As filed with the Securities and Exchange Commission on July 27, 1995
Registration No. 33-12107
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8
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,
EMPIRE MAXIMUS AMT SERIES A
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 July 31, 1995 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
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EMPIRE STATE MUNICIPAL EXEMPT TRUST, EMPIRE MAXIMUS AMT SERIES A
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)
Form N8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
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
(b) Certain information regarding
periodic payment certificates..Not Applicable
ii
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(c) Certain percentages.............Public Offering--Offering Price
(d) Certain other fees, etc. payable
by holders......................Rights of Unit Holders--Certificates
(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; 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
22. Limitations on liability............The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
23. Bonding arrangements................Additional Information--Item A
iii
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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
(c) Variation in offering price
to certain persons.............Public Offering--Offering Price; Public
Offering--Distribution of Units
45. Suspension of redemption rights....Not Applicable
iv
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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................ Not Applicable
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..... "
57. Certain information regarding
periodic payment certificates..... "
58. Certain information regarding
periodic payment certificates..... "
v
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59. Financial Statements
(Instruction 1(c) to Form S-6)....Statement of Net Assets; Statements of
Operations; Statements of Changes in
Net Assets
vi
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EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
Prospectus, Part I 26,230 Units Dated: July 31, 1995
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of April 28, 1995
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of March 31, 1995. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of counsel for the Sponsors as of the Date of Deposit,
interest on the Bonds which is exempt from federal income tax when received by
the Trust will be excludable from the federal gross income of the Unit holders
and, with certain exceptions, interest income to the Unit holders is generally
exempt from all New York State and New York City income taxes. Capital gains,
if any, are subject to tax. However, certain of the Bonds in the Trust
are"private activity bonds" the interest on which is an item of tax preference
subject to the alternative minimum tax. See Part II under "Tax Status."
The Trust is a unit investment trust formed for the purpose of obtaining,
with certain exceptions, tax-exempt interest income through investment in a
fixed portfolio of investment grade long-term bonds, including contracts and
funds for the purchase thereof, 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" or the "Securities"). See Part II under
"The Trust." Certain of the Bonds in the Trust will provide a higher rate of
return than otherwise because the interest income from such Bonds is
includable as a tax preference item in computing the Federal alternative
minimum tax. This may result in an increase in the overall Federal tax
liability of certain individuals and corporations. The Trust may be especially
attractive to individuals who are not subject to the alternative minimum tax.
Each investor should consult his tax advisor for advice concerning the
imposition of the alternative minimum tax. Certain of the Bonds were purchased
at prices which resulted in the portfolio as a whole being purchased at a
"market" discount. Bonds selling at market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for capital gain (or reducing the potential for loss)
on their redemption, maturity or sale. Any capital gain other than any earned
original issue discount will be taxable and will not be realized until
maturity, redemption or sale of the underlying Bonds or Units. One issue of
Bonds in the Trust was issued after the effective date of the Tax Reform Act
of 1986 (the "Tax Act") but before the release of the Conference Committee
Report relating to the Tax Act. As a result, the related bond counsel's
opinion may not have addressed the tax-exempt status of such Bonds under the
Tax Act as signed into law but rather was based on a preliminary outline of
the bill that eventually became the Tax Act. The continued tax-exempt status
will depend upon the issuer's ability to comply with the provisions of the
Internal Revenue Code of 1986 as amended. See Part II under "The Trust--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."
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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.
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EMPIRE STATE MUNICIPAL EXEMPT TRUST, EMPIRE MAXIMUS AMT SERIES A
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 1995
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 18,100,000
Number of Units: 26,230
Fractional Undivided Interest in the Trust Per Unit: 1/26,230
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $17,977,804.70
Sponsors' Repurchase Price Per Unit: $ 685.38
Plus Sales Charge(1): 16.16
Public Offering Price Per Unit(2): $ 701.54
Redemption Price Per Unit(3): $ 685.38
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 16.16
Weighted Average Maturity of Bonds in the Trust: 16.614 years
Evaluation Time: 2:00 p.m.,New York Time, on the day
next following receipt by a Sponsor of
an order for a Unit sale or purchase
or by the Trustee of a Unit tendered
for redemption.
Evaluator's Fee: $.55 for each issue of Bonds in the
Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of
Bonds in the Trust, $1.24 under the
monthly and $.69 under the semi-annual
distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount
of underlying securities.
Date of Deposit: March 13, 1987
Date of Trust Agreement: March 13, 1987
Mandatory Termination Date: December 31, 2036
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
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<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, EMPIRE MAXIMUS AMT SERIES A
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 28, 1995
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $49.09 $49.09
Less Estimated Annual Expenses 1.71 1.21
E
Estimated Net Annual Interest Income: $47.38 $47.88
R
Estimated Interest Distribution: $ 3.94 $23.94
U Estimated Current Return Based on Public
Offering Price (4): 6.75% 6.82%
N
Estimated Long-Term Return Based
I on Public Offering Price (5): 5.86% 5.93%
T Estimated Daily Rate of Net Interest
Accrual: $.13161 $.13300
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- ----------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to May 5, 1995, the expected date of settlement,
of $10.91 monthly and $30.89 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.
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Portfolio Information
On March 31, 1995, the bid side valuation of 19.1% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par,
3.2% was at par and 77.7% was at a premium over par. See Note (B) to
"Tax-Exempt Bond Portfolio" for information concerning call and redemption
features of the Bonds.
Special Factors Concerning the Portfolio
The Portfolio consists of 16 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. 22.9% 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. 1.4% of the aggregate
principal amount of the Bonds in the Portfolio are payable from
appropriations. 75.7% 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 source 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, 6 (22.9%);
Appropriations, 1 (1.4%); Revenue: Housing, 1 (17.8%); Higher Education, 1
(.4%); Water and Sewer, 1 (6.9%); Industrial Development, 4 (41.7%);
Transportation, 1 (5.5%); and Municipal Assistance Corporation, 1 (3.4%). The
Trust is deemed to be concentrated in the Industrial Development Bonds
category.1 Five issues, constituting 34.7% of the Bonds in the Portfolio, are
original issue discount bonds. On March 31, 1995, 1 issue (5.5%) was rated
BBB+ and 1 issue (.4%) was rated BBB by Standard & Poor's Corporation; 1 issue
(26.4%) was rated Aa2, 2 issues (21.2%) were rated Aa, 6 issues (13.8%) were
rated A and 1 issue (1.4%) was rated Baa1 by Moody's Investors Service, Inc.2;
3 issues (15.3%) were not rated. One issue was partially refunded consisting
of a portion (15.8%) that was not rated. The remaining portion (.2%) was rated
A- by Standard & Poor's Corporation. 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 1954, as amended. See
"The Trust -- Portfolio" in Part II of this Prospectus.
-----------------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or
more of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
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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).
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INDEPENDENT AUDITORS' REPORT
------------------------------------------
------------------------------------------
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Empire Maximus AMT Series A:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Empire Maximus AMT Series A, including the bond
portfolio, as of March 31, 1995, and the related statements of operations and
changes in net assets for the years ended March 31, 1995 and 1994. These
financial statements are the responsibility of the Sponsors. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1995, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsors, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Empire Maximus AMT Series A as of March 31, 1995, and the results of
its operations and changes in net assets for the years ended March 31, 1995
and 1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 28, 1995
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<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENT OF NET ASSETS
MARCH 31, 1995
---------------------------------------------------
---------------------------------------------------
<S> <C> <C>
CASH ...................................................................... $ 53 111
INVESTMENTS IN SECURITIES, at market value (cost $17,979,772).................. 18 053 597
ACCRUED INTEREST RECEIVABLE.................................................... 467 120
Total trust property.................................................. 18 573 828
LESS - ACCRUED EXPENSES........................................................ 2 125
NET ASSETS..................................................................... $18 571 703
NET ASSETS REPRESENTED BY:
</TABLE>
<TABLE>
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS................................ $11 449 442 $6 605 738 $18 055 180
UNDISTRIBUTED NET INVESTMENT
INCOME................................... 253 449 263 074 516 523
Total value........................ $11 702 891 $6 868 812 $18 571 703
UNITS OUTSTANDING........................... 16 693 9 631 26 324
VALUE PER UNIT.............................. $ 701.06 $ 713.19
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENTS OF OPERATIONS
-----------------------------------------------
-----------------------------------------------
<CAPTION>
Year ended
March 31,
---------------------------------
1995 1994
<S> <C> <C>
INVESTMENT INCOME - INTEREST.............................. $1 340 185 $1 434 029
EXPENSES:
Trustee fees............................................. 25 090 26 503
Evaluation fees.......................................... 2 431 2 613
Sponsors' advisory fees.................................. 4 614 4 916
Auditors' fees........................................... 1 800 1 800
Total expenses........................................ 33 935 35 832
NET INVESTMENT INCOME..................................... 1 306 250 1 398 197
REALIZED LOSS ON SECURITIES SOLD
OR REDEEMED (Note 3)..................................... (69 308) (8 707)
NET CHANGE IN UNREALIZED MARKET
DEPRECIATION............................................. (152 862) (593 000)
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................................... $1 084 080 $ 796 490
</TABLE>
See accompanying notes to financial statements.
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EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------
------------------------------------------------
Year ended
March 31,
-----------------------------
1995 1994
OPERATIONS:
Net investment income ...................... $1 306 250 $ 1 398 197
Realized loss on securities sold or redeemed (69 308) (8 707)
Net change in unrealized market
depreciation .............................. (152 862) (593 000)
Net increase in net assets resulting
from operations ..................... 1 084 080 796 490
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income ...................... (1 337 629) (1 418 366)
Principal .................................. (863 711) (618 761)
Total distributions ................. (2 201 340) (2 037 127)
CAPITAL SHARE TRANSACTIONS:
Redemption of 845 and 616 units ............ (586 690) (461 333)
NET DECREASE IN NET ASSETS .................... (1 703 950) (1 701 970)
NET ASSETS:
Beginning of year .......................... 20 275 653 21 977 623
End of year ................................ $18 571 703 $20 275 653
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan .............................. $48.81 $ 50.51
Semi-annual plan .......................... $49.87 $ 51.53
Principal:
Monthly plan .............................. $32.17 $ 22.30
Semi-annual plan .......................... $32.17 $ 22.30
See accompanying notes to financial statements.
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------
-----------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
General
The Trust is registered under the Investment Company Act of 1940.
Securities
Securities transactions are recorded on a trade date basis.
Securities are stated at bid side market value as determined by an
independent outside evaluator.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit Holders either
semi-annually on the first day of June and December or, if elected by the Unit
Holder, on the first day of each month, after deducting applicable expenses.
Principal distributions, resulting from the sale or redemption of securities,
were made in May and December 1994.
<TABLE>
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- -------- -------------- ----------- ------------------------ -------------- -------------- ------------
Year ended March 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
* $ 355 000 4/1/94 State of New York $355 000 $ 397 527 $(42 527)
Mortgage Agency,
Mortgage Revenue Bonds,
Ninth Series A (AMT)
1 15 000 4/1/94 State of New York 15 000 16 797 (1 797)
Mortgage Agency,
Mortgage Revenue Bonds,
Ninth Series A (AMT)
3 95 000 6/20/94 New York City Municipal 81 225 72 675 8 550
Water Finance Authority,
Water and Sewer System
Revenue Bonds (Fiscal
1987 Series A)
* 15 000 7/25/94 Puerto Rico Housing Bank 15 300 15 281 19
and Finance Agency,
- --------
* Portfolio redeemed in its entirety.
</TABLE>
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
(Continued)
-----------------------------------------------
-----------------------------------------------
<TABLE>
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- -------- -------------- ----------- ------------------------ -------------- -------------- ------------
Year ended March 31, 1995 (continued):
<S> <C> <C> <C> <C> <C> <C>
1 $70 000 8/1/94 State of New York $ 70 000 $ 78 386 $(8 386)
Mortgage Agency,
Mortgage Revenue Bonds,
Ninth Series A (AMT)
3 60 000 8/29/94 New York City Municipal 49 050 45 900 3 150
Water Finance Authority,
Water and Sewer System
Revenue Bonds (Fiscal
1987 Series A)
1 35 000 10/1/94 State of New York 35 000 39 193 (4 193)
Mortgage Agency,
Mortgage Revenue Bonds,
Ninth Series A (AMT)
* 45 000 10/6/94 Puerto Rico Housing Bank 45 990 45 844 146
and Finance Agency,
Commonwealth
Appropriations Bonds
16 50 000 11/1/94 County of Monroe, New 50 000 52 157 (2 157)
York, Industrial
Development Agency,
1986 individual
Development Revenue
Bonds (R.E.G. Realty
Association Inc. Facility),
payable from an
irrevocable letter of credit
issued by Marine Midland
Bank N.A. (AMT)
14 80 000 11/1/94 New York City Industrial 80 000 84 099 (4 099)
Development Agency,
Industrial Development
Revenue Bonds (1986
Micro-tool & Fabricating
Inc. Project), payable from
an irrevocable letter of
credit issued by Marine
Midland N.A. (AMT)
11 100 000 11/15/94 The City of New York, 106 500 113 460 (6 960)
General Obligation Bonds,
Fiscal 1986 Series D
* 120 000 12/1/94 Puerto Rico Housing Bank 123 600 122 250 1 350
and Finance Agency
</TABLE>
- --------
* Porfolio redeemed in its entirety.
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
(Concluded)
-----------------------------------------------
-----------------------------------------------
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- -------- -------------- ----------- ------------------------ -------------- -------------- ------------
Year ended March 31, 1995 (continued):
<S> <C> <C> <C> <C> <C> <C>
15 $ 150 000 12/1/94 New York City Industrial $ 150 000 $ 155 829 $(5 829)
Development Agency,
Industrial Development
Revenue Bonds (1986 J.
Manheimer Inc. Project),
payable from an
irrevocable letter of credit
issued by Marine Midland
N.A. (AMT)
8 70 000 12/9/94 Dormitory Authority of the 73 850 75 685 (1 835)
State of New York, City
University System
Consolidated Revenue
Bonds, Series 1986 A
13 100 000 1/24/95 New York City Municipal 77 400 76 500 900
Water Finance Authority,
Water and Sewer System
Revenue Bonds (Fiscal
1987 Series A)
11 60 000 2/28/95 The City of New York, 64 110 68 076 (3 966)
General Obligation Bonds,
Fiscal 1986 Series D
8 45 000 3/27/95 Dormitory Authority of he 46 980 48 654 (1 674)
State of New York, City
University System
Consolidated Revenue
Bonds, Series 1986 A
-------------- -------------- -------------- ------------
$1 465 000 $1 439 005 $1 508 313 $(69 308)
============== ============== ============== ============
</TABLE>
NOTE 4 - NET ASSETS
Cost of 30,000 units at Date of Deposit $31 819 363
Less gross underwriting commission 1 558 800
Net cost - initial offering price 30 260 563
Realized net loss on securities sold or redeemed (387 527)
Principal distributions (8 952 318)
Redemption of 3,676 units (2 939 363)
Unrealized market appreciation of securities 73 825
Undistributed net investment income 516 523
Net assets $18 571 703
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1995
------------------------------------------
------------------------------------------
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Principal Name of Issuer and Ratings Coupon Maturity Opt. - Optional Call Securities March 31, Income to
No. Amount Title of Bond (Note A) Rate (Note B) (Note B) to Trust 1995 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 3 230 000 State of New York Aa* 7.300% 04/01/17 04/01/07 @ 100 S.F. $ 3 219 409 $3 300 285 $235 790
Mortgage Agency, 10/01/96 @ 102 Opt.
Mortgage Revenue
Bonds, Ninth
Series A (AMT)(C)
2 4 800 000 New York State Aa2* 7.500 11/15/21 11/15/06 @ 100 S.F. 4 980 000 5 009 376 360 000
Energy Research 11/15/96 @ 102 Opt.
and Development
Authority, Electric
Facilities Revenue
Bonds, Series 1986
A (Consolidated
Edison Company of
New York, Inc.
Project) (AMT)(C)
3 750 000 State of New York, A* 3.750 03/01/13 No Sinking Fund 492 930 528 503 28 125
General Obligation 03/01/97 @ 102 Opt.
Serial Bonds
4 400 000 State of New York, A* 3.750 03/01/12 No Sinking Fund 265 016 286 132 15 000
General Obligation 03/01/97 @ 102 Opt.
Serial Bonds
5 50 000 State of New York, A* 3.000 10/01/12 No Sinking Fund 28 326 31 160 1 500
General Obligation 10/01/03 @ 100 Opt.
Bonds, Serial 1973
6 25 000 State of New York, A* 3.000 10/01/16 No Sinking Fund 13 570 14 443 750
General Obligation 10/01/03 @ 100 Opt.
Bonds, Serial 1973
</TABLE>
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1995
(Continued)
------------------------------------------
------------------------------------------
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Principal Name of Issuer and Ratings Coupon Maturity Opt. - Optional Call Securities March 31, Income to
No. Amount Title of Bond (Note A) Rate (Note B) (Note B) to Trust 1995 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7 $ 25 000 State of New York, A* 2.000% 11/01/10 No Sinking Fund $ 11 507 $ 13 699 $ 500
General Obligation 11/01/96 @ 100 Opt.
Bonds, Series 1961
8 80 000 Dormitory Author- BBB 7.625 07/01/13 07/01/07 @ 100 S.F. 86 497 84 466 6 100
ity of the State 07/01/96 @ 102 Opt.
of New York, City
University System
Consolidated
Revenue Bonds,
Series 1986 A
9 615 000 Municipal Aa* 7.375 07/01/08 07/01/02 @ 100 S.F. 645 750 641 150 45 356
Assistance 07/01/96 @ 102 Opt.
Corporation For
The City of New
York (A Public
Benefit Corpor-
ation of the State
of New York),
Series 58 Bonds
10 260 000 Certificate of Baa1* 7.250 08/15/07 08/15/02 @ 100 S.F. 272 515 270 358 18 850
participation in 08/15/96 @ 102 Opt.
Lease Payments to
be made from Ann-
ual Appropriations
by the State of
New York, on behalf
of City University
of New York as Les-
see, Pursuant to a
Capital Lease-
Acquisition Agree-
ment (John Jay
College of Criminal
Justice Project)
</TABLE>
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1995
(Continued)
------------------------------------------
------------------------------------------
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Principal Name of Issuer and Ratings Coupon Maturity Opt. - Optional Call Securities March 31, Income to
No. Amount Title of Bond (Note A) Rate (Note B) (Note B) to Trust 1995 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11a $ 40 000 The City of New A- 8.500% 08/01/14 No Sinking Fund 45 384 $ 41 844 $ 3 400
York, General 08/01/96 @ 102 Opt.
Obligation Bonds,
Fiscal 1986
Series D
11b 2 860 000 The City of New NR 8.500 08/01/14 No Sinking Fund 3 244 956 3 057 712 243 100
York, General 08/01/96 @ 102 Opt.
Obligation Bonds,
Fiscal 1986
Series D
12 1 000 000 Metropolitan BBB+ 5.500 07/01/16 No Sinking Fund 824 780 897 240 55 000
Transportation 07/01/96 @ 100 Opt.
Authority Transit
Facilities
Revenue Bonds,
Series G
13 1 245 000 New York City A* 5.000 06/15/17 06/15/15 @ 100 S.F. 952 425 1 033 425 62 250
Municipal Water 06/15/96 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds (Fiscal
1987 Series A)
</TABLE>
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1995
(Continued)
------------------------------------------
------------------------------------------
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Principal Name of Issuer and Ratings Coupon Maturity Opt. - Optional Call Securities March 31, ncome to
No. Amount Title of Bond (Note A) Rate (Note B) (Note B) to Trust 1995 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
14 $ 580 000 New York City In- NR 8.000% 11/15/96 05/01/94 @ 100 S.F. $ 609 714 $ 580 000 $ 46 400
dustrial Develop- 05/01/94 @ 101.5 Opt.
ment Agency, In-
dustrial Develop-
ment Revenue
Bonds (1986
Micro-Tool &
Fabricating Inc.
Project), payable
from an irrevoc-
able letter of
credit issued by
Marine Midland,
N.A. (AMT)(C)
15 1 850 000 New York City NR 7.750 12/01/01 06/01/94 @ 100 S.F. 1 921 891 1 910 847 143 375
Industrial 06/01/94 @ 103 Opt.
Development
Agency Industrial
Development
Revenue Bonds
(1986 J.
Manheimer Inc.
Project), payable
from an
irrevocable
letter of credit
issued by Marine
Midland N.A.
(AMT)(C)
</TABLE>
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1995
(Continued)
------------------------------------------
------------------------------------------
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Principal Name of Issuer and Ratings Coupon Maturity Opt. - Optional Call Securities March 31, Income to
No. Amount Title of Bond (Note A) Rate (Note B) (Note B) to Trust 1995 Trust
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
16 $ 350 000 County of Monroe, NR 7.625% 11/01/96 11/01/94 @ 100 S.F. $ 365 102 $ 352 958 $ 26 688
New York, No Optional Call
Industrial
Development
Agency, 1986
individual
Development
Revenue Bonds
(R.E.G. Realty
Association Inc.
Facility), payable
from an irrevoc-
able letter of
credit issued
by Marine Midland
Bank N.A. (AMT)(C)
$18 160 000 $17 979 772 $18 053 597 $1 292 184
</TABLE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings
are by Standard & Poor's Corporation, except for those indicated by an
asterisk (*), which are by Moody's Investors Service. Certain bond
ratings have changed since the Date of Deposit, at which time all such
bonds were rated A or better by either Standard & Poor's Corporation
or Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund
(mandatory partial redemption) (S.F.) or at the stated optional call
(at the option of the issuer) (Opt.) or by refunding. Certain bonds in
the portfolio may be redeemed earlier than dates shown in whole or in
part under certain unusual or extraordinary circumstances as specified
in the terms and provisions of such bonds. Single-family mortgage
revenue bonds and housing authority bonds are most likely to be called
subject to such provisions, but other bonds may have similar call
features.
(C) "AMT" Bonds - the interest on these Bonds is to be treated as a
preference item in computation of alternative minimum tax for certain
individuals and corporations.
-18-
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<PAGE>
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Empire Maximus AMT 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 Trustee for all Series. Muller
Data Corporation acts as successor Evaluator for all Series. Glickenhaus & Co.
and Lebenthal & Co., Inc. act as co-Sponsors for all Series (the "Sponsors").
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 capital gain. Any capital gain other than
any earned original issue discount will be taxable and will not be realized
until maturity, redemption or sale of the underlying Bonds or Units.
Objectives
The objective of the Trust is the receipt of interest
income that is excludable from gross income for Federal income tax purposes
through investment in a diversified portfolio consisting primarily of
long-term municipal bonds. Under the Internal Revenue
290277.1
<PAGE>
Code of 1986, as amended, interest income on those Bonds identified in the Tax
Exempt Bond Portfolio in Part I of this Prospectus as AMT Bonds is to be
treated as a preference item in the computation of the alternative minimum tax
for certain individuals and corporations and may result in an increase in
their overall Federal tax liability. Without regard to the preceding sentence,
such interest is to be taken into account in the computation of certain taxes
that may be imposed with respect to corporations, including, but not limited
to, the alternative minimum tax, the environmental tax and the foreign branch
profits tax. Due to the special Federal tax considerations regarding AMT
Bonds, such Bonds generally pay interest at a higher rate than similar non-AMT
Bonds. See "The Trust - Tax Status" for, among other matters, information
regarding alternative minimum tax computation. No assurance can be given that
the Trust's objective will be achieved because the Trustee's ability to do so
is subject to the continuing ability of the issuers of the Bonds to meet their
obligations.
Some of the Bonds are unrated by national rating
organizations and the market for unrated bonds is not as broad as the market
for rated bonds, which may result in less flexibility in the disposal, if
required, of such unrated Bonds. There is no established retail secondary
market for many of these Bonds. The Sponsors believe, however, that there
should be a readily available market among institutional and other investors
for these Bonds in the event that sale is necessary to meet redemption
requirements. The limited market for some of these Bonds may affect the choice
of the particular Bond to be sold for purposes of redemption and the amount
actually realized by the Trust upon such sale, which may result in a loss to
the Trust.
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) whether the Bonds were "investment grade" bonds; that is, whether they
were rated at least "BBB" or "Baa" by Standard & Poor's Corporation or Moody's
Investors Service, Inc., respectively, or have, in the opinion of the
Sponsors, similar credit characteristics. A Bond rated "BBB" or "Baa,"
although investment grade, may have speculative characteristics.* The
inclusion in the portfolio of Bonds which
- --------
* For the meanings of ratings, including the symbols "p" and
"Con.(...)," see "Description of Bond Ratings." Security letter
ratings may be modified by the addition of a plus or minus
sign, when appropriate, to show relative standing within the
major rating categories. There can be no assurance that the
economic and political conditions on which the ratings of the
Bonds in any Trust are based will continue or that particular
Bond issues may not be adversely affected by changes in
economic, political or other conditions that do not affect the
above ratings. See "The Trust - Special Factors Affecting New
York" and "The Trust - General Considerations."
- 2 -
290277.1
<PAGE>
are rated "BBB" or Baa" by Standard & Poor's Corporation or Moody's Investors
Service, Inc., respectively, or which have, in the opinion of the Sponsors,
similar credit characteristics, may result in the Trust being less
conservative than a similar trust with bonds rated at least "A" by such rating
agencies. In selecting Bonds subject to the alternative minimum tax, the
Sponsors also utilized such factors. Subsequent to the Date of Deposit, a Bond
may cease to be rated or its rating may be reduced. Neither event requires an
elimination of such Bond from the portfolio, but may be considered in the
Sponsors' determination to direct the Trustee to dispose of the Bonds. See
"Sponsor - 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. In addition, as set forth above, inclusion of
unrated Bonds may reduce flexibility in their disposal. The judgment of the
Sponsors that unrated Bonds have similar credit characteristics to other bonds
determined to be investment grade by a nationally recognized rating agency
does not ensure that they would be rated investment grade if actually rated by
a nationally recognized rating agency.
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
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
State 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
- 3 -
290277.1
<PAGE>
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. In recent years the State's economic position has
improved in a manner consistent with that for the Northeast as a whole.
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.
(1) New York City. The City, with a population of
approximately 7.3 million, is an international center of business and culture.
Its non-manufacturing economy is broadly based, with the banking and
securities, life insurance, communications, publishing, fashion design,
retailing and construction industries accounting for a significant portion of
the City's total employment earnings. Additionally, the City is the nation's
leading tourist destination. The City's manufacturing activity is conducted
primarily in apparel and publishing.
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. In order to achieve a
balanced budget as required by the laws of the State for the 1992 fiscal year,
the City increased taxes and reduced services during the 1991 fiscal year to
close a then projected gap of $3.3 billion in the 1992 fiscal year which
resulted from, among other things, lower-than-projected tax revenue of
approximately $1.4 billion, reduced State aid for the City and
greater-than-projected increases in legally mandated expenditures, including
public assistance and Medicaid expenditures. 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. The City's current four-year financial plan
assumes that, after noticeable improvements in the City's economy during
calendar year 1994, economic growth will slow in calendar years 1995 and 1996
with local employment increasing modestly. In December 1994, the City
experienced substantial shortfalls in payments of non-property tax revenues
from those
- 4 -
290277.1
<PAGE>
forecasted. Through December 1994, collections of non-property taxes were
approximately $200 million lower than projected.
For each of the 1981 through 1994 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"), and the City's 1995 fiscal year
results are projected to be balanced in accordance with GAAP. The City was
required to close substantial budget gaps in recent years in order to maintain
balanced operating results. For fiscal year 1995, the City has adopted a
budget which has halted the trend in recent years of substantial increases in
City spending from one year to the next. 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.
Pursuant to the laws of the State, the City prepares an
annual four-year financial plan, which is reviewed and revised on a quarterly
basis and which includes the City's capital, revenue and expense projections
and outlines proposed gap-closing programs for years with projected budget
gaps. The City is required to submit its financial plans to review bodies,
including the New York State Financial Control Board ("Control Board"). If the
City were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and imminence of the occurrence of an
annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable
the City to balance its budget and to meet its cash requirements. 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.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1995
through 1998 fiscal years (the "1995- 1998 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
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may require in certain cases the cooperation of the City's municipal unions,
revenue generating transactions and provision of State and Federal aid and
mandate relief.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1995 through 1998
contemplates the issuance of $10.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital requirements. The success of projected public sales of City bonds and
notes will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from meeting its
planned capital and operating expenditures.
On May 12, 1995 the City submitted to the Control Board the
Financial Plan for the 1995 through 1999 fiscal years, which is a modification
to the financial plan submitted to the Control Board on July 8, 1994 (the
"July Financial Plan") and which relates to the City, the Board of Education
("BOE") and the City University of New York.
The City's July Financial Plan set forth proposed actions
for the 1995 fiscal year to close a previously projected gap of approximately
$2.3 billion for the 1995 fiscal year, which included City actions aggregating
$1.9 billion, a $288 million increase in State actions over the 1994 and 1995
fiscal years, and a $200 million increase in Federal assistance. The City
actions included proposed agency actions aggregating $1.1 billion, including
productivity savings; tax and fee enforcement initiatives; service reductions;
and savings from the restructuring of City services. City actions also
included savings of $45 million resulting from proposed tort reform, the
projected transfer to the 1995 fiscal year of $171 million of the projected
1994 fiscal year surplus, savings of $200 million for employee health care
costs, $51 million in reduced pension costs, savings of $225 million from
refinancing City bonds and $65 million from the proposed sale of certain City
assets.
The 1995-1998 Financial Plan submitted to the Control Board
on May 12, 1995 reflects actual receipts and expenditures since the Financial
Plan published on October 25, 1994 and projects revenues and expenditures for
the 1995 fiscal year balanced in accordance with GAAP. For the 1995 fiscal
year, the Financial Plan includes actions to offset an additional $774 million
budget gap resulting principally from (i) projections of non-property tax
revenue shortfalls of $423 million, resulting from lower capital gains,
bonuses and business profits, the timing of certain payments and discounting
by retailers, (ii) projected increases in certain agency expenditures,
including additional Medicaid payments, of $312 million, and (iii) other
revenue shortfalls, partially offset by a $100 million projected increase in
unrestricted aid and a $101 million projected increase in property taxes. The
gap-closing measures for the 1995 fiscal year set forth in the Financial Plan
include (i) additional proposed agency expenditure reductions aggregating $257
million, (ii) $162 million of debt service savings, including savings
resulting from a completed
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refunding of outstanding City debt, (iii) $239 million of increased revenues
resulting from a proposed sale of two criminal justice facilities to the State
and a proposed sale of certain mortgages, and (iv) $116 million of increased
revenues resulting from the refund by the Internal Revenue Service of social
security payments by the City. Certain of the foregoing gap-closing actions
will be subject to the ability of the City to implement expenditure reduction
initiatives. In addition, the proposed sale of the criminal justice facilities
is subject to approval by the State Legislature. In the event the foregoing
gap-closing actions cannot be fully implemented, or if expenditures exceed
current forecasts, the City will be required to adopt additional gap-closing
measures for the remainder of the 1995 fiscal year, and there is no assurance
that such measures will enable the City to achieve a balanced budget for the
1995 fiscal year.
The Financial Plan also sets forth projections for the 1996
through 1999 fiscal years and outlines a proposed gap-closing program to close
a projected gap of $3.1 billion for the 1996 fiscal year and to substantially
reduce projected gaps of $3.7 billion, $4.3 billion and $4.2 billion for the
1997, 1998 and 1999 fiscal years, respectively.
The proposed gap-closing actions in the Financial Plan for
the 1996 through 1999 fiscal years include (i) a reduction in spending for
entitlements of between $700 million and $815 million in each of the 1996
through 1999 fiscal years, primarily affecting public assistance and Medicaid
payments by the City; (ii) expenditure reductions in agencies totalling
between $1.0 billion and $1.4 billion in each of the 1996 through 1999 fiscal
years; (iii) productivity, efficiency and labor savings, totalling $600
million, $400 million and $200 million in each of the 1996, 1997 and 1998
fiscal years, respectively; (iv) $45 million in projected savings as a result
of proposed tort reform in each of the 1996 through 1999 fiscal years; (v)
between $179 million and $237 million of increased revenues resulting from
certain revenue initiatives in each of the 1996 through 1999 fiscal years;
(vi) a proposed phase-in of the estimated $300 million annual pension funding
cost due to revisions resulting from an actuarial audit of the City pension
systems, which would reduce such costs by between $142 million and $255
million in each of the 1996 through 1999 fiscal years; and (vii) $250 million
of proposed additional State aid and $50 million of proposed additional
Federal aid in each of the 1996 through 1999 fiscal years.
The proposed agency spending reductions include the
reduction of City personnel through attrition, government efficiency
initiatives, procurement initiatives and labor productivity initiatives, a
substantial part of which are subject to negotiation with the City's municipal
unions.
In addition to the gap-closing program set forth in the
Financial Plan, the City has described an additional gap-closing program for
the 1997, 1998 and 1999 fiscal years to offset the remaining $592 million,
$1.1 billion and $1.3 billion projected budget gaps for the 1997, 1998 and
1999 fiscal years, respectively.
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The proposals contained in the Financial Plan to close the
projected budget gaps, for the 1996 and subsequent fiscal years have caused
substantial public debate, and it can be expected that the public debate
relating to the 1996 fiscal year budget will continue through the time the
budget is scheduled to be adopted in June 1995.
The City's capital plan for fiscal years 1996 through 1999
contemplates the issuance of $8.4 billion of general obligation bonds to make
capital investments.
In January 1993, the City announced a settlement with a
coalition of municipal unions, including Local 237 of the International
Brotherhood of Teamsters, District Council 37 of the American Federation of
State, County and Municipal Employees and other unions covering approximately
44% of the City's workforce. The settlement, which has been ratified by the
unions, includes a total net expenditure increase of 8.25% over a 39-month
period, ending March 31, 1995 for most of these employees. The City is
presently bargaining with the Correction Officers' Benevolent Association and
the Sanitation Officers' Association. In addition, the Transit Police
Benevolent Association's delegate body rejected a tentative settlement with
the City. The contract dispute is currently being arbitrated before the
State's Public Employment Relations Board. Moreover, a contract dispute
between the City and the Licensed Practical Nurses is currently in arbitration
before the City's Office of Collective Bargaining.
The Financial Plan provides no additional wage increases for
City employees after their contracts expire in the 1995 and 1996 fiscal years.
Each 1% wage increase for all employees commencing in the 1995 and 1996 fiscal
years would cost the City an additional $28 million for the 1995 fiscal year,
$140 million for the 1996 fiscal year and $150 million each year thereafter
above the amounts provided for in the Financial Plan.
Various actions proposed in the Financial Plan, including
the proposed increase in State aid, are subject to approval by the Governor
and the State Legislature, and the proposed increase in Federal aid is subject
to approval by Congress and the President. State and Federal actions are
uncertain and no assurance can be given that such actions will in fact be
taken or that the savings that the City projects will result from these
actions will be realized. The State Legislature failed to approve a
substantial portion of the proposed State assumption of Medicaid costs in the
last session. The Financial Plan assumes that these proposals will be approved
by the State Legislature during the 1995 fiscal year and that the Federal
government will increase its share of funding for the Medicaid program. If
these measures cannot be implemented, the City will be required to take other
actions to decrease expenditures or increase revenues to maintain a balanced
financial plan.
Although the City has maintained balanced budgets in each of
its last thirteen fiscal years, and is projected to achieve balanced operating
results for the 1995 fiscal year, there can be no assurance that the
gap-closing actions proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax
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increases and reductions in essential City services could adversely affect the
City's economic base.
The 1995-1998 Financial Plan is based on numerous
assumptions, including the continuing improvement in the City's and the
region's economy and a modest employment recovery during calendar year 1994
and the concomitant receipt of economically sensitive tax revenues in the
amounts projected. The 1995-1998 Financial Plan is subject to various other
uncertainties and contingencies relating to, among other factors, the extent,
if any, to which wage increases for City employees exceed the annual increases
assumed for the 1995 through 1998 fiscal years; continuation of the 9%
interest earnings assumptions for pension-fund assets and current assumptions
with respect to wages for City employees affecting the City's required pension
fund contributions; the willingness and ability of the State, in the context
of the State's current financial condition, to provide the aid contemplated by
the Financial Plan and to take various other actions to assist the City,
including the proposed State takeover of certain Medicaid costs and State
mandate relief; the ability of the Health and Hospitals Corporation ("HHC"),
BOE and other such agencies to maintain balanced budgets; the willingness of
the Federal government to provide Federal aid; approval of the proposed
continuation of the personal income tax surcharge; adoption of the City's
budgets by the City Council in substantially the forms submitted by the Mayor;
the ability of the City 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, and the success with which the
City controls expenditures; savings for health care costs for City employees
in the amounts projected in the Financial Plan; additional expenditures that
may be incurred due to the requirements of certain legislation requiring
minimum levels of funding for education; the impact on real estate tax
revenues of the current weakness in the real estate market; the City's ability
to market its securities successfully in the public credit markets; and
additional expenditures that may be incurred as a result of deterioration in
the condition of the City's infrastructure. Certain of these assumptions have
been questioned by the City Comptroller and other public officials.
The projections and assumptions contained in the 1995-1998
Financial Plan are subject to revision which may involve substantial change,
and no assurance can be given that these estimates and projections, which
include actions which the City expects will be taken but which are not within
the City's control, will be realized.
From time to time, the Control Board staff, the Municipal
Assistance Corporation for the City of New York ("MAC"), Office of the State
Deputy Comptroller ("OSDC"), the City Comptroller and others issue reports and
make public statements regarding the City's financial condition, commenting
on, among other matters, the City's financial plans, projected revenues and
expenditures and actions by the City to eliminate projected operating
deficits. Some of these reports and statements have warned that the City may
have underestimated certain expenditures and overestimated certain revenues
and have suggested that the City may not have adequately provided for future
contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have
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questioned whether the City has the capacity to generate sufficient revenues
in the future to meet the costs of its expenditure increases and to provide
necessary services. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment.
On May 16, 1995, the City Comptroller issued a report on the
secondary effects on the City budget of proposed cuts in City and State
spending outlined in the Financial Plan. The report noted that the savings
projected in the Financial Plan from the proposed spending cuts assume that
people deprived of one service will not require another, possibly more
expensive, service. For example, the report noted that, depending on
behavioral changes by institutions and individuals as a result of such
proposals, proposed reductions in home health care could be offset by
increased utilization of nursing homes or hospitals; proposed reductions in
foster boarding care through voluntary agencies and day care could be offset
by increased costs in foster care; proposed reductions in State mental health
facilities and community mental health programs will result in a greater
number of patients in HHC hospitals; proposed reductions in rent supplement
payments and home relief could be offset by increased costs for homeless
shelters; and proposed reductions in Medicaid spending, will result in the
loss of between 34,000 and 61,000 jobs and $270 million in tax revenues, as
well as greater welfare costs for the increased number of unemployed. The
report noted that the City's current fiscal problems are as serious as those
which the City faced in the mid-1970s, and may be more difficult to solve,
since the City's economy remains weak and the State and Federal governments
are reducing support for the City.
On March 7, 1995, the City Comptroller issued a report on
the Financial Plan submitted to the Control Board in February, 1995 (the
"February Financial Plan"), which concluded that the budget gap for the 1996
fiscal year, before implementation of the gap-closing actions proposed in the
February Financial Plan, may be between $338 million and $538 million greater
than set forth in the February Financial Plan.
With respect to the City's $2.7 billion gap-closing program
for the 1996 fiscal year, the report noted that a substantial number of the
proposed actions are beyond the control of the City, including proposed State
aid and mandate relief, proposed Federal aid, and proposed productivity
efficiencies and labor initiatives to be negotiated with the City's labor
unions. The report noted that portions of the Governor's entitlement relief
proposals face opposition in the State Assembly; and that certain proposals
may require Federal legislative action or waivers. In addition, the report
noted the possible need for the City to close a substantial budget deficit at
HHC resulting from anticipated reductions in Medicaid revenues, depending on
the results of the State budget and the preparation by HHC of a plan to
implement such reductions. The report also noted that the BOE needs to
identify approximately $255 million in additional gap-closing initiatives for
the 1996 fiscal year and $690 million and $765 million of savings initiatives
in the 1997 fiscal year and 1998 fiscal year, respectively, a substantial
portion of which require State action. The report concluded that, with actions
still to be taken on the Federal and State budgets, the proposed budget for
the 1996 fiscal year is subject to significant revision.
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In early December 1994, the City Comptroller issued a report
which noted that the City is currently seeking to develop and implement plans
which will satisfy the Federal Environmental Protection Agency that the water
supplied by the City watershed areas does not need to be filtered. The City
Comptroller noted that, if the City is ordered to build filtration plants,
they could cost as much as $4.57 billion to construct, with annual debt
service and operating costs of more than $500 million, leading to a water rate
increase of 45%.
On March 17, 1995, the staff of the Control Board issued a
report reviewing the February Financial Plan. With respect to the 1995 fiscal
year, the report noted that the City must still achieve a number of ambitious
gap-closing actions within a limited time frame, including additional work
force reductions and the receipt of $120 million from the sale of certain
upstate jails. In addition, the report noted that there were risks to the 1995
fiscal year of $209 million, primarily as a result of possible overspending at
the BOE and the inability of the BOE to implement proposed actions to reduce
the budget gap. With respect to the 1996 through 1998 fiscal years, the report
identified risks of $486 million, $897 million and $1.2 billion, respectively.
In addition, the report noted that the February Financial Plan reflected
substantial initiatives which are dependent upon actions outside the City's
control, including (i) initiatives contained in the State Executive Budget of
approximately $800 million in the 1996 fiscal year; and (ii) proposed
productivity efficiencies and labor initiatives to be negotiated with the
City's unions totaling $600 million, $400 million and $200 million in the 1996
through 1998 fiscal years, respectively. Moreover, the report noted that
expenditures for the City are projected to exceed the rate of inflation by the
1998 fiscal year, while projected revenues are unable to maintain growth at
the rate of inflation, which opens a gap between revenues and expenditures
beginning in the 1997 fiscal year, even assuming successful implementation of
the $2.7 billion gap-closing program for the 1996 fiscal year. The report
noted that the City's mature local economy cannot be expected to generate
significant growth until the City's competitive position is gradually repaired
through the comparative slow growth in rents, taxes and the cost of living in
general.
On March 21, 1995, OSDC issued a report reviewing the
February Financial Plan for fiscal years 1996 through 1998. The report noted
that the $2.7 billion budget gap projected by the City for the 1996 fiscal
year is the largest gap, both in absolute terms and as a percent of City-fund
revenues, faced by the City in at least 15 years. In addition, the report
noted that the projected budget gaps could be greater than forecast by the
City by $288 million, $318 million and $247 million in the 1996 through 1998
fiscal years, respectively, primarily due to uncertainty concerning
anticipated health insurance savings and overtime costs in the uniformed
agencies, as well as slightly lower than projected tax revenues. The report
identified a number of additional risks that could raise the projected budget
gaps by another $382 million, $682 million and $715 million for the 1996
through 1998 fiscal years, respectively. These risks include the expiration of
the 14% personal income tax surcharge which the February Financial Plan
assumes will be extended by the State, unfunded liabilities at BOE, and the
potential for higher pension costs. The report
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noted that these risks could be partially offset by annual savings of $150
million from overestimating prior years' expense.
With respect to the City's proposed $2.7 billion gap-closing
program for the 1996 fiscal year, the report noted that it relies to a very
large degree on the cooperation of the Federal and State governments and the
municipal unions, and that the City has direct control of less than $500
million of the total gap-closing measures. The gap-closing plan specifically
assumes (i) an increase in the Federal Medicaid reimbursement rate, reducing
the City's costs by $123 million; (ii) that the State budget will include
initiatives worth approximately $800 million that will help the City achieve
savings in its Medicaid and public assistance programs, which are facing heavy
opposition in the State Assembly; (iii) that the BOE will reduce projected
City-funded spending by $500 million; and (iv) that the City's municipal
unions will provide $600 million in savings from negotiations. The report
noted that the current economic outlook for the City is weakened by the sharp
downturn in the bond market in 1994 and by the Federal Reserve's policy of
raising interest rates to dampen national economic growth. The report
concluded that if the gap-closing program for the 1996 fiscal year is
successfully implemented it would greatly reduce the cost of City government;
nonetheless, projected spending would still outpace the projected growth in
revenues, indicating continued structural imbalance in the 1997 and 1998
fiscal years.
A substantial portion of the capital improvements in the
City are financed by indebtedness issued by MAC. MAC was organized in 1975 to
provide financing assistance to the City and also to exercise certain review
functions with respect to the City's finances. MAC bonds are payable out of
certain State sales and compensating use taxes imposed within the City, State
stock transfer taxes and per capita State aid to the City. Any balance from
these sources after meeting MAC debt service and reserve fund requirements and
paying MAC's operating expenses is remitted to the City or, in the case of the
stock transfer taxes, rebated to the taxpayers. The State is not, however,
obligated to continue the imposition of such taxes or to continue
appropriation of the revenues therefrom to MAC, nor is the State obligated to
continue to appropriate the State per capita aid to the City which would be
required to pay the debt service on certain MAC obligations. MAC has no taxing
power and MAC bonds do not create an enforceable obligation of either the
State or the City. As of September 30, 1994, MAC had outstanding an aggregate
of approximately $4.885 billion of its bonds.
On July 10, 1995, Standard & Poor's reduced its rating of
the City's general obligation bonds from A- to BBB+. The City's general
obligation bonds are rated Baa1 by Moody's. Fitch Investors Service, Inc.
("Fitch") has rated them A-. Such ratings reflect only the view of Moody's,
Standard & Poor's and Fitch, from which an explanation of the significance of
such ratings may be obtained. There is no assurance that such ratings will
continue for any given period of time or that they will not be revised
downward or withdrawn entirely. Any such downward revision or withdrawal could
have an adverse effect on the market prices of the City's general obligation
bonds.
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(2) New York State and its Authorities. The State's current
fiscal year commenced on April 1, 1995, and ends on March 31, 1996, and is
referred to herein as the State's 1995-96 fiscal year. The prior fiscal year,
which ended on March 31, 1995, is referred to herein as the State's 1994-95
fiscal year. The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State
operations and other purposes, including all necessary appropriations for debt
service. The State Financial Plan for the 1994-95 fiscal year was formulated
on June 16, 1994 and is based on the State's budget as enacted by the
Legislature and signed into law by then Governor Cuomo. On February 1,
Governor Pataki presented his 1995-96 Executive Budget, containing his
recommendations for the upcoming fiscal year. The Governor's budget is
balanced on a cash basis in the General Fund (described below). However, there
can be no assurance that the Legislature will enact the proposed Executive
Budget into law, that the budget will be adopted in a more timely manner than
the prior year's budget, or that actual results will not differ materially and
adversely from the projections set forth below.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State.
The State Financial Plan is based upon forecasts of national
and State economic activity. Economic forecasts have frequently failed to
predict accurately the timing and magnitude of changes in the national and the
State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit, and the condition
of the world economy, which could have an adverse effect on the State. There
can be no assurance that the State economy will not experience results in the
current fiscal year that are worse than predicted, with corresponding material
and adverse effects on the State's projections of receipts and disbursements.
The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current Financial
Plan, and the assumptions on which they are based, are reasonable. Actual
results, however, could differ materially and adversely from the projections
set forth below, and those projections may be changed materially and adversely
from time to time.
As noted above, the financial condition of the State is
affected by several factors, including the strength of the State and regional
economy and actions of the Federal government, as well as State actions
affecting the level of receipts and disbursements. Owing to these and other
factors, the State may, in future years, face substantial potential budget
gaps resulting from a significant disparity between tax revenues projected
from a
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lower recurring receipts base and the future costs of maintaining State
programs at current levels. Any such recurring imbalance would be exacerbated
if the State were to use a significant amount of nonrecurring resources to
balance the budget in a particular fiscal year. To address a potential
imbalance for a given fiscal year, the State would be required to take actions
to increase receipts and/or reduce disbursements as it enacts the budget for
that year, and under the State Constitution the Governor is required to
propose a balanced budget each year. To correct recurring budgetary
imbalances, the State would need to take significant actions to align
recurring receipts and disbursements in future fiscal years. There can be no
assurance, however, that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
The General Fund is the general operating fund of the State
and is used to account for all financial transactions, except those required
to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to
particular purposes. In the State's 1994-95 fiscal year, the General Fund is
expected to account for approximately 52 percent of total governmental-fund
receipts and 51 percent of total governmental-fund disbursements. General Fund
moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types.
As a result of the national and regional economic recession,
the State's tax receipts for its 1991 and 1992 fiscal years were substantially
lower than projected, which resulted in reductions in State aid to localities
for the State's 1992 and 1993 fiscal years from amounts previously projected.
The State completed its 1993 fiscal year with a positive margin of $671
million in the General Fund, which was deposited into a tax refund reserve
account. The State's economy, as measured by employment, started to recover
near the start of the 1993 calendar year, continued into mid-1994 and then
virtually ceased. The state completed its 1994 fiscal year with a cash-basis
balanced budget in the State's General Fund (the major operating fund of the
State), after depositing $1.5 billion in various reserve funds.
The State's 1994-95 Financial Plan, which is based upon the
enacted State budget, projected a balanced General Fund. The State's 1994-95
Financial Plan provided the City with savings through various actions, which
include increased State education aid and State assumption of certain costs
previously paid by the City and restoration of certain prior year revenue
sharing reductions. However, the State Legislature failed to enact a
substantial portion of the proposed State assumption of local Medicaid costs,
other significant mandate relief items, and the proposed tort reform
legislation, which would have provided the City with additional savings. On
February 1, 1995, as part of his Executive Budget for the 1995- 96 fiscal
year, the Governor submitted the third quarterly update to the State Financial
Plan for the 1994-95 fiscal year. This update reflects changes to receipts and
disbursements. The update revises the projected General Fund receipts and
disbursements contained in the 1994- 95 State Financial Plan as revised by the
first and second quarterly updates issued on July 29, 1994 and October 28,
1994, respectively. The update reflected that estimates of General Fund
receipts for the 1994-95 fiscal year have been reduced by $585 million, from
the mid-
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year update, and are down $1.058 billion from the budget enacted in June 1994
(of which $227 million results from a post mid-year accounting restatement of
the State Financial Plan). Offsetting this projected loss in receipts,
however, are projected reductions of $312 million in disbursements from the
mid-year update, attributable to lower spending through the first nine months
of the fiscal year, and to the use of greater than anticipated receipts from
the State lottery. The net result of the projected reductions in receipts and
disbursements is a negative margin of $273 million against the mid-year
update's projection of a $14 million surplus, producing a potential deficit of
$259 million for the 1994-95 fiscal year. The Governor has proposed to close
this deficit through a hiring freeze, a review of pending contracts, and
spending cuts in certain programs that were started or expanded in the 1994-95
budget. Governor Pataki submitted a proposed budget for the State's 1995-96
fiscal year on February 1, 1995. The Governor's budget for the 1995-96 fiscal
year included significant savings from Medicaid cost containment measures and
welfare reform and substantial reductions in State aid to localities,
including the City. The 1995-96 Executive Budget is the first to be submitted
by the Governor, who assumed office on January 1. It proposes actual
reductions in the year-over-year dollar levels of State spending from the
General Fund for the first time in over half a century with a proposed cut of
3.4 percent. There are, however, risks and uncertainties concerning whether or
not certain tax and spending cuts proposed in the Executive Budget will be
upheld in the face of potential legal challenges. For example, there can be no
assurance that cuts in social-welfare entitlement programs will not be
challenged in court. Further, the Comptroller has indicated his intention to
challenge in Court the proposed use of certain pension reserves in the
Executive Budget.
According to the Executive Budget, in the 1995-96 fiscal
year, the State Financial Plan would be out of balance by almost $4.7 billion,
as a result of three key factors: (1) the projected structural deficit
resulting from the ongoing disparity between sluggish growth in receipts, the
effect of prior-year tax changes, and the rapid acceleration of spending
growth ($2.1 billion); (2) the impact of unfunded 1994-95 initiatives,
including capital projects such as sports and recreational facilities, an
increase in revenue sharing to local governments, further State takeover of
local Medicaid costs, more school aid, and increased tuition assistance ($1.1
billion); and (3) the use of one-time solutions to fund recurring spending in
the 1994-95 budget ($1.5 billion). Tax cuts proposed to spur economic growth
and provide relief for low and middle-income tax payers add $240 million to
the projected imbalance or budget gap, bringing the total to approximately $5
billion.
The Executive Budget proposes to close the budget gap for
the 1995-96 fiscal year through (1) $1.9 billion from cost containment savings
in social-welfare programs, particularly Medicaid cost-containment
recommendations ($1.277 billion), Income-Maintenance restructuring
recommendations ($340 million), and the consolidation of various child-care
programs into a Family Services Block Grant to counties and New York City; (2)
$2.5 billion in savings from State agency restructuring that is expected to
reduce spending on the State workforce, SUNY and CUNY, mental hygiene
programs, capital projects, the prison population, and public authorities; (3)
$350 million in savings from local assistance reforms, by freezing school aid,
revenue sharing and county costs of pre-school special
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education at current levels, while proposing program legislation to provide
relief from certain mandates that increase local spending; and (4) $200
million in new revenue measures, primarily a new Quick Draw Lottery game and
changes to tax-payment schedules. The Executive Budget indicates that for
years State revenues have grown at a slower rate than State spending,
producing an increasing structural deficit, and that if the proposals in the
Executive Budget are upheld (particularly the spending cuts described above)
the State will start to eliminate the structural imbalance that has
characterized the State's fiscal record. There can, however, be no assurances
that the tax and spending cuts proposed in the Executive Budget will be upheld
or enacted as proposed, or that if enacted, will eliminate potential
imbalances in future fiscal years.
As expected, the Governor's proposals will engender
substantial public debate which will continue until the enactment of the
budget by the State legislature, which as expected did not occur before April
1, 1995. However, no assurance can be given as to the amount of savings which
the City might realize from any such cost containment measures or welfare
reform or the size of any such reductions in State aid to the City. Depending
upon the amount of such savings or the size of any such reductions in State
aid, the City might be required to make substantial additional changes in the
Financial Plan.
In certain prior fiscal years, the State has failed to enact
a budget prior to the beginning of the State's fiscal year. The delay in the
adoption of the State's budget could delay the projected receipt by the City
of State aid, and there can be no assurance that State budgets in future
fiscal years will be adopted by the April 1 statutory deadline.
As a result of various uncertainties and other factors,
including consumer attitudes toward spending, Federal financial and monetary
policies, the availability of credit and the condition of the world economy,
actual results could differ materially and adversely from the State's current
projections and the State's projections could be materially and adversely
changed from time to time.
On January 13, 1992, Standard & Poor's reduced its ratings
of 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 December
12, 1994, 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 December 12, 1994, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness.
The fiscal stability of the State is related to the fiscal
stability of its authorities, which generally have responsibility for
financing, constructing and operating revenue producing public benefit
facilities. The authorities are not subject to the constitutional
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restrictions on the incurrence of debt which apply to the State itself and may
issue bonds and notes within the amounts of, and as otherwise restricted by,
their legislative authorization. As of September 30, 1992, there were 18
authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 authorities was $63.5
billion as of September 30, 1993. As of March 31, 1994, aggregate public
authority debt outstanding as State-supported debt was $21.1 billion and as
State-related debt was $29.4 billion.
The authorities are generally supported by revenues
generated by the projects financed or operated, such as fares, user fees on
bridges, highway tolls and rentals for dormitory rooms and housing. In recent
years, however, the State has provided financial assistance through
appropriations, in some cases of a recurring nature, to certain of the 18
authorities for operating and other expenses and in fulfillment of its
commitments on moral obligation indebtedness or otherwise for debt service.
This assistance is expected to continue to be required in future years.
The Metropolitan Transit Authority ("MTA"), a State agency,
oversees the operation of the City's subway and bus system by its affiliates,
the New York City Transit Authority and Bronx Surface Transit Operating
Authority (collectively, the "TA") and commuter rail and bus lines serving the
New York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and MTA depends heavily upon a system of
State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the
extent available, Federal support. Over the past several years, the State has
enacted several taxes, including a surcharge on the profits of banks,
insurance corporations and general business corporations doing business in the
12-county region served by the MTA and a special one-quarter of 1% regional
sales and use tax, that provide additional revenues for mass transit purposes
including assistance to the MTA. The surcharge, which expires in November
1995, yielded $507 million in calendar year 1992, of which the MTA was
entitled to receive approximately 90% or approximately $456 million. For the
1994-95 State fiscal year, total State assistance to the MTA is estimated at
approximately $1.3 billion.
In 1993, State legislation authorized the funding of a
five-year $9.56 billion MTA capital plan for the five-year period, 1992
through 1996 (the "1992-96 Capital Program"). The MTA has received approval of
the 1992-96 Capital Program based on this legislation from the 1992-96 Capital
Program Review Board, as State law requires. This is the third five-year plan
since the Legislature authorized procedures for the adoption, approval and
amendment of a five-year plan in 1981 for a capital program designed to
upgrade the performance of the MTA's transportation system and to supplement,
replace and rehabilitate facilities and equipment. The MTA, the TBTA and the
TA are collectively authorized to issue an aggregate of $3.1 billion of bonds
(net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through the dedication of State petroleum business taxes.
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There can be no assurance that all the necessary
governmental actions for the Capital Program will be taken, that funding
sources currently identified will not be decreased or eliminated, or that the
1992-96 Capital Program, or parts thereof, will not be delayed or reduced.
Furthermore, the power of the MTA to issue certain bonds expected to be
supported by the appropriation of State petroleum business taxes is currently
the subject of a court challenge. If the Capital Program is delayed or
reduced, ridership and fare revenues may decline, which could, among other
things, impair the MTA's ability to meet its operating expenses without
additional State assistance.
The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and the
Authorities to obtain financing in the public credit markets and the market
price of the State's outstanding bonds and notes may be adversely affected.
The Housing Finance Agency ("HFA") and the Urban Development Corporation
("UDC") have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or
other, Authorities in the future. In addition, certain statutory arrangements
provide for State local assistance payments otherwise payable to localities to
be made under certain circumstances to certain Authorities. The State has no
obligation to provide additional assistance to localities whose local
assistance payments have been paid to Authorities under these arrangements.
However, in the event that such local assistance payments are so diverted, the
affected localities could seek additional State funds.
(3) Litigation. A number of court actions have been brought
involving State finances. The court actions in which the State is a defendant
generally involve state programs and miscellaneous tort, real property, and
contract claims and the monetary damages sought are substantial. Adverse
development in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced State Financial Plan in
the current fiscal year or thereafter.
In addition to the proceedings noted below, the State is
party to other claims and litigation which its legal counsel has advised are
not probable of adverse court decisions. Although the amounts of potential
losses, if any, are not presently determinable, it is the State's opinion that
its ultimate liability in these cases is not expected to have a material
adverse effect on the State's financial position in the current fiscal year or
thereafter.
On May 31, 1988 the United States Supreme Court took
jurisdiction of a claim of the State of Delaware that certain unclaimed
dividends, interest and other distributions made by issuers of securities and
held by New York-based brokers incorporated in Delaware for beneficial owners
who cannot be identified or located, had been, and were being, wrongfully
taken by the State of New York pursuant to New York's Abandoned Property Law
(State of Delaware v. State of New York, United States Supreme Court). All 50
states and the District of Columbia moved to intervene, claiming a portion of
such distributions and similar property taken by the State of New York from
New York-based banks and
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depositories incorporated in Delaware. In a decision dated March 30, 1993, the
Court granted all pending motions of the states and the District of Columbia
to intervene and remanded the case to a Special Master for further proceedings
consistent with the Court's decision. The Court determined that the abandoned
property should be remitted first to the state of the beneficial owner's last
known address, if ascertainable, and, if not, then to the state of
incorporation of the intermediary bank, broker or depository. New York and
Delaware have executed a settlement agreement which provides for payments by
New York to Delaware of $35 million in the State's 1993-94 fiscal year and
five annual payments thereafter of $33 million. New York and Massachusetts
have executed a settlement agreement which provides for aggregate payments by
New York of $23 million, payable over five consecutive years. The claims of
the other states and the District of Columbia remain.
Among the more significant of these claims still pending
against the State at various procedural stages, are those that challenge: (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to the State of certain land in central New York; (2)
certain aspects of the State's Medicaid rates and regulations, including
reimbursements to providers of mandatory and optional Medicaid services; (3)
contamination in the Love Canal area of Niagara Falls; (4) an action against
State and New York City officials alleging that the present level of shelter
allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (5) challenges to the practice of
reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (6) a challenge to the methods by which the
State reimburses localities for the administrative costs of food stamp
programs; (7) alleged responsibility of State officials to assist in remedying
racial segregation in the City of Yonkers; (8) an action in which the State is
a third party defendant, for injunctive or other appropriate relief,
concerning liability for the maintenance of stone groins constructed along
certain areas of Long Island's shoreline; (9) an action challenging
legislation enacted in 1990 which had the effect of deferring certain employer
contributions to the State Teachers' Retirement System and reducing State aid
to school districts by a like amount; (10) a challenge to the
constitutionality of financing programs of the Thruway Authority authorized by
Chapters 166 and 410 of the Laws of 1991; (11) a challenge to the
constitutionality of financing programs of the MTA and the Thruway Authority
authorized by Chapter 56 of the Laws of 1993; (12) challenges to the delay by
the State Department of Social Services in making two one-week Medicaid
payments to the service providers; (13) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of The Laws of 1992 which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers; (14) challenges to the promulgation of the State's
proposed procedure to determine the eligibility for and nature of home care
services for Medicaid recipients; (15) a challenge to State implementation of
a program which reduces Medicaid benefits to certain home-relief recipients;
(16) challenges to the rationality and retroactive application of State
regulations recalibrating nursing home Medicaid rates; and (17) a challenge by
AT&T to New York Tax Law ss. 186-a(2-a) as violative of the commerce clause of
the U.S. Constitution.
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General Considerations
Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that the Trust
will retain for any length of time its present size and composition. The
inclusion of unrated Bonds in certain Series of the Trust may result in less
flexibility in their disposal and a loss to the Trust upon their disposition.
Except as described in footnotes to "Summary of Essential Financial
Information" in Part I of this Prospectus, interest accrues to the benefit of
Unitholders commencing with the expected date of settlement for purchase of
the Units. Neither the Sponsors nor the Trustee shall be liable in any way for
any default, failure or defect in any Security.
The following paragraphs discuss the characteristics of the
Bonds in the Trust and of certain types of issuers of the Bonds in the Trust.
See "Special Factors Concerning the Portfolio" in Part I of this Prospectus.
These paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments of principal of
and interest on Bonds held in the portfolio of the Trust or which may
adversely affect the ratings of such Bonds. An investment in Units of the
Trust should be made with an understanding of the risks that such an
investment may entail, certain of which are described below. Unit holders may
obtain additional information concerning a particular Bond by requesting an
official statement from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws, and an entity's credit will
depend on many factors, including potential erosion of the tax base due to
population declines, natural disasters, declines in the state's industrial
base or inability to attract new industries; economic limits on the ability to
tax without eroding the tax base; state legislative proposals or voter
initiatives to limit ad valorem real property taxes; and the extent to which
the entity relies on Federal or state aid, access to capital markets or other
factors beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease
purchase obligations as a means for financing the acquisition of capital
projects (e.g., buildings or equipment, among other things). Such obligations
are often made subject to annual appropriations. Certain Series of the Trust
may contain Bonds in the portfolio that are, in whole or in part, subject to
and dependent upon (1) the governmental entity making appropriations from time
to time or (2) the continued existence of special temporary taxes which
require legislative action for their reimposition. The availability of any
appropriation is subject to the
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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
rates and increasing construction and operating costs may reduce revenues
available to pay existing obligations.
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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
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them, physicians' confidence in hospital management capability, economic
developments in the service area, competition, actions by insurers and
governmental agencies and the increased cost and possible unavailability of
malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from federal or state programs such as Medicare and
Medicaid which have been revised substantially in recent years and which are
undergoing further review at the state and federal level.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care costs are
under consideration in Congress and many states. Future legislation or changes
in the areas noted above, among other things, would affect all hospitals to
varying degrees and, accordingly, any adverse change in these areas may affect
the ability of such issuers to make payment of principal and interest on such
bonds.
Higher Education Revenue Bonds. Higher education revenue
bonds include debt of state and private colleges, universities and systems,
and parental and student loan obligations. The ability of universities and
colleges to meet their obligations is dependent upon various factors,
including the revenues, costs and enrollment levels of the institutions. In
addition, their ability may be affected by declines in Federal, state and
alumni financial support, fluctuations in interest rates and construction
costs, increased maintenance and energy costs, failure or inability to raise
tuition or room charges and adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the
pollution control facilities category include securities issued on behalf of a
private corporation,* 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.
- --------
* 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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Solid Waste and Resource Recovery Revenue Bonds. Bonds in
this category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and
revenues derived from the collection of charges for disposal of solid waste.
Repayment of resource recovery bonds may also be dependent to various degrees
on revenues from the sale of electric energy or steam. Bonds in this category
may be subject to mandatory redemption in the event of project non-completion,
if the project is rendered uneconomical or if it is considered an
environmental hazard.
Transportation Revenue Bonds. Bonds in this category include
bonds issued for airport facilities, bridges, turnpikes, port authorities,
railroad systems or mass transit systems. Generally, airport facility revenue
bonds are payable from and secured by the revenues derived from the ownership
and operation of a particular airport. Payment on other transportation bonds
is often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of 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
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payable under the issuer's arrangements with the users or the corporate
operator of a particular project have been assigned and pledged to the holders
of the private activity bonds. In certain cases a mortgage on the underlying
project has been assigned to the holders of the private activity bonds or a
trustee as additional security. In addition, private activity bonds are
frequently directly guaranteed by the corporate operator of the project or by
another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds
secured primarily or solely by receipt of certain state or local taxes,
including sales and use taxes or excise taxes. Consequently, such bonds may be
subject to fluctuations in the collection of such taxes. Such bonds do not
include tax increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also
contain revenue bonds which are payable from and secured primarily or solely
by revenues from the ownership and operation of particular facilities, such as
correctional facilities, parking facilities, convention centers, arenas,
museums and other facilities owned or used by a charitable entity. Payment on
bonds related to such facilities is, therefore, primarily or solely dependent
on revenues from such projects, including user fees, charges and rents. Such
revenues may be affected adversely by increased construction and maintenance
costs or taxes, decreased use, competition from alternative facilities,
reduction or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are
secured by direct obligations of the U.S. Government or, in some cases,
obligations guaranteed by the U.S. Government, placed in an escrow account
maintained by an independent trustee until maturity or a predetermined
redemption date. In a few isolated instances to date, bonds which were thought
to be escrowed to maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected
by general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1993, approximately 86% of Puerto Rico's exports were to the United States
mainland, which was also the source of 69% of Puerto Rico's imports. In fiscal
1993, Puerto Rico experienced a $2.5 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, 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
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response to and paralleling the expansion of the manufacturing sector. Since
fiscal 1987, personal income has increased consistently in each fiscal year.
In fiscal 1993, aggregate personal income was $24.1 billion ($20.6 billion in
1987 prices) and personal income per capita was $6,760 ($5,767 in 1987
prices). Real personal income showed a small decrease in fiscal 1991
principally as a result of a decline in real transfer payments. 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 1993 were $5.3 billion, of
which $3.6 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 1994 averaged 1,011,000. Unemployment,
although at a low level compared to the late 1970s, remains above the average
for the United States. In fiscal 1994, the unemployment rate in Puerto Rico
was 15.9%. Puerto Rico's decade-long economic expansion continued throughout
the five-year period from fiscal 1989 through fiscal 1993. Almost every sector
of its economy was affected and record levels of employment were achieved.
Factors behind this expansion include Commonwealth sponsored economic
development programs, the relatively stable prices of oil imports, the
continued growth of the United States economy, periodic declines in exchange
value of the United States dollar and the relatively low cost of borrowing
during the period. Real gross product amounted to approximately $20.07 billion
in fiscal 1993, or 3.1% above the fiscal 1992 level. The Puerto Rico Planning
Board's economic activity index, a composite index for thirteen economic
indicators, increased 1.6% in fiscal 1994 compared to fiscal 1993, which
period showed a decrease of 1.4% over fiscal 1992. Growth in the Puerto Rico
economy in fiscal 1994 and 1995 depends on several factors, including the
state of the United States economy and the relative stability in the price of
oil imports, the exchange value of the U.S.
dollar and the cost of borrowing.
Bonds Backed by Letters of Credit
Certain Series of the Trust may contain Bonds that are
secured by letters of credit issued by a commercial bank. Each letter of
credit is necessary to the Sponsors' conclusion that the related Bonds are
"investment grade" and necessary to enhance the liquidity of the related Bonds
in the secondary market. Each letter of credit will be drawn upon to make
payments of amounts due on the related Bonds. The letters of credit are
irrevocable obligations of the issuing institutions, which are subject to
extensive governmental regulations that may limit both the amounts and types
of loans and other financial commitments that may be made and interest rates
and fees which may be charged. The profitability of financial institutions is
largely dependent upon the availability and cost of funds for the purpose of
financing lending operations under prevailing money market conditions. Also,
general economic conditions play an important part in the operations of the
banking industry in general. Exposure to credit losses arising from possible
financial difficulties of borrowers might affect an institution's ability to
meet its obligations with respect to letters of credit issued by it, which may
in turn affect the evaluation of bonds backed by those letters of credit. As a
result of a general review of the banking industry,
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Standard & Poor's Corporation reduced its ratings on securities of several
major domestic and foreign banks in January 1984, and explained that its
actions reflected increased risk and uncertainty created by several critical
factors facing banking organizations in the U.S., Europe and Asia. These
factors include declines in asset quality, both for U.S. and non-U.S. banks,
stemming from persistent international lending problems as well as domestic
problem loan portfolios. Among other concerns influencing ratings,
particularly for U.S. banks, are structural changes related to deregulation of
financial institutions, an intensified competitive environment, an
accelerating rate of acquisitions and resulting pressures on financial
leverage. These factors also affect bank holding companies and other financial
institutions which may not be as highly regulated as banks and may be more
able to expand more readily into other non-financial and non-traditional
businesses.
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.
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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
site 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 and "Summary of Essential Financial
Information" in Part I of this Prospectus contain a listing of the sinking
fund and call provisions, if any, with respect to each of the Bonds therein.
Other Matters
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
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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: (a) the Bonds have been called for redemption or funds
or securities have been placed in escrow to redeem them on an earlier call
date, in which case such call date will be deemed to be the date upon which
they mature; or (b) such Bonds are subject to a "mandatory tender", in which
case such mandatory tender will be deemed to be the date upon which they
mature. 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 of Percentage 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%
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.
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Certain commercial banks are making Units of the Trust
available to their customers on an agency basis. A portion of the sales charge
discussed above is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units;
however, the Glass-Steagall Act does permit certain agency transactions, and
banking regulators have not indicated that these particular agency
transactions are not permitted under such Act.
Market for Units
Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the Units and to
continuously offer to purchase Units at prices based on the aggregate bid
price of the Securities. The Sponsors' Repurchase Price shall be not less than
the Redemption Price plus accrued interest through the expected date of
settlement. See "Rights of Unit Holders--Redemption--Computation of Redemption
Price per Unit." There is no sales charge incurred when a Unit holder sells
Units back to the Sponsors. Any Units repurchased by the Sponsors may be
reoffered to the public by the Sponsors at the Public Offering Price at the
time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for
some other business reason, the Sponsors may discontinue purchases of Units of
such Series at prices based on the aggregate bid price of the Securities. The
Sponsors do not in any way guarantee the enforceability, marketability or
price of any Security in the portfolio 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.
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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.
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.
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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.
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"), depending upon the date of issuance of the Bonds in any
particular Series. Interest income on certain of the Bonds is, however, in the
opinion of bond counsel to the issuing governmental authorities, to be treated
as a preference item in the computation of the alternative minimum tax for
both certain individuals and corporations.
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.
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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%); (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.
Non-corporate taxpayers are subject to the alternative
minimum tax (the "AMT") to the extent such tax exceeds their regular Federal
income tax liability. For taxable years beginning on or after January 1, 1987,
the AMT is imposed at a rate of 21% on alternative minimum taxable income
("AMTI") that exceeds a certain exemption amount. AMTI includes regular
taxable income determined with certain adjustments and increased by tax
preference items, including, among others, the following: (1) interest on
specified Private Activity Bonds issued generally after August 7, 1986; (2)
the excess of regular tax depreciation over alternative tax depreciation for
both real and personal property; (3) percentage depletion in excess of the
adjusted basis of depletable property; and (4) the amount of untaxed
appreciation on the contribution of appreciated property to a charity.
The 21% rate is imposed on AMTI in excess of $40,000 for
taxpayers filing joint returns, $30,000 for single individuals and $20,000 for
married individuals filing separately. These exemption amounts, however, will
be reduced $0.25 for every $1.00 by which AMTI exceeds the following amounts:
$150,000 in the case of married individuals filing jointly; $112,500 in the
case of single individuals; and $75,000 in the case of married individuals
filing separately.
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For taxable years beginning after December 31, 1986, the
Code changes the corporate minimum tax from an add-on tax to an alternative
minimum tax at a rate of 20%. The AMT will apply to a base which includes
regular taxable income determined with certain adjustments and increased by
tax preference items. The AMT will be payable to the extent that 20% of AMTI
in excess of an exemption amount ($40,000, but subject to a phase-out
provision so that the exemption amount is zero if AMTI exceeds $310,000)
exceeds the regular tax liability of the corporate taxpayer. The items of tax
preference that constitute AMTI include but are not limited to the following:
(a) interest on specified Private Activity Bonds issued generally after August
7, 1986; (b) in the case of certain financial institutions, the excess of the
deduction allowable for the taxable year for a reasonable addition to a bad
debt reserve over the amount that would have been allowable had the financial
institution maintained its bad debt reserve for all taxable years on the basis
of actual experience; and (c) a "book income" preference, which is 50% of the
excess of (i) the taxpayer's pre-tax adjusted net book income over (ii) AMTI
(determined without regard to the "book income" preference and prior to
reduction by net operating losses). For taxable years beginning after 1989,
the "book income" preference will be replaced by 75% of the excess (if any) of
(x) adjusted current earnings (as defined in the Code) over (y) AMTI
(determined without regard to the "adjusted current earnings" preference and
prior to reduction by net operating losses).
THE FOREGOING IS NOT INTENDED AS LEGAL OR TAX ADVICE AND INVESTORS ARE URGED
TO CONSULT THEIR ACCOUNTANTS OR TAX ADVISORS IN DETERMINING THEIR EXPOSURE TO
AMT LIABILITY AND APPLICABLE RULES AND REGULATIONS.
The Superfund Revenue Act of 1986 (the "Superfund Act")
imposes a deductible, broad-based tax on a corporation's alternative minimum
taxable income (before net operating losses and any deduction for the tax) at
a rate of $12 per $10,000 (0.12%) of alternative minimum taxable income in
excess of $2,000,000. The tax is imposed for tax years beginning after 1986
and beginning before 1996 and is applicable even if the corporation pays no
alternative minimum tax. For purposes of the Superfund Act, alternative
minimum taxable income includes interest on all tax-exempt bonds to the same
extent and in the same manner as the Code. The Superfund Act does not impose a
tax on taxpayers other than corporations.
Section 86 of the Code provides that a portion of social
security benefits is 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 added
to adjusted gross income for purposes of determining whether an individual's
income exceeds the base amount described above.
In addition, certain "S Corporations" may be subject to
minimum tax on certain passive income, including tax-exempt interest, such as
interest on the Bonds.
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At the time of the original issuance of the Bonds held by
the Trust, opinions relating to the validity of the Bonds and the exemption of
interest thereon from 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. One issue of Bonds in Series A
of the Trust (portfolio number 10) was issued after the effective date of the
Tax Act but before the release of the Conference Committee Report relating to
the Tax Act. As a result, bond counsel's opinion may not have addressed the
tax-exempt status of such Bonds under the Tax Act as signed into law but
rather was based on a preliminary outline of the bill that eventually became
the Tax Act.
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
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purchase of Units may be considered to have been made with borrowed funds even
though the borrowed funds are not directly traceable to the purchase of Units.
Similar rules are applicable for purposes of state and local taxation. Also,
under Section 291 of the Code, certain financial institutions that acquired
Units on or before August 7, 1986 may be subject to a reduction in the amount
of interest expense that would otherwise be allowable as a deduction for
Federal income tax purposes. Subject to certain exceptions under Section 265
of the Code, no deduction is allowed to a financial institution for that
portion of the institution's interest expense allocable to tax-exempt interest
on Units acquired after August 7, 1986. Investors with questions regarding
this issue should consult their tax advisors.
The Trust may contain Bonds issued with original issue
discount. The Code requires holders of tax-exempt obligations issued with
original issue discount, such as the Trust, to accrue tax-exempt original
issue discount by using the constant interest method provided for the holders
of taxable obligations and to increase the basis of a tax-exempt obligation by
the amount of accrued tax-exempt original issue discount. These provisions are
applicable to obligations issued after September 3, 1982 and acquired after
March 1, 1984. The Trust's tax basis in a Bond is increased by any accrued
original issue discount as is a Unit holder's tax basis in his Units. For
Bonds issued on or after June 9, 1980 that are redeemed prior to maturity, the
difference between the Trust's basis, as adjusted, and the amount received
will be taxable gain or loss to the Unit holders.
Unit holders should consult their tax advisors with respect
to the state and local tax consequences of owning original issue discount
bonds. It is possible that, under applicable provisions governing
determination of such state and local taxes, interest on tax-exempt bonds such
as any Bonds issued with original issue discount may be deemed to be received
in the year of accrual even though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a
Bond exceeds his pro rata interest in the Bond's face amount, the Unit holder
will be considered to have purchased his pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating
to his pro rata interest in a Bond prior to the maturity of the Bond.
Amortization of premium on a Bond will reduce a Unit holder's tax basis for
his pro rata interest in the Bond, but will not result in any deduction from
the Unit holder's income. Thus, for example, a Unit holder who purchases a pro
rata interest in a Bond at a premium and resells it at the same price will
recognize taxable gain equal to the portion of the premium that was amortized
during the period the Unit holder is considered to have held such interest.
For obligations issued on or before September 27, 1985, bond
premium must be amortized under the method the Unit holder regularly employs
for amortizing bond premium (assuming such method is reasonable) or,
otherwise, on a straight-line basis. Thus, if a Unit holder has previously
amortized bond premium with respect to other bonds (whether tax-exempt or
taxable) on a straight-line basis, the Unit holder may be prohibited from
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adopting a more favorable method of amortizing bond premium such as a constant
interest method. For obligations issued after September 27, 1985, amortizable
bond premium must be computed on the basis of the Unit holder's yield to
maturity, determined by using the Unit holder's basis for the Bond,
compounding at the close of each "accrual period" (as defined in Section
1272(a)(5) of the Code). With respect to any tax-exempt bond, the amount of
bond premium is determined with reference to the amount of the basis of such
bond and the total amount payable at maturity or on an earlier call date. If
the amount payable on an earlier call date is used in determining the
amortizable bond premium attributable to the period before the earlier call
date, such bond shall be treated as maturing on such date for the amount so
payable and then reissued on such date for the amount so payable.
The exemption of interest on municipal obligations for
Federal income tax purposes does not necessarily result in exemption under the
income tax laws of any state or local government. Interest income derived from
the Bonds is not excluded from net income in determining New York State or New
York City franchise taxes on corporations or financial institutions. The laws
of such states and local governments vary with respect to the taxation of such
obligations.
From time to time proposals have been introduced before
Congress, the purpose of which is to restrict or eliminate the Federal income
tax exemption for interest on debt obligations similar to the Bonds in the
Trust, and it can be expected that similar proposals may be introduced in the
future. The Sponsors cannot predict whether additional legislation, if any, in
respect of the Federal income tax status of interest on debt obligations may
be enacted and 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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RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates
executed by the Trustee and the Sponsors. The Trustee is authorized to treat
as the record owner of Units that person who is registered as such owner on
the books of the Trustee. Certificates are transferable by presentation and
surrender to the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or
any multiple thereof. A Unit holder may be required to pay $2.00 per
certificate reissued or transferred and to pay any governmental charge that
may be imposed in connection with each such transfer or interchange. For new
certificates issued to replace destroyed, stolen or lost certificates, the
Unit holder must furnish indemnity satisfactory to the Trustee and must pay
such expenses as the Trustee may incur. Mutilated certificates must be
surrendered to the Trustee for replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly,
depending on the method of distribution chosen, principal, including capital
gains, will be distributed only semi-annually; provided, however, that, other
than for purposes of redemption, no distribution need be made from the
Principal Account if the balance therein is less than $1.00 per Unit then
outstanding, and that, if at any time the pro rata share represented by the
Units of cash in the Principal Account exceeds $10.00 as of a Monthly Record
Date, the Trustee shall, on the next succeeding Monthly Distribution Date,
distribute the Unit holder's pro rata share of the balance of the Principal
Account. Interest (semi-annually or monthly) and principal, including capital
gains, if any (semi-annually), received by the Trust will be distributed on
each Distribution Date to Unit holders of record of the Trust as of the
preceding Record Date who are entitled to such distributions at that time
under the plan of distribution chosen. All distributions will be net of
applicable expenses and funds required for the redemption of Units. See
"Summary of Essential Financial Information" in Part I of this Prospectus,
"The Trust--Expenses and Charges" and "Rights of Unit Holders--Redemption."
The Trustee will credit to the Interest Account for the
Trust all interest received by the Trust, including that part of the proceeds
of any disposition of Securities which represents accrued interest. Other
receipts of the Trust will be credited to the Principal Account for the Trust.
The pro rata share of the Interest Account of the Trust and the pro rata share
of cash in the Principal Account of the Trust represented by each Unit thereof
will be computed by the Trustee each month as of the Record Date. See "Summary
of Essential Financial Information" in Part I of this Prospectus. Proceeds
received from the disposition of any of the Securities subsequent to a Record
Date and prior to the next
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<PAGE>
succeeding Distribution Date will be held in the Principal Account for the
Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as
of the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan
of distribution. No distribution need be made from the Principal Account if
the balance therein is less than an amount sufficient to distribute $1.00 per
Unit.
The difference between the estimated net interest accrued to
the first Record Date and to the related Distribution Date is an asset of the
respective Unit holder and will be realized in subsequent distributions or
upon the earlier of the sale of such Units or the maturity, redemption or sale
of Securities in the Trust.
The plan of distribution selected by a Unit holder will
remain in effect until changed. Unit holders purchasing Units in the secondary
market will initially receive distributions in accordance with the election of
the prior owner. Each April, the Trustee will furnish each Unit holder a card
to be returned together with the Certificate by May 15 of such year if the
Unit holder desires to change his plan of distribution, and the change will
become effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units."
As of the fifteenth day of each month the Trustee will
deduct from the Interest Account and, to the extent funds are not sufficient
therein, from the Principal Account, amounts necessary to pay the expenses of
the Trust as of the first day of such month. See "The Trust--Expenses and
Charges." The Trustee also may withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part
of the Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the Trustee may
withdraw from the Interest Account and the Principal Account such amounts as
may be necessary to cover redemption of Units by the Trustee. See "Rights of
Unit Holders--Redemption." Funds which are available for future distributions,
payments of expenses and redemptions are in accounts which are non-interest
bearing to the Unit holders and are available for use by the Trustee pursuant
to normal banking procedures.
Because interest on Securities in the Trust is payable at
varying intervals, usually in semi-annual installments, the interest accruing
to the Trust will not be equal to the amount of money received and available
monthly for distribution from the Interest Account to Unit holders choosing
the monthly payment plan. 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
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<PAGE>
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
At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the cost of the
initial preparation, printing and execution of the Trust Agreement and the
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
Fees
The Trustee's, 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
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<PAGE>
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.
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,
redemptions of Units and the balance remaining after such distributions and
deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest), deductions for payments of applicable taxes and for
fees and expenses of the Trust, redemptions of Units, the amount of any "when
issued" interest treated as a return of capital and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and
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<PAGE>
as a dollar amount representing the pro rata share of each Unit outstanding on
the last business day of such calendar year; (3) a list of the Securities held
and the number of Units outstanding on the last business day of such calendar
year; (4) the Redemption price per Unit based upon the last computation
thereof made during such calendar year; and (5) amounts actually distributed
during such calendar year from the Interest Account and from the Principal
Account, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit
holders, at all reasonable times during usual business hours, books of record
and account of its transactions as Trustee including records of the names and
addresses of Unit holders, certificates issued or held, a current list of
Securities in the portfolio 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.
Within seven calendar days following such tender or, if the
seventh calendar day is not a business day, on the first business day prior
thereto, the Unit holder will be entitled to receive in cash an amount for
each Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time set forth in Part I of this Prospectus under "Summary of
Essential Financial Information" as of the next subsequent Evaluation Time.
See "Redemption--Computation of Redemption Price per Unit." The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time on the New
York Stock Exchange, the date of
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<PAGE>
tender is the next day on which such Exchange is open for trading or the next
day on which there is a sufficient degree of trading in Units of the Trust,
and such Units will be deemed to have been tendered to the Trustee on such day
for redemption at the Redemption Price computed on that day. For information
relating to the purchase by the Sponsors of Units tendered to the Trustee for
redemption at prices in excess of the Redemption Price, see
"Redemption--Purchase by the Sponsors of Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from
the Interest Account or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Securities in
order to make funds available for redemption. Such sales, if required, could
result in a sale of Securities by the Trustee at a loss. To the extent
Securities are sold, the size and diversity of the Trust will be reduced.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption Price per
Unit for any period during which the New York Stock Exchange is closed, other
than weekend and holiday closings, or during which trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission by rule or regulation) an emergency exists as a result of which
disposal or evaluation of the underlying Bonds is not reasonably practicable,
or for such other periods as the Securities and Exchange Commission has by
order permitted.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee
on the basis of the bid prices of the Securities in the Trust, as of the
Evaluation Time stated under "Summary of Essential Financial Information" in
Part I of this Prospectus on the day any such determination is made. The
Redemption Price per Unit is each Unit's pro rata share, determined by the
Trustee, of (1) the aggregate value of the Securities in the Trust (determined
by the Evaluator as set forth below), 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.
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
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<PAGE>
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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<PAGE>
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan")
with Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits
Unit holders of the Trust to elect to have distributions from Units in the
Trust automatically reinvested in shares of the Empire Builder. The Empire
Builder is an open-end, non-diversified investment company whose investment
objective is to seek as high a level of current income exempt from Federal
income tax, 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
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<PAGE>
each will have the right to terminate this Plan at any time for any reason.
The reinvestment of distributions from the Trust through the Plan will not
affect the income tax status of such distributions. For more complete
information about investing in the Empire Builder through the Plan, including
charges and expenses, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust Division, P.O. Box 988, Wall Street
Station, New York, New York 10268. Read it carefully before you decide to
participate.
290277.1
<PAGE>
[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 Moodys' (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
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[ALTERNATE PAGE]
preceding the next succeeding distribution date, by so notifying the Plan
Agent in writing, elect to terminate his participation in the Plan and receive
future distributions on his Units in cash. There will be no charge or other
penalty for such termination. The Sponsors, the Trustee, the Bond Fund and
Lebenthal & Co. Inc., as manager for the Bond Fund, each will have the right
to terminate this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the Bond Fund through the Plan, including charges and expenses, request a copy
of the Bond Fund Prospectus from The Bank of New York, Unit Investment Trust
Division, P.O. Box 988, Wall Street Station, New York, New York 10268. Read it
carefully before you decide to participate.
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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 Municipal Insured National Trusts and for the prior Series of
Empire State Municipal Exempt Trust (including those sold under the name of
Municipal Exempt Trust, New York Exempt Series 1, New York Series 2 and New
York Series 3). Glickenhaus, in addition to participating as a member of
various selling groups of other investment companies, executes orders on
behalf of investment companies for the purchase and sale of securities of such
companies and sells securities to such companies in its capacity as a broker
or dealer in securities. The principal offices of Glickenhaus are located at 6
East 43rd Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a
New York partnership in 1925, has been buying and selling municipal bonds for
its own account as a dealer for over 67 years; Lebenthal also buys and sells
securities as an agent and participates as an underwriter in public offerings
of municipal bonds. It acted as a sponsor 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. To the extent that
Bonds are sold which are current in payment of principal and
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interest in order to meet redemption requests and Defaulted Bonds are retained
in the portfolio, the overall value of the Bonds remaining in the Trust's
portfolio will tend to diminish. 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.
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.
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
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<PAGE>
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, 1994, the total partners' capital of
Glickenhaus was $112,898,000 (audited); and at March 31, 1995, the total
stockholders' equity of Lebenthal was $3,561,506 (audited).
The foregoing information with regard to the Sponsors
relates to the Sponsors only, and not to any series of Empire State Municipal
Exempt Trust. Such information is included in this Prospectus only for the
purpose of informing investors as to the financial responsibility of the
Sponsors and their ability to carry out their contractual obligations shown
herein. More comprehensive financial information can be obtained upon request
from any Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company
organized under the laws of New York, having its offices at 101 Barclay
Street, New York, New York 10286, (212) 815-2000. The Bank of New York is
subject to supervision and examination by the Superintendent of Banks of the
State of New York and the Board of Governors of the Federal Reserve System,
and its deposits are insured by the Federal Deposit Insurance Corporation to
the extent permitted by law. The Trustee must be a corporation organized under
the laws of the United States or the State of New York, which is authorized
under such laws to exercise corporate trust powers, and must have at all times
an aggregate capital, surplus and undivided profits of not less than
$5,000,000 and its principal office and place of business in the Borough of
Manhattan, New York City. The duties of the Trustee are primarily ministerial
in nature. The Trustee did not participate in the selection of Securities for
the portfolio of any Series of the Trust.
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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.
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<PAGE>
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations by the Evaluator under the Trust Agreement shall be
made in good faith upon the basis of the best information available to it;
provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or the Unit holders for errors in judgment. This
provision shall not protect the Evaluator in cases of its willful misconduct,
bad faith, gross negligence or reckless disregard of its obligations and
duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day after the
initial offering period, when any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsors. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering prices, see "Public
Offering--Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors
and the Trustee, and the Sponsors and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor
evaluator. If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the Evaluator may
apply to a court of competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the
Trust Agreement without the consent of any of the Unit holders when such an
amendment is (1) to cure any ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders; and the Sponsors
and the Trustee may amend the Trust Agreement with the consent of the holders
of certificates evidencing 66-2/3% of the Units then outstanding, provided
that no such amendment will reduce the interest in a Trust of any Unit holder
without the consent of such Unit holder or reduce the percentage of Units
required to consent to any such amendment without the consent of all the Unit
holders. In no event shall the Trust Agreement be amended to increase the
number of Units issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
initially deposited in the Trust, except in accordance with the provisions of
the Trust Agreement. In
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<PAGE>
the event of any amendment, the Trustee is obligated to notify promptly all
Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption,
sale or other disposition, as the case may be, of the last of the Securities.
The Trustee shall notify all Unit holders when the value of the Trust as shown
by any evaluation is less than $2,000,000 or less than 20% of the value of the
Trust as of the Date of Deposit, whichever is lower, at which time the Trust
may be terminated (i) by the consent of the holders of 66-2/3% of the Units or
(ii) by the Trustee; provided, however, that the holders of at least 33-1/3%
of the Units may instruct the Trustee not to terminate the Trust. In no event,
however, may the Trust continue beyond the Mandatory Termination Date set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information." In the event of termination, written notice thereof will be sent
by the Trustee to all Unit holders. Within a reasonable period after
termination, the Trustee will sell any remaining Securities and, after paying
all expenses and charges incurred by the Trust, will distribute to each Unit
holder, upon surrender for cancellation of his certificate for Units, his pro
rata share of the balances remaining in the Interest and Principal Accounts of
the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Brown & Wood,
One World Trade Center, New York, New York 10048, as special counsel for the
Sponsors. Tanner, Propp, Fersko & Sterner, 99 Park Avenue, New York, New York
10016, acts as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public auditors, as stated in their report with respect thereto, and are
included therein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
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.
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<PAGE>
The ratings are based on current information furnished to
Standard & Poor's by the issuer and obtained by Standard & Poor's from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement
under the laws of bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues only in
small degree.
A: Bonds rated "A" have a strong capacity to pay interest
and repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
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<PAGE>
Plus (+) or Minus (-): To provide more detailed indications
of credit quality, the ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own judgment with
respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation as a
matter of policy.
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's Investors Service, Inc. ("Moody's") rating. A summary of the meaning
of the applicable rating symbols as published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise
what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in "Aaa"
securities.
A: Bonds which are rated "A" possess many favorable Investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security
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<PAGE>
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.
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<PAGE>
----------------------------
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 UNICIPAL EXEMPT TRUST
Trust has filed with the Securities and Exchange EMPIRE MAXIMUS
Commission, Washington, D.C. under the
Securities Act of 1933 and the Investment Company
Act of 1940, and to which reference is hereby
made. AMT SERIES
- ------------------------------------------------
INDEX PROSPECTUS, PART II
- ------------------------------------------------
Page
Sponsors:
The Trust.................................... 1
Public Offering.. ......................... 29 GLICKENHAUS & CO.
6 East 43rd Street
Estimated Current Return and Estimated New York, New York 10017
Long-Term Return to Unit Holders... ..... 31 (212) 953-7532
Tax Status.... .............................. 32
LEBENTHAL & CO., INC.
Rights of Unit Holders....................... 38 120 Broadway
New York, New York 10272
Automatic Accumulation Account............... 45 (212)425-6116
Sponsors .................................... 52
Trustee...................................... 55
Evaluator.................................... 56
Amendment and Termination of the
Trust Agreement........................... 57
Legal Opinions............................... 58
Auditors..................................... 58
Description of Bond Ratings.................. 58
- ------------------------------------------------
No person is authorized to give any information or
to make any representaions 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 consitute an offer to sell,
or a solicitation of an offer to buy, securities in
any state to any person to whom it is not lawful
to make such offer in such state.
- ------------------------------------------------ ----------------------------
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration 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:
Consent of Independent Auditors.
Consent of Brown & Wood (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.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Amendment No. 1
to Form S-6 Registration Statement No. 33-58492 of Empire
State Municipal Exempt Trust, Guaranteed Series 95 on May
12, 1993, and as Exhibit 5.2(a) to Amendment No. 1 to Form
S-6 Registration Statement No. 33-78036 of MINT Group 11 on
May 3, 1994, and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 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
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Empire Maximus Amt Series A,
certifies that it has 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 registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and
State of New York on the 24th day of July, 1995.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
EMPIRE MAXIMUS AMT SERIES A
(Registrant)
GLICKENHAUS & CO.
(Depositor)
By:/s/ Brian C. Laux
(Authorized Signator)
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
ROBERT SANTORO* General Partner )
)
ALFRED FEINMAN* General Partner ) July 24, 1995
)
)
SETH M. GLICKENHAUS* General Partner )
) By:/s/ Brian C. Laux
STEVEN B. GREEN* General Partner, ) Attorney-in-Fact*
Chief Financial Officer )
)
ARTHUR WINSTON* General Partner )
)
JEFFREY L. LEDERER* General Partner )
)
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Amendment No. 1 to Registration Statement No. 33-58492 on May 12, 1993
and as Exhibit 5.2(a) to Amendment No. 1 to Registration Statement No.
33-78036 on May 3, 1994.
II-2
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Empire Maximus Amt Series A,
certifies that it has 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 registrant has duly caused this Post-
Effective Amendment to the Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of New York and
State of New York on the 21st day of July, 1995.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
EMPIRE MAXIMUS AMT SERIES A
(Registrant)
LEBENTHAL & CO., INC.
(Depositor)
By:/s/ Alexandra Lebenthal
(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 )
) July 21, 1995
JEFFREY M. JAMES* Director )
)
D. WARREN KAUFMAN* Director )
) By: /s/ Alexandra Lebenthal
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.
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<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 Trustees of
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
We hereby consent to the use in Post-Effective Amendment No. 8 to
Registration Statement No. 33-12107 of our opinion dated April 28, 1995
relating to the financial statements of Empire State Municipal Exempt Trust,
Empire Maximus AMT Series A, and to the reference to our firm under the
heading "Auditors" in the Prospectus which is a part of such Registration
Statement.
BDO SEIDMAN, LLP
New York, New York
July 31, 1995
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<PAGE>
Exhibit Description Page No.
*99.5.1 -- Consent of the Evaluator including
Confirmation of Ratings.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Amendment
No. 1 to Form S-6 Registration Statement No. 33-
58492 of Empire State Municipal Exempt Trust,
Guaranteed Series 95 on May 12, 1993, and as Exhibit
5.2(a) to Amendment No. 1 to Form S-6 Registration
Statement No. 33-78036 of MINT Group 11 on May 3,
1994, and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and
certain officers of Lebenthal & Co., Inc. (filed as
Exhibit 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.
C/M: 10726.0053 287686.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial information
extracted from the financial statements and
supporting schedules as of the end of the most
current period and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000810908
<NAME> ESMET, MAX A
<S> <C>
<FISCAL-YEAR-END> Mar-31-1995
<PERIOD-START> Apr-1-1994
<PERIOD-END> Mar-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 17979772
<INVESTMENTS-AT-VALUE> 18053597
<RECEIVABLES> 467120
<ASSETS-OTHER> 5311
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18573828
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2125
<TOTAL-LIABILITIES> 2125
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 26324
<SHARES-COMMON-PRIOR> 27169
<ACCUMULATED-NII-CURRENT> 516523
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (152862)
<NET-ASSETS> 18571703
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1340185
<OTHER-INCOME> 0
<EXPENSES-NET> 33935
<NET-INVESTMENT-INCOME> 1306250
<REALIZED-GAINS-CURRENT> (69308)
<APPREC-INCREASE-CURRENT> (152862)
<NET-CHANGE-FROM-OPS> 1084080
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1337629
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1450401
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 845
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1703950)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 620.84
<PER-SHARE-NII> 49.62
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<PER-SHARE-DIVIDEND> 50.81
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Muller Data Corporation
A Thomson Financial Services Company
395 Hudson Street
New York, NY 10014-3622
July 15, 1995
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
25 Broadway
New York, New York 10006
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
Empire Maximus Amt Series A - Post-effective Amendment No. 8
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-12107 for the above captioned trust. We
hereby acknowledge that Muller Data Corporation is currently
acting as the evaluator for the trust. We hereby consent to the
use in the Amendment of the reference to Muller Data Corporation
as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above referenced Amendment to the Registration Statement for the
respective bond comprising the trust portfolio are the ratings
currently indicated in our Muniview data base.
You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Sincerely,
Mario S. Buscemi
Chief Operating Officer
MSB:tg
290069.1
