
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<PAGE>
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 obligation of
any other member of MBIA. Each insurance company's participation is backed by
all of its assets. However, each insurance company is a multiline insurer
involved in several lines of insurance other than municipal bond insurance, and
the assets of each insurance company also secure all of its other insurance
policy and surety bond obligations.
Some of the members of the Association are among the
shareholders of MBIA, Inc. MBIA, Inc. is the parent of MBIA Insurance
Corporation (formerly known as Municipal Bond Investors Assurance Corporation)
("MBIA Corp.") and is the principal operating subsidiary of MBIA Inc., a New
York Stock Exchange listed company. MBIA Corp. commenced municipal bond
insurance operations on January 5, 1987. MBIA Corp. is a separate and distinct
entity from the Association. MBIA Corp. has no liability to the bondholders for
the obligations of the Association.
The following table sets forth certain financial information
with respect to the five insurance companies comprising MBIA. The statistics,
which have been furnished by MBIA, are as reported by the insurance companies to
the New York State Insurance Department and are determined in accordance with
statutory accounting principals. No representation is made herein as to the
accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the date thereof. In addition,
these numbers are subject to revision by the New York State Insurance Department
which, if revised, could either increase or decrease the amounts.
<TABLE>
MUNICIPAL BOND INSURANCE ASSOCIATION ("MBIA")
FIVE MEMBER COMPANIES ASSETS, LIABILITIES
AND POLICYHOLDERS' SURPLUS
AS OF MARCH 31, 1995
(000's omitted)
<CAPTION>
New York New York New York
Statutory Statutory Policyholder's
Assets Liabilities Surplus
<S> <C> <C> <C>
The Aetna Casualty & Surety Company $10,225,604 $ 8,312,158 $1,913,446
Fireman's Fund Insurance Company 7,126,217 5,116,059 2,010,158
The Travelers Indemnity Company 10,461,356 8,654,130 1,807,226
Cigna Property and Casualty Company 4,260,177 3,637,513 622,664
(Formerly Aetna Insurance Company)
The Continental Insurance Company 3,060,583 2,380,723 679,860
----------- ----------- ----------
TOTAL $35,133,937 $28,100,583 $7,033,354
</TABLE>
MBIA Corp. is domiciled in the State of New York and licensed
to do business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA Corp. has two European branches, one in the Republic of
France and the other in the Kingdom of Spain.
- --------
* Now known as Cigna Property and Casualty Company.
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<PAGE>
As of September 30, 1996, MBIA Corp. had admitted assets of
$4.3 billion (unaudited), total liabilities of $2.9 billion (unaudited), and
total capital and surplus of $1.4 billion (unaudited) prepared in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of December 31, 1995, MBIA Corp. had admitted assets
of $3.8 billion (audited), total liabilities of $2.5 billion (audited), and
total capital and surplus of $1.3 billion (audited).
As of the Evaluation Date, the claims-paying ability of MBIA
Corp. has been rated "AAA" by Standard & Poor's and "Aaa" by Moody's.
No representation is made herein as to the accuracy or adequacy
of such information or as to the absence of material adverse changes in such
information subsequent to the date thereof. The Sponsors are not aware that the
information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the
negotiations in respect thereof and 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
obtained by 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
"AAA" rating and/or Moody's "Aaa" rating but were uninsured and yet at the same
time to have the protection of insurance of payment of interest and principal on
the Securities. There is, of course, no certainty that this result will be
achieved. Any Pre-insured Bonds in the Trust (all of which are rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's, respectively) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa"
by Moody's, respectively.
Because the Securities are insured by the Insurer as to the
payment of principal and interest, Moody's has assigned a rating of "Aaa" to all
of the Bonds in the Trust, as insured, and Standard & Poor's has assigned its
"AAA" investment rating to the Units and Bonds in the Trust. See "Tax Exempt
Bond Portfolio" in Part I of this Prospectus. These ratings apply to the Bonds
only while they are held in the Trust. 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 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,
excludible 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"),
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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, includible 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
holding period of the Units. 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
purchased 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)
interest on certain private activity bonds issued after August 7, 1986 is
included in the calculation of the individual's alternative minimum tax
(currently taxed at a rate of up to 28%); none of the Bonds in the Trust is a
private activity bond, the interest on which is subject to the 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
and 75% of the amount by which adjusted current earnings (including interest on
all tax-exempt bonds, such as the Bonds) exceed alternative minimum taxable
income, as modified for this calculation, will be included in alternative
minimum taxable income. Interest on the Bonds is includible 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; (3)
subject to certain exceptions, no financial institution is allowed a deduction
for that portion of the institutions's interest expense allocable to tax-exempt
interest on tax-exempt bonds acquired after August 7, 1986; (4) the amount of
the deduction allowed to property and casualty insurance companies for
underwriting loss is decreased by an amount determined with regard to tax-exempt
interest income and the deductible portion of dividends received by such
companies; (5) all taxpayers are required to report for informational purposes
on their Federal income tax returns the amount of tax-exempt interest they
receive; (6) 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 (7) a branch
profits tax on U.S. branches of foreign corporations is implemented 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.
Section 86 of the Code provides that a portion of social
security benefits is includible in taxable income for taxpayers whose "modified
adjusted gross income," combined with a portion of their social security
benefits, exceeds a base amount. The base amount is $25,000 for an individual,
$32,000 for a married couple filing a joint return and zero for married persons
filing separate returns. Interest on tax-exempt bonds is
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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 regular 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
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<PAGE>
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. 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.
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 this 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.
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 what the effect of such legislation would be on Bonds in the Trust.
In addition, the enactment of a "flat tax" or other legislation that
significantly alters the federal income tax system may have a material adverse
effect on the value of Units. 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, the U.S. Supreme Court held that
the federal government may constitutionally require states to register bonds
they issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
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<PAGE>
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" in Part II.
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.
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<PAGE>
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. Therefore, on each monthly Distribution Date, the amount
of interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit holders. Therefore, there will usually remain an item of
accrued interest that is added to the value of the Units. If a Unit holder sells
all or a portion of his Units, he will be entitled to receive his proportionate
share of the accrued interest from the purchaser of his Units. Similarly, if a
Unit holder redeems all or a portion of his Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the 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
All the expenses of creating and establishing the Trust for
Series 118 and prior Series have been borne by the Sponsors, including the cost
of the initial preparation, printing and execution of the Trust Agreement and
the
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<PAGE>
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
All or a portion of the expenses incurred in creating and
establishing the Trust for Series 119 and subsequent Series, including the cost
of the initial preparation and execution of the Trust Agreement, the initial
fees and expenses of the Trustee, legal expenses and other actual out-of-pocket
expenses, have been paid by the Trust and will be amortized over a five year
period. All advertising and selling expenses, as well as any organizational
expenses not paid by the Trust, will be borne by the Sponsors at no cost to the
Trust.
Fees
The Trustee's, Sponsor's 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 in
the "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 in the "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, each from the Interest Account to the extent funds are available
and then from the Principal Account. These fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate increases in
consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent." If the balances
in the Principal and Interest Accounts are insufficient to provide for amounts
payable by the Trust, or amounts payable to the Trustee which are secured by its
prior lien on the Trust, the Trustee is permitted to sell Bonds to pay such
amounts.
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
portfolio of 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
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<PAGE>
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 annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect 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 of the Trust in
connection with each distribution a statement of the amount of interest, if any,
and the amount of other receipts, if any, which are being distributed, expressed
in each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom (including
any unearned original issue discount but excluding any portion representing
interest, with respect to the Trust the premium attributable to the Trustee's
exercise of the right to obtain Permanent Insurance and any related custodial
fee), deductions for payments of applicable taxes and for fees and expenses of
the Trust, 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.
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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 of the Trust 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.
By the third business day following such tender, 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.
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 exercise the right to obtain
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Permanent Insurance on a Defaulted Bond, to the extent that 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 in the Trust are entitled at all times to the
benefits of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to fulfill its
obligations, and such benefits are reflected and included in the market value of
Pre-insured Bonds. For a description of the situations in which the Evaluator
may value the insurance obtained by the Trust, see "Public Offering--Market for
Units."
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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). However, a Unit holder must have held
his Unit for a period of at least six months in order to exercise the exchange
option or agree to pay a sales charge based on the greater of $15 per Unit or an
amount which together with the initial sales charge paid in connection with the
acquisition of Units being exchanged equals the normal sales charge of the
Series into which the investment is being converted, determined as of the date
of the exchange. Such exchanges will be effected in whole Units only. Any excess
proceeds from the Units being surrendered will be returned, and the Unit holder
will not be permitted to advance any new money in order to complete an exchange.
The Sponsors reserve the right to modify, suspend or terminate this plan at any
time without further notice to the Unit holders. In the event that the exchange
option is not available to a Unit holder at the time he wishes to exercise it,
the Unit holder will be immediately notified and no action will be taken with
respect to his Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the
tax consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with
Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit
holders of the Trust to elect to have distributions from Units in the Trust
automatically reinvested in shares of the Empire Builder. The Empire Builder is
an open-end, non-diversified investment company whose investment objective is to
seek as high a level of current income exempt from Federal income tax, 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 (Aaa, Aa, A or Baa) or Standard & Poor's (AAA,
AA, A, or BBB) or will be unrated bonds which at the time of purchase are judged
by the Empire Builder's investment advisor to be of comparable quality to bonds
rated within such four highest grades. It is a fundamental policy of the Empire
Builder that under normal market conditions at least 90% of the income
distributed to its shareholders will be exempt from Federal income tax, New York
State and New York City personal income taxes. However, during times of adverse
market conditions when the Empire Builder is investing for temporary defensive
purposes in obligations other than New York tax-exempt bonds, more than 10% of
the Empire Builder's income distributions could be subject to Federal income
tax, New York State 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 ten days preceding the next succeeding distribution
date, by so notifying the Plan Agent in writing, elect to terminate his
participation in the Plan and receive future distributions on his Units in cash.
There will be no charge or other penalty for such termination. The Sponsors, the
Trustee, the Empire Builder and Glickenhaus, as investment advisor for Empire
Builder each will have the right to terminate this Plan at any time for any
reason. The reinvestment of distributions from the Trust through the Plan will
not affect the income tax status of such distributions. For more complete
information about investing in the Empire Builder through the Plan, including
charges and expenses, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal &
Co., Inc., the Sponsors have entered into an arrangement (the "Plan") with
Lebenthal New York Municipal Bond Fund (the "Bond Fund") which permits Unit
holders of the Trust to elect to have distributions from Units in the Trust
automatically reinvested in shares of the Bond Fund. The Bond Fund is an
open-end, non-diversified investment company whose investment objective is to
maximize current income exempt from regular Federal income tax, and from New
York State and New York City income taxes, consistent with preservation of
capital and with consideration given to opportunities for capital gain. It is
the policy of the Bond Fund to invest primarily in long term investment grade
tax-exempt securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in
certain respects from that of the Trust. The bonds purchased by the Bond Fund
will be of "investment grade" quality -- that is, at the time of purchase by the
Bond Fund, such bonds either will be rated not lower than the four highest
ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, 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 Unit 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
their Units. Confirmations of all transactions undertaken for each Participant
in the Plan will be mailed to each Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the 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, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, 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 Glickenhaus Value Portfolios and 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 71 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
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<PAGE>
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 with respect to the Trust or otherwise within 30 days, the
Trustee is required to notify the Sponsors thereof. If the Sponsors fail to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may in
its discretion sell the Defaulted Bond and not be liable for any depreciation or
loss thereby incurred. See "The 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 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.
Therefore, in connection with any liquidation with respect to a Trust, it shall
not be necessary for the Trustee to, and the Trustee does not currently intend
to, dispose of any Bonds if retention of such Bonds, until due, shall be deemed
to be in the best interest of Unit holders, including, but not limited to,
situations in which Bonds so insured are in default and situations in which
Bonds so insured have a deteriorated market price resulting from a significant
risk of default. Since the Pre-insured Bonds 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-
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<PAGE>
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, 1996, the total partners' capital of
Glickenhaus was $144,057,869 (audited); and at March 31, 1996, the total
stockholders' equity of Lebenthal was $4,518,542 (audited).
The foregoing information with regard to the Sponsors relates
to the Sponsors only, and not to any series of Empire State Municipal Exempt
Trust. Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and their
ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company organized
under the laws of New York, having its offices at 101 Barclay Street, New York,
New York 10286, (800) 221-7771. 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
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<PAGE>
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 for its obligations and duties. In addition, the Trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of 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 judgement. This provision shall
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<PAGE>
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 upon affirmative written notice of their
opportunity to object to such termination and to the Sponsors and the holders of
at least 33-1/3% of the Units do not 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, 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
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<PAGE>
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 LLP, 75 East 55th
Street, New York, New York 10022 as special counsel for the Sponsors as to
Series 65 and subsequent Series of Empire State Municipal Exempt Trust,
Guaranteed Series. Kroll & Tract, 520 Madison Avenue, New York, New York 10022,
acts as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus for the periods ended September 30, 1996 and September 30, 1995
have been audited by Goldstein Golub Kessler & Company, P.C., independent
certified public accountants, and for the period ended September 30, 1994 have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their reports with respect thereto, and are included therein in
reliance upon such reports given upon the authority of these firms as experts in
accounting and auditing.
DESCRIPTION OF BOND RATINGS
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.
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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 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 the best
quality. They carry the smallest degree of investment risk and are
- 42 -
279831.7
<PAGE>
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.
- 43 -
279831.7
<PAGE>
<TABLE>
<S> <C>
----------------------------------------------------------------------
This Prospectus contains information concerning
the Trust and the Sponsors, but does not contain
all the information set forth in the registration EMPIRE STATE
statements and exhibits relating thereto, which the MUNICIPAL EXEMPT TRUST
Trust has filed with the Securities and Exchange
Commission, Washington, D.C. under the
Securities Act of 1933 and the Investment Company
Act of 1940, and to which reference is hereby made. GUARANTEED SERIES
- --------------------------------------------------------------------------
PROSPECTUS, PART II
INDEX
- --------------------------------------------------------------------------
Page Sponsors:
THE TRUST.................................................................. 1
GLICKENHAUS & CO.
PUBLIC OFFERING............................................................ 17 6 East 43rd Street
New York, New York 10017
ESTIMATED CURRENT RETURN AND ESTIMATED (212)953-7532
LONG-TERM RETURN TO UNIT HOLDERS...................................... 20
INSURANCE ON THE BONDS..................................................... 20 LEBENTHAL & CO., INC.
120 Broadway
TAX STATUS................................................................. 24 New York, New York 10271
(212)425-6116
RIGHTS OF UNIT HOLDERS..................................................... 28
AUTOMATIC ACCUMULATION ACCOUNT............................................. 35
SPONSORS................................................................... 36
TRUSTEE.................................................................... 38
EVALUATOR.................................................................. 39
AMENDMENT AND TERMINATION OF THE TRUST
AGREEMENT............................................................. 40
LEGAL OPINIONS............................................................. 41
AUDITORS................................................................... 41
DESCRIPTION OF BOND RATINGS................................................ 41
- --------------------------------------------------------------------------
No person is authorized to give any information or
to make any representations not contained in this
Prospectus and any information or representation
not contained herein must not be relied upon as
having been authorized by the Trust or the
Sponsors. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy,
securities in any state to any person to whom it is
not lawful to make such offer in such state.
- -------------------------------------------------------------------------- -------------------------------------------------------
</TABLE>
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus.
Signatures.
Written Consent of the following persons:
Consents of Independent Auditors.
Consent of Counsel (previously filed)
Consent of the Evaluator including Confirmation of Ratings (included in
Exhibit 99.5.1).
The following exhibits:
*99.5.1 --.......Consent of the Evaluator including Confirmation of
Ratings and Affirmation Letter of Standard & Poor's.
99.6.1 --.......Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 33-64155 of Glickenhaus Value
Portfolios, The 1996 Equity Collection on November 13, 1995,
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 6.2 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-55385 of Empire State Municipal Exempt Trust, Guaranteed
Series 109 on November 2, 1994, and incorporated herein by
reference).
*27 --.........Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-1
332284.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 34 and
Guaranteed Series 35 certify that they have met 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. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of January, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 34 AND
GUARANTEED SERIES 35
(Registrants)
GLICKENHAUS & CO.
(Depositor)
By:/s/ James Vaccacio
James Vaccacio
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Name Title Date
ALFRED FEINMAN* General Partner ) January 28, 1997
)
)
SETH M. GLICKENHAUS* General Partner, )
Chief Investment Officer ) By:/s/ James Vaccacio
) James Vaccacio
STEVEN B. GREEN* Chief Financial Officer ) Attorney-in-Fact*
)
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to Form
S-6 Registration Statement No. 33-64155 of Glickenhaus Value Portfolios,
The 1996 Equity Collection on November 13, 1995.
II-2
332284.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 34 and
Guaranteed Series 35 certify that they have met 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. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 28th day of January, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 34 AND
GUARANTEED SERIES 35
(Registrants)
LEBENTHAL & CO., INC.
(Depositor)
By:/s/ D. Warren Kaufman
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
Name Title Date
H. GERARD BISSINGER, II* Director )
) January 28, 1997
JEFFREY M. JAMES* Director )
)
/s/ D. Warren Kaufman ) By:/s/ D. Warren Kaufman
D. WARREN KAUFMAN Director
) D. Warren Kaufman
ALEXANDRA LEBENTHAL* Director, President ) Attorney-in-Fact*
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2, 1994.
II-3
332284.1
<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 34
AND GUARANTEED SERIES 35
We hereby consent to the use in Post-Effective Amendment No. 9 to
Registration Statement No. 33-10863 of our opinions dated October 31, 1996
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 34 and Guaranteed Series 35 and to the reference to our firm
under the heading "Auditors" in the Prospectus which is a part of such
Registration Statement.
GOLDSTEIN GOLUB KESSLER
& COMPANY, P.C.
New York, New York
January 31, 1997
II-4
332284.1
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Sponsors, Trustee and Unit Holders Of Empire State Municipal Exempt
Trust, Guaranteed Series 34 and Guaranteed Series 35
We hereby consent to incorporation by reference in the Prospectus constituting a
part of this Registration Statement No. 33-10856 of our report dated October 31,
1994, relating to the statement of net assets of Empire State Municipal Exempt
Trust, Guaranteed Series 34 and Guaranteed Series 35, appearing in Amendment No.
8 to Form S-6 dated January 28, 1997.
BDO Seidman, LLP
New York, New York
January 28, 1997
II-5
332284.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000807998
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 34
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 4643415
<INVESTMENTS-AT-VALUE> 5130671
<RECEIVABLES> 88608
<ASSETS-OTHER> 64060
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5283339
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1346
<TOTAL-LIABILITIES> 1346
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 9193
<SHARES-COMMON-PRIOR> 10317
<ACCUMULATED-NII-CURRENT> 151660
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 487256
<NET-ASSETS> 5281993
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 527904
<OTHER-INCOME> 0
<EXPENSES-NET> 26505
<NET-INVESTMENT-INCOME> 501399
<REALIZED-GAINS-CURRENT> 383057
<APPREC-INCREASE-CURRENT> (672754)
<NET-CHANGE-FROM-OPS> 211702
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 652909
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4778551
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1124
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (6110900)
<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> 1104.28
<PER-SHARE-NII> 38.17
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 61.44
<PER-SHARE-DISTRIBUTIONS> 486.98
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 574.57
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000827886
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 35
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 7481114
<INVESTMENTS-AT-VALUE> 8132662
<RECEIVABLES> 132313
<ASSETS-OTHER> 70682
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8335657
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2077
<TOTAL-LIABILITIES> 2077
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 7903
<SHARES-COMMON-PRIOR> 8290
<ACCUMULATED-NII-CURRENT> 208163
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 651548
<NET-ASSETS> 8333580
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 611403
<OTHER-INCOME> 0
<EXPENSES-NET> 25177
<NET-INVESTMENT-INCOME> 586226
<REALIZED-GAINS-CURRENT> 24690
<APPREC-INCREASE-CURRENT> (164053)
<NET-CHANGE-FROM-OPS> 446863
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 601428
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 222562
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 387
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (781773)
<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> 1099.56
<PER-SHARE-NII> 69.78
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 72.17
<PER-SHARE-DISTRIBUTIONS> 27.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1054.48
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MULLER DATA CORPORATION
___________________________________________________TSIS______________________
Thomson Securities Information Services
December 13, 1996
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUSTS
Guaranteed Series 34 & 35: Post - Effective Amendment No. 9
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement,
File No. 33-10863, for the referenced Trusts and acknowledge that Muller Data
Corporation is currently acting as the evaluator for the Empire State Municipal
Exempt Trusts Guaranteed Series 34 and 35. Subsequently, we hereby consent to
the reference of Muller Data Corporation as Trust evaluator in the
post-effective Amendment.
In addition, we confirm that the ratings of the bonds comprising the portfolios
of the Trusts, as indicated in the Amendment to the Registration Statement, 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,
- ---------------
Mario S. Buscemi
Chief Operating Officer
395 Hudson Street - New York, NY 10014-3622 - 212-807-3800
<PAGE>
Managed Funds Ratings
25 Broadway
New York, NY 10004-1064
Tel 212 208 8000
Fax 212 208 8034
Standard & Poor's
A Division of The McGraw-Hill Companies
Glickenhaus & Company
6 East 43rd Street
New York, NY 10017
Re: ESMET Guaranteed Series 34, ESMET Guaranteed Series 35
It is our understanding that you are filing with the Securities and
Exchange Commission a Post Effective Amendment to the above captioned trust, SEC
file number 33-10863.
Since the portfolio is composed solely of securities covered by bond
insurance policies that insure against default in the payment of principal and
interest on the securities for so long as they remain outstanding and such
policies have been issued by one or more insurance companies which have been
assigned `AAA' claims paying ability ratings by Standard & Poor's, we reaffirm
the assignment of a `AAA' rating to the units of the trust and a `AAA' rating to
the securities contained in the trust.
Standard & Poor's will maintain surveillance on the `AAA' rating until
February 6, 1998. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the trust.
You have permission to use the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. and the above-assigned
ratings in connection with your dissemination of information relating to these
units, provided that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold, or sell the units of the trust or the
securities in the trust. Further, it should be understood that the rating on the
units does not take into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce payment to the
unit holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a consent by us, within
the meaning of Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities contained in the
trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send a copy of your final prospectus as soon as it
becomes available. Should we not receive it within a reasonable time after the
closing or should it not conform to the representations made to us, we reserve
the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
