As filed with the Securities and Exchange Commission on July 29, 1997
Registration No. 33-12107
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 10
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/ July 31, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
===============================================================================
287686.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
Prospectus, Part I 22,595 Units Dated: July 31, 1997
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of April 30, 1997
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, 1997. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining,
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."
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."
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid price
of the Securities in the Trust divided by the number of Units outstanding, plus
a sales charge determined on the basis of the maturities of the Securities in
the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do so,
intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, EMPIRE MAXIMUS AMT SERIES A
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1997
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 12,635,000
Number of Units: 22,595
Fractional Undivided Interest in the Trust Per Unit: 1/22,595
Total Value of Securities in the Portfolio (Based on Bid Side
Evaluations of Securities): $ 12,426,784.01
==================
Sponsors' Repurchase Price Per Unit: $ 549.98
Plus Sales Charge(1): 11.84
------------------
Public Offering Price Per Unit(2): $ 561.82
==================
Redemption Price Per Unit(3): $ 549.98
Excess of Public Offering Price Over Redemption Price Per Unit: $ 11.84
Weighted Average Maturity of Bonds in the Trust: 19.356 years
</TABLE>
<TABLE>
<S> <C>
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
</TABLE>
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, EMPIRE MAXIMUS AMT SERIES A
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1997
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
------- -----------
<S> <C> <C>
P Estimated Annual Interest Income: $37.81 $37.81
E Less Estimated Annual Expenses 2.03 1.63
------- -------
R Estimated Net Annual Interest Income: $35.78 $36.18
====== ======
U Estimated Interest Distribution: $ 2.98 $18.09
N Estimated Current Return Based on Public Offering Price (4): 6.37% 6.44%
I
Estimated Long-Term Return Based on Public Offering Price (5): 5.36% 5.43%
T
Estimated Daily Rate of Net Interest Accrual: $.09939 $.10050
Record Dates: 15th Day of Month 15th Day of May
and November
Payment Dates: 1st Day of Month 1st Day of June
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, 1997, the expected date of settlement, of
$7.88 monthly and $23.00 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities. Upon
tender for redemption, the price to be paid will include accrued interest as
described in Part II under "Rights of Unit Holders -- Redemption
--Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net annual
interest income received in cash per Unit by the Public Offering Price.
Interest income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual
only, does not include discount accretion on original issue discount bonds
or on zero coupon bonds or premium amortization on bonds purchased at a
premium. See "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes into
account the yields (including accretion of discounts and amortization of
premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part II of this
Prospectus.
-3-
<PAGE>
Portfolio Information
---------------------
On March 31, 1997, the bid side valuation of 25.5% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 74.5% was at a premium over par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
----------------------------------------
The Portfolio consists of 11 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. 9.0% 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. 91.0% of the aggregate principal amount of the
Bonds in the Portfolio are payable from the income of specific projects or
authorities and are not supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary 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 (9.0%); Revenue: Housing,
1 (24.1%); Water and Sewer, 1 (9.3%); Industrial Development, 2 (50.2%); and
Transportation, 1 (7.4%). The Trust is deemed to be concentrated in the
Industrial Development Bonds category.1 Five issues, constituting 24.9% of the
Bonds in the Portfolio, are original issue discount bonds. On March 31, 1997, 1
issue (38.0%) was rated A+ and 2 issues (7.5%) were rated BBB+ by Standard &
Poor's Corporation; 1 issue (24.1%) was rated Aa, 5 issues (8.9%) were rated A2
and 1 (9.3%) issue was rated A by Moody's Investors Service, Inc.2; and 1 issue
(12.2%) was not rated. 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.
-4-
<PAGE>
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on
a sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. 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).
-5-
<PAGE>
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, 1997, and the related statements of operations and
changes in net assets for the years ended March 31, 1997, 1996 and 1995. These
financial statements are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1997, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Empire Maximus AMT Series A as of March 31, 1997, and the results of its
operations and changes in net assets for the years ended March 31, 1997, 1996
and 1995, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 30, 1997
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENT OF NET ASSETS
MARCH 31, 1997
================================
CASH.............................................. $ 79,796
INVESTMENTS IN SECURITIES, at market
value (cost $12,089,316).......................... 12,379,115
ACCRUED INTEREST RECEIVABLE....................... 364,789
--------------
Total trust property...................... 12,823,700
LESS - ACCRUED EXPENSES........................... 1,930
--------------
NET ASSETS........................................ $12,821,770
==============
NET ASSETS REPRESENTED BY:
<TABLE>
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
------------ ------------ -----------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS..................................... $7,854,214 $4,606,925 $12,461,139
UNDISTRIBUTED NET INVESTMENT
INCOME........................................ 179,526 181,105 360,631
----------- ----------- ------------
Total value................................ $8,033,740 $4,788,030 $12,821,770
========== ========== ===========
UNITS OUTSTANDING................................ 14,280 8,376 22,656
============ ============ =============
VALUE PER UNIT................................... $ 562.58 $ 571.63
============ ===========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended March 31,
---------------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST.............................. $993,796 $1,259,085 $1,340,185
-------- ---------- ----------
EXPENSES:
Trustee fees 22,631 24,655 25,090
Evaluation fees.......................................... 2,097 2,423 2,431
Sponsors' advisory fees.................................. 2,855 4,306 4,614
Auditors' fees........................................... 1,946 1,800 1,800
--------- ------------ ------------
Total expenses....................................... 29,529 33,184 33,935
--------- ------------ ------------
NET INVESTMENT INCOME..................................... 964,267 1,225,901 1,306,250
REALIZED LOSS ON SECURITIES SOLD OR
REDEEMED (Note 3)........................................ (347,071) (25,201) (69,308)
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION).............................. 260,471 6,469 (152,862)
--------- ------------ -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................................... $877,667 $1,207,169 $1,084,080
======== ========== ==========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------
1997 1996 1995
--------------- ----------------- ----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 964,267 $ 1,225,901 $ 1,306,250
Realized loss on securities sold or redeemed.............. (347,071) (25,201) (69,308)
Net change in unrealized market appreciation
(depreciation).......................................... 260,471 6,469 (152,862)
------------- -------------- --------------
Net increase in net assets resulting from
operations............................................ 877,667 1,207,169 1,084,080
------------- ------------- -------------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income..................................... (1,092,606) (1,253,454) (1,337,629)
Principal................................................. (3,134,774) - (863,711)
------------- ---------------- --------------
Total distributions................................... (4,227,380) (1,253,454) (2,201,340)
------------- -------------- -------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 2,110, 1,558 and 845 units.................. (1,277,563) (1,076,372) (586,690)
------------- -------------- ---------------
NET DECREASE IN NET ASSETS................................. (4,627,276) (1,122,657) (1,703,950)
NET ASSETS:
Beginning of year......................................... 17,449,046 18,571,703 20,275,653
----------- ------------ ------------
End of year............................................... $12,821,770 $17,449,046 $18,571,703
=========== =========== ===========
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan............................................ $ 43.47 $ 47.52 $ 48.81
Semi-annual plan........................................ $ 46.80 $ 48.09 $ 49.87
Principal:
Monthly plan............................................ $131.22 $ - $ 32.17
Semi-annual plan...................................... $131.22 $ - $ 32.17
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
General
-------
The Trust is registered under the Investment Company Act of 1940.
Securities
----------
Securities are stated at bid side market value as determined by an
independent outside evaluator.
Taxes on income
---------------
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
NOTE 2 - DISTRIBUTIONS
- ----------------------
Interest received by the Trust is distributed to Unit holders either
semi-annually on the first day of June and December or, if elected by the Unit
holder, on the first day of each month, after deducting applicable expenses.
Principal distributions, resulting from the sale or redemption of securities,
were made in May 1994, December 1994, June 1996, September 1996 and December
1996.
NOTE 3 - BONDS SOLD OR REDEEMED
- -------------------------------
<TABLE>
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- ------- -------- -------- ----------- ------------ ---- -------
Year ended March 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
8 $330,000 5/22/96 Municipal Assistance Corporation for The $ 336,270 $ 346,500 $ (10,230)
City of New York (A Public Benefit
Corporation of the State of New York),
Series 58 Bonds
8 115,000 7/1/96 Municipal Assistance Corporation for The 117,300 120,750 (3,450)
City of New York (A Public Benefit
Corporation of the State of New York),
Series 58 Bonds
9 50,000 7/8/96 The City of New York, General Obligation 50,640 56,730 (6,090)
Bonds, Fiscal 1986 Series D
9 2,585,000 8/1/96 The City of New York, General Obligation 2,636,700 2,932,941 (296,241)
Bonds, Fiscal 1986 Series D
10 70,000 8/30/96 Metropolitan Transportation Authority 65,275 57,735 7,540
Transit Facilities Revenue Bonds,
Series G
</TABLE>
-10-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
<TABLE>
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- ------ -------- -------- ----------- ------------ ---- -------
Year ended March 31, 1997 (continued):
<S> <C> <C> <C> <C> <C> <C>
14 $155,000 9/23/96 County of Monroe, New York, Industrial $ 154,613 $ 161,688 $ (7,075)
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)
(Note C)
12 80,000 11/1/96 New York City Industrial Development 80,000 84,098 (4,098)
Agency, Industrial Development Revenue
Bonds (1986 Micro-Tool & Fabricating
Inc. Project), payable from an irrevocable
letter of credit issued by Marine Midland
Bank, N.A. (AMT) (Note C)
14 145,000 11/1/96 County of Monroe, New York, Industrial 145,000 151,257 (6,257)
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)
(Note C)
12 500,000 11/1/96 New York City Industrial Development 500,000 525,616 (25,616)
Agency, Industrial Development Revenue
Bonds (1986 Micro-Tool & Fabricating
Inc. Project), payable from an irrevocable
letter of credit issued by Marine Midland
Bank, N.A. (AMT) (Note C)
1 70,000 11/27/96 State of New York Mortgage Agency, 71,400 70,875 525
Mortgage Revenue Bonds, Ninth Series A
(AMT) (Note C)
13 150,000 12/1/96 New York City Industrial Development 150,000 155,829 (5,829)
Agency, Industrial Development Revenue
Bonds (1986 J. Manheimer Inc. Project),
payable from an irrevocable letter of
credit issued by Marine Midland Bank,
N.A. (AMT) (Note C)
</TABLE>
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
NOTES TO FINANCIAL STATEMENTS
(Concluded)
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
- -------------------------------------------
<TABLE>
<CAPTION>
Port- Realized
folio Principal Date Gain
No. Amount Redeemed Description Net Proceeds Cost (Loss)
- ------ -------- -------- ----------- ------------ ---- -------
Year ended March 31, 1997 (continued):
<S> <C> <C> <C> <C> <C> <C>
11 $ 75,000 1/17/97 New York City Municipal Water Finance $ 66,300 $ 57,375 $ 8,925
Authority, Water and Sewer System
Revenue Bonds (Fiscal 1987 Series A)
1 110,000 3/17/97 State of New York Mortgage Agency, 112,200 111,375 825
Mortgage Revenue Bonds, Ninth Series A
(AMT)(Note C)
---------- ---------- ---------- ---------
$4,435,000 $4,485,698 $4,832,769 $(347,071)
========== ========== ========== ==========
</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 (708,833)
Principal distributions (12,087,092)
Redemption of 7,344 units (5,293,298)
Unrealized market appreciation of securities 289,799
Undistributed net investment income 360,631
------------
Net assets $ 12,821,770
============
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1997
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon of Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
----- -------- --------- ------------------ ------ ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1 Aa* $3,050,000 State of New York Mortgage 7.300% 04/01/17 10/01/98 @ 100 S.F.
Agency, Mortgage 10/01/97 @ 101 Opt.
Revenue Bonds, Ninth
Series A (AMT)(Note C)
2 A+ 4,800,000 New York State Energy 7.500 11/15/21 11/15/06 @ 100 S.F.
Research and Development 11/15/96 @ 102 Opt.
Authority, Electric
Facilities Revenue Bonds,
Series 1986 A
(Consolidated Edison
Company of New York,
Inc. Project)
(AMT)(Note C)
3 A2* 750,000 State of New York, General 3.750 03/01/13 No Sinking Fund
Obligation Serial Bonds 03/01/97 @ 102 Opt.
4 A2* 280,000 State of New York, General 3.750 03/01/12 No Sinking Fund
Obligation Serial Bonds 03/01/97 @ 102 Opt.
5 A2* 50,000 State of New York, General 3.000 10/01/12 No Sinking Fund
Obligation Bonds, Series 10/01/03 @ 100 Opt.
1973
</TABLE>
-13-
<PAGE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds March 31, Income to
No. to Trust 1997 Trust
----- --------------- ------------- ---------------
1 $ 3,088,125 $ 3,067,873 $222,650
2 4,980,000 4,907,088 360,000
3 492,930 589,755 28,125
4 185,511 223,502 10,500
5 28,326 35,761 1,500
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1997
(Continued)
<TABLE>
<CAPTION>
Port- Aggregate Date of Redemption Features
folio Rating Principal Name of Issuer and Coupon Maturity S.F. - Sinking Fund Cost of Bonds
No. (Note A) Amount Title of Bond Rate (Note B) Opt. - Optional Call to Trust
----- -------- ------- ------------------- ------- -------- -------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
6 A2* $ 25,000 State of New York, General 3.000% 10/01/16 No Sinking Fund $ 13,570
Obligation Bonds, Series 10/01/03 @ 100 Opt.
1973
7 A2* 25,000 State of New York, General 2.000 11/01/10 No Sinking Fund 11,507
Obligation Bonds, Series 11/01/96 @ 100 Opt.
1961
8 BBB+ 15,000 The City of New York, 8.500 08/01/14 No Sinking Fund 17,019
General Obligation Bonds, 08/01/96 @ 102 Opt.
Fiscal 1986 Series D
9 BBB+ 930,000 Metropolitan Transportation 5.500 07/01/16 No Sinking Fund 767,045
Authority Transit Facilities 07/01/96 @ 100 Opt.
Revenue Bonds, Series G
10 A* 1,170,000 New York City Municipal 5.000 06/15/17 06/15/15 @ 100 S.F. 895,050
Water Finance Authority, 06/15/96 @ 100 Opt.
Water and Sewer System
Revenue Bonds (Fiscal
1987 Series A)
</TABLE>
-14-
<PAGE>
Market Value
Port- as of Annual Interest
folio March 31, Income to
No. 1997 Trust
----- -------------- ---------------
6 $ 16,507 $ 750
7 16,332 500
8 15,367 1,275
9 870,703 51,150
10 1,049,104 58,500
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1997
(Continued)
<TABLE>
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Cost of Bonds
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust
- ----- -------- --------- ---------------------- -------- --------- -------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
11 NR $ 1,550,000 New York City Industrial 7.750% 12/01/01 12/01/98 @ 100 S.F. $ 1,610,233
Development Agency, 06/01/97 @ 102 Opt.
Industrial Development
Revenue Bonds (1986 J.
Manheimer Inc. Project),
payable from an
irrevocable letter of credit
issued by Marine Midland
Bank, N.A. (AMT)
(Note C)
----------- -----------
$12,645,000 $12,089,316
=========== ===========
</TABLE>
-15-
<PAGE>
Market Value
Port- as of Annual Interest
folio March 31, Income to
No. 1997 to Trust
- ----- ---------- -------------
11 $ 1,587,123 $120,125
----------- --------
$12,379,115 $855,075
=========== ========
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
EMPIRE MAXIMUS AMT SERIES A
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1997
(Continued)
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings are
by Standard & Poor's Corporation, except for those indicated by 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.
-16-
<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 gain. 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. Any gain other than any earned
original issue discount will be taxable and will not be realized until maturity,
redemption or sale of the underlying Bonds or Units.
290277.3
<PAGE>
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 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 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, a division of McGraw-Hill ("S&P") or
Moody's Investors Service, Inc. ("Moody's"), respectively, or have, in the
opinion of the Sponsors, similar credit characteristics. A Bond rated "BBB" or
- 2 -
290277.3
<PAGE>
"Baa," although investment grade, may have speculative characteristics.* The
inclusion in the portfolio of Bonds which are rated "BBB" or Baa" by S&P or
Moody's, 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.
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
- --------
* 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."
- 3 -
290277.3
<PAGE>
wealthiest states in the nation. For decades, however, the State has grown more
slowly than the nation as a whole, gradually eroding its relative economic
affluence. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high State and local
tax burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and individuals
to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately
7.3 million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and printing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, the City experienced job losses in 1990 and 1991 and real Gross
City Product (GCP) fell in those two years. Beginning in calendar year 1992, the
improvement in the national economy helped stabilize conditions in the City.
Employment losses moderated toward year-end and real GCP increased, boosted by
strong wage gains. However, after noticeable improvements in the City's economy
during calendar year 1994, economic growth sowed in calendar year 1995, and the
City's current four-year financial plan assumes that moderate economic growth
will continue through calendar year 2000, with moderating job growth and wage
increases.
For each of the 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"). The City was required to close
substantial budget gaps in recent years in order to maintain balanced operating
results. There can be no assurance that the City will continue to
- 4 -
290277.3
<PAGE>
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 New York State Financial Emergency Act for the
City of New York, the City prepares an annual four-year financial plan, which is
reviewed and revised on a quarterly basis and which includes the City's capital,
revenue and expense projections and outlines proposed gap-closing programs for
years with projected budget gaps. The City's current four-year financial plan
projects substantial budget gaps for each of the 1999 and 2000 fiscal years. The
City is required to submit its financial plans to review bodies, including the
New York State Financial Control Board ("Control Board").
The City depends on State aid both to enable the City to
balance its budget and to meet its cash requirements. There can be no assurance
that there will not be reductions in State aid to the City from amounts
currently projected or that State budgets in future fiscal years will be adopted
by the April 1 statutory deadline and that such reductions or delays will not
have adverse effects on the City's cash flow or expenditures. In addition, the
Federal Budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1997 through
2000 fiscal years (the "1997-2000 Financial Plan" or "Financial Plan"). The
City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not materialize.
Changes in major assumptions could significantly affect the City's ability to
balance its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the condition
of the regional and local economies, the impact on real estate tax revenues of
the real estate market, wage increases for City employees consistent with those
assumed in the Financial Plan, employment growth, the ability to implement
proposed reductions in City personnel and other cost reduction initiatives, the
ability of the New York City Health and Hospitals Corporation ("HHC") and the
Board of Education ("BOE") to take actions to offset reduced revenues, the
ability to complete revenue generating transactions and provision of State and
Federal aid and mandate relief, the impact on City revenues of proposals for
Federal and State welfare reform and any future legislation affecting Medicare
or other entitlements.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2000 contemplates the issuance of $4.2
billion of general obligation bonds and $4.2 billion of bonds to be issued by
the proposed New York City Infrastructure Finance Authority ("Finance
Authority") to finance City capital projects. The Finance Authority was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the amount of debt the
City is authorized to incur. In addition,
- 5 -
290277.3
<PAGE>
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, New York Municipal Water Finance Authority ("Water Authority")
bonds and Finance Authority bonds will be subject to prevailing market
conditions, and no assurance can be given that such sales will be completed. If
the City were unable to sell its general obligation bonds and notes or the Water
Authority or the Finance Authority were unable to sell its bonds, the City would
be prevented from meeting its planned capital and operating expenditures. Future
developments concerning the City and public discussion of such developments, as
well as prevailing market conditions, may affect the market for outstanding City
general obligation bonds and notes.
The City's operating results for the 1996 fiscal year were
balanced in accordance with GAAP, after taking into account a discretionary
transfer of $224 million, the sixteenth consecutive year of GAAP balanced
results. On January 30, 1997, the City submitted to the Control Board the
Financial Plan for the 1997 through 2000 fiscal years, which relates to the
City, the BOE and the City University of New York ("CUNY"). The Financial Plan
is a modification to the financial plan submitted to the Control Board on June
21, 1996 (the "June Financial Plan").
The June Financial Plan identified actions to close a
previously projected gap of approximately $2.6 billion for the 1997 fiscal year.
The proposed actions in the June Financial Plan for the 1997 fiscal year
included (i) agency actions totaling $1.2 billion; (ii) a revised tax reduction
program which would increase projected tax revenues by $369 million due to the
four year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional proposed State aid of $75 million;
(iv) the assumed receipt of revenues relating to rent payments for the City's
airports, which are currently the subject of a dispute with the Port Authority
of New York and New Jersey (the "Port Authority"); (v) the sale of the City's
television station for $207 million; and (vi) pension costs savings totaling
$134 million resulting from a proposed increase in the earnings assumption for
pension assets from 8.5% to 8.75%. In March 1997, the 12.5% personal income tax
surcharge was extended to December 31, 1998.
The 1997-2000 Financial Plan published on January 30, 1997
projects revenues and expenditures for 1997 and 1998 fiscal years balanced in
accordance with GAAP, and projects gaps of $1.9 billion and $2.7 billion for the
1999 and 2000 fiscal years, respectively. Changes in forecast revenues and
expenditures since the June Financial Plan include (i) an increase in projected
tax revenues of $571 million, $207 million, $73 million and $56 million in
fiscal years 1997 through 2000, respectively; (ii) a delay in the assumed
receipt of $304 million relating to projected rent payments for the City
airports from the 1997 fiscal year to the 1998 and 1999 fiscal years, and a $34
million reduction in assumed State and Federal aid for the 1997 Fiscal year;
(iii) an approximately $200 million to $300 million increase in projected
overtime and other expenditures in each of the fiscal years 1997 through 2000;
(iv) a $250 million increase in expenditures for BOE in the 1997 and 1998 fiscal
years for school text
- 6 -
290277.3
<PAGE>
books and other initiatives, to be funded by savings from the refunding of
outstanding indebtedness of the Municipal Assistance Corporation for the city of
New York; (v) a reduction in projected pension costs of $34 million, $50
million, $49 million and $47 million in fiscal years 1997 through 2000,
respectively; and (vi) debt service savings of $44 million in the 1998 fiscal
year resulting from the refunding of outstanding City bonds consummated in the
1997 fiscal year.
In addition, the Financial Plan sets forth gap-closing actions
to eliminate a previously projected gap of $1.4 billion for the 1998 fiscal
year, and to reduce projected gaps for the 1999 and 2000 fiscal years. The
gap-closing actions for the 1998 through 2000 fiscal years include (i)
additional agency actions totaling $558 million, $488 million and $600 million
in fiscal years 1998 through 2000; (ii) the prepayment in the 1997 fiscal year
of $391 million of debt service due in the 1998 fiscal year for $125 million;
(iii) the proposed sale of various assets including the U.N. Plaza Hotel in the
1998 fiscal year; (iv) additional State aid of $210 million in the 1998 fiscal
year and $85 million in each of the 1999 and 2000 fiscal years, including a
proposal that the State accelerate a $142 million revenue sharing payment to the
City from March 1999; and (v) entitlement savings of $415 million in the 1998
fiscal year and $364 million in each of the 1999 and 2000 fiscal years, which
would result from reductions in Medicaid spending for health care providers,
reimbursement limits and the State making available to the City $77 million of
additional Federal block grant aid, as proposed in the Governor's 1997-1998
Executive Budget on January 14, 1997. The Financial Plan does not reflect the
subsequent amendment of the 1997-1998 Executive Budget by the Governor to
restore part of the proposed reductions in Medicaid spending for health care
providers, which might reduce the projected entitlement savings for the City,
depending upon the method by which such restoration is implemented. The
gap-closing actions are partially offset by a proposed tax reduction program
totaling $250 million, $463 million and $518 million in the 1998 through 2000
fiscal years, respectively, including the proposed elimination of the 4% City
sales tax on clothing items under $500 as of December 1, 1997, which is subject
to State legislative approval.
The Financial Plan assumes (i) approval by the Governor and
the State Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1997 and is projected to provide
revenue of $169 million, $504 million and $534 million in the 1998 through 2000
fiscal years, respectively, and of the extension of the 12.5% personal income
tax surcharge, which is scheduled to expire on December 31, 1998 and is
projected to provide revenue of $190 million and $528 million in the 1999 and
2000 fiscal years, respectively; (ii) collection of the projected rent payments
for the City's airports, totaling $270 million and $180 million in the 1998 and
1999 fiscal years, respectively, which may depend on the successful completion
of negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases through pending legal actions; (iii) the ability of
HHC and BOE to identify actions to offset substantial City and State revenue
reductions and the receipt by BOE of additional State aid; and (iv) State
approval of the cost containment initiatives and State aid proposed by the City
as gap-closing actions for
- 7 -
290277.3
<PAGE>
the 1998 fiscal year, and $115 million in additional State aid which is assumed
in the Financial Plan but not provided for in the Governor's 1997-1998 Executive
Budget. The Financial Plan does not reflect any increased costs which the City
might incur as a result of welfare legislation recently enacted by Congress or
legislation proposed by the Governor, which would, if enacted, implement such
Federal welfare legislation, but does assume the entitlement savings and
additional Federal aid for localities provided in the Governor's 1997-1998
Executive Budget. Moreover, certain proposed entitlement cost containment and
other initiatives have been previously considered and rejected by the State
Legislature. The nature and extent of the impact on the City of the State
budget, when adopted, is uncertain, and no assurance can be given that the State
actions included in the State adopted budget may not have a significant adverse
impact on the City's budget and its Financial Plan. It can be expected that the
proposals contained in the Financial Plan to close the previously projected
budget gap for the 1998 fiscal year will engender substantial public debate
which will continue through the time the budget is scheduled to be adopted in
June 1997. Accordingly, the Financial Plan may be changed significantly by the
time the budget for the 1998 fiscal year is adopted. In addition, the economic
and financial condition of the City may be affected by various financial,
social, economic and political factors which could have a material effect on the
City.
The projections for the 1997 through 2000 fiscal years reflect
the costs of the settlements with the United Federation of Teachers ("UFT") and
a coalition of unions headed by District Council 37 of the American Federation
of State, County and Municipal Employees, which together represent approximately
two-thirds of the City's workforce, and assume that the City will reach
agreement with its remaining municipal unions under terms which are generally
consistent with such settlements. The settlement provides for a wage freeze in
the first two years, followed by a cumulative effective wage increase of 11% by
the end of the five year period covered by the proposed agreements, ending in
fiscal years 2000 and 2001. Additional benefit increases would raise the total
cumulative effective increase to 13% above present costs. Costs associated with
similar settlements for all City-funded employees would total $49 million, $459
million and $1.2 billion in the 1997, 1998 and 1999 fiscal years, respectively,
and exceed $2 billion in each fiscal year after the 1999 fiscal year. There can
be no assurance that the City will reach an agreement with the unions that have
not yet reached a settlement with the City on the terms contained in the
Financial Plan.
In the event of a collective bargaining impasse, the terms of
wage settlements could be determined through statutory impasse procedures, which
can impose a binding settlement except in the case of collective bargaining with
the UFT, which may be subject to non-binding arbitration. On January 23, 1996,
the City requested the Office of Collective Bargaining to declare an impasse
against the Patrolmen's Benevolent Association ("PBA") and the Uniformed
Firefighters Association ("UFA"). However, on April 7, 1997, the City reached a
tentative settlement with the UFA covering a 65-month period from January 1,
1995 to May 31, 2000. At the request of both the City and the PBA, the City's
Office of Collective Bargaining declared an impasse between the City and the PBA
on January 30, 1997.
- 8 -
290277.3
<PAGE>
However, while the parties prepare for the impasse proceeding, negotiations are
continuing, which may eliminate the need for such a proceeding.
On July 10, 1995, Standard & Poor's revised downward its
rating on City general obligation bonds from A- to BBB+ and removed City bonds
from CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
On March 1, 1996, Moody's stated that the rating for City
general obligation bonds remains under review pending the outcome of the
adoption of the City's budget for the 1997 fiscal year, and, in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
economic slowdown. Since July 15, 1993, Fitch Investors Service, L.P. ("Fitch")
has rated City bonds A-. On February 28, 1996, Fitch placed the City's general
obligation bonds on FitchAlert with negative implications. On November 5, 1996,
Fitch removed the City's general obligation bonds from FitchAlert, although
Fitch stated that the outlook remains negative.
New York State and its Authorities. The State's current fiscal
year commenced on April 1, 1996, and ends on March 31, 1997, and is referred to
herein as the State's 1996-97 fiscal year. The State's budget for the 1996-97
fiscal year was enacted by the Legislature on July 13, 1996, more than three
months after the start of the fiscal year. The State Financial Plan for the
1996-97 fiscal year was formulated on July 25, 1996 and is based on the State's
budget as enacted by the Legislature and signed into law by the Governor, as
well as actual results for the first quarter of the current fiscal year. The
State's prior fiscal year commenced on April 1, 1995, and ended on March 31,
1996, and is referred to herein as the State's 1995-96 fiscal year.
The State closed projected budget gaps of $5.0 billion and
$3.9 billion for its 1995-96 and 1996-97 fiscal years, respectively. The 1997-98
gap was projected at $1.44 billion, based on the Governor's proposed budget of
December 1995. As a result of changes made in the enacted budget, that gap is
now expected to be larger. The gap, however, is not expected to be as large as
those faced in the prior two fiscal years. The Governor has indicated that he
will propose to close any potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of scheduled
tax reductions.
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The 1996-97 State Financial Plan is projected to be balanced
on a cash basis. As compared to the Governor's proposed budget as revised on
March 20, 1996, the State's adopted budget for 1996-97 increases General Fund
spending by $842 million, primarily from increases for education, special
education and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund these
additional expenditures include $540 million in increased revenues projected for
1996-97 based on higher-than-projected tax collections during the first half of
calendar 1996, $110 million in projected receipts from a new State tax amnesty
program, and other resources including certain non-recurring resources. The
total amount of non-recurring resources included in the 1996-97 State budget is
projected by the State Division of the Budget ("DOB") to be $1.3 billion, or 3.9
percent of total General Fund receipts.
The State issued its first update to the cash-basis 1996-97
State Financial Plan (the "Mid-Year Update") on October 25, 1996. The Mid-Year
Update reflects a balanced 1996-97 State Financial Plan, with a reserve for
contingencies in the General Fund of $300 million. This reserve will be utilized
to help offset a variety of potential risks and other unexpected contingencies
that the State may face during the balance of the 1996-97 fiscal year.
The State Financial Plan is based on a June 1996 projection by
DOB of national and State economic activity. The national economy has resumed a
more robust rate of growth after a "soft landing" in 1995, with over 11 million
jobs added nationally since early 1992. The State economy has continued to
expand, but growth remains somewhat slower than in the nation. Although the
State has added approximately 240,000 jobs since late 1992, employment growth in
the State has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, defense, and banking industries.
Government downsizing has also moderated these job gains.
In its Mid-Year Update the State revised its forecast of
national and State economic activity through the end of calendar year 1997 to
reflect the stronger-than-expected growth in the first half of 1996. The
national economic forecast has been changed slightly from the initial forecast
on which the original 1996-97 State Financial Plan was based. The revised
forecast projects real Gross Domestic Product growth in the nation of 2.5
percent for 1996 and 2.4 percent in 1997. The inflation rate is expected to be
3.0 percent in 1996 and 2.9 percent in 1997. The annual rate of job growth is
expected to slow gradually to about 1.8 percent in 1997, down from 2.2 percent
in 1996. Growth in personal income and wages are expected to slow accordingly.
The State economic forecast has been changed slightly from the
one formulated with the July 1996-97 State Financial Plan. Moderate growth is
projected to continue through the second half of 1996, with employment, wages
and incomes continuing their modest rise. Personal income is projected to
increase by 5.2 percent in 1996 and 4.7 percent in 1997, reflecting robust
projected wage growth fueled in part by financial sector bonus payments.
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Overall employment growth will continue as a modest rate, reflecting the
slowdown in the national economy, continued spending restraint in government,
and restructuring in the health care and financial sectors.
The forecast for continued moderate growth, and any resultant
impact on the State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could
over- or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly from
actual growth. Similarly, the State forecast could fail to correctly account for
expected declines in government and banking employment and the direction of
employment change that is likely to accompany telecommunications deregulation.
The DOB believes that its projections of receipts and
disbursements relating to the current State Financial Plan, and the assumptions
on which they are based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth below, and those
projections may be changed materially and adversely from time to time.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections.
The General Fund is the principal operating fund of the State
and is used to account for all financial transactions, except those required to
be accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1996-97 fiscal year, the General Fund is expected to account for
approximately 47 percent of total governmental-fund receipts and 71 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
The General Fund is projected to be balanced on a cash basis
for the 1996-97 fiscal year. Actual receipts through the first two quarters of
the 1996-96 State fiscal year reflect stronger-than-expected growth in most
taxes, with actual receipts exceeding expectations by $276 million. Based on the
revised economic outlook and actual receipts for
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the first six months of 1996-97, projected General Fund receipts for the 1996-97
State fiscal year have been increased by $420 million. Most of this projected
increase is in the yield of the personal income tax ($241 million), with
additional increases now expected in business taxes ($124 million) and other tax
receipts ($49 million). Projected collections from user taxes and fees have been
revised downward slightly ($5 million). Revisions were also made to both
miscellaneous receipts and in transfers from other funds (an $11 million
combined projected increase).
Disbursements through the first six months of the fiscal year
were $415 million less than projected, primarily because of delays in processing
payments following delayed enactment of the State budget. As a result, no
savings are included in the Mid-Year Update from this slower-than-expected
spending. Projections of 1996-97 General Fund disbursements are increased by
$120 million, since increased General Fund disbursements for education are
required to replace a projected decrease in lottery receipts. This modification
is shown in the form of an increased transfer of General Fund monies to the
Lottery Fund in the Special Revenue fund type. The projected closing fund
balance in the General Fund of $337 million reflects a balance of $252 million
in the Tax Stabilization Reserve Fund (following a payment of $15 million during
the current fiscal year) and a deposit of $85 million to the Contingency Reserve
Fund.
On January 13, 1992, Standard & Poor's reduced its ratings on
the State's general obligation bonds from A to A- and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on August 5,
1996, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 26, 1996, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
Litigation. The court actions in which the State is a
defendant generally involve State programs and miscellaneous tort, real
property, and contract claims. While the ultimate outcome and fiscal impact, if
any, on the State of those proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse effect
upon the State's ability to maintain a balanced 1996-97 State Financial Plan.
The claims involving the City other than routine litigation
incidental to the performance of their governmental and other functions and
certain other litigation arise out of alleged constitutional violations, torts,
breaches of contract and other violations of law and condemnation proceedings.
While the ultimate outcome and fiscal impact, if any, on the City of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out the 1997-2000
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Financial Plan. The City has estimated that its potential future liability on
account of outstanding claims against it as of June 30, 1996 amounted to
approximately $2.8 billion.
General Considerations
Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that the Trust
will retain for any length of time its present size and composition. The
inclusion of unrated Bonds in certain Series of the Trust may result in less
flexibility in their disposal and a loss to the Trust upon their disposition.
Except as described in footnotes to "Summary of Essential Financial Information"
in Part I of this Prospectus, interest accrues to the benefit of 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.
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<PAGE>
Certain Series of the Trust may contain Bonds in the portfolio that are, in
whole or in part, subject to and dependent upon (1) the governmental entity
making appropriations from time to time or (2) the continued existence of
special temporary taxes which require legislative action for their reimposition.
The availability of any appropriation is subject to the willingness of the
governmental entity to continue to make such special appropriations or to
reimpose such special taxes. The obligation to make lease payments exists only
to the extent of the monies available to the governmental entity therefor, and
no liability is incurred by the governmental entity beyond the monies so
appropriated. Subject to the foregoing, once an annual appropriation is made,
the governmental entity's obligation to make lease rental payments is absolute
and unconditional without setoff or counterclaim, regardless of contingencies,
whether or not a given project is completed or used by the governmental entity
and notwithstanding any circumstances or occurrences which might arise. In the
event of non-appropriation, certificate holders' or bondowners' sole remedy
(absent credit enhancement) generally is limited to repossession of the
collateral for resale or releasing, and the obligation of the governmental
lessee is not backed by a pledge of the general credit of the governmental
lessee. In the event of non-appropriation, the Sponsors may instruct the Trustee
to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may
contain Bonds in the portfolio that are secured by pledged revenues and
additionally by the so-called "moral obligation" of the State or a local
governmental body. Should the pledged revenues prove insufficient, the payment
of such Bonds is not a legal obligation of the State or local government, and is
subject to its willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds". Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bond proceeds is not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Original Issue Discount and Zero Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds
may consist of obligations of state and local housing authorities whose revenues
are primarily derived from mortgage loans to housing projects for low to
moderate income families. Since such
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<PAGE>
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.
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.
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<PAGE>
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary considerably
from such projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other things, demand
for hospital services and the ability of the hospital to provide them,
physicians' confidence in hospital management capability, economic developments
in the service area, competition, actions by insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
federal or state programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at the
state and federal level.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such bonds.
Higher Education Revenue Bonds. Higher education revenue bonds
include debt of state and private colleges, universities and systems, and
parental and student loan obligations. The ability of universities and colleges
to meet their obligations is dependent upon various factors, including the
revenues, costs and enrollment levels of the institutions. In addition, their
ability may be affected by declines in Federal, state and alumni financial
support, fluctuations in interest rates and construction costs, increased
maintenance and energy costs, failure or inability to raise tuition or room
charges and adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the
pollution control facilities category include securities issued on behalf of a
private corporation,* 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
- --------
* 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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290277.3
<PAGE>
residential, commercial and industrial customers for utility services, as well
as, in some instances, connection fees and hook-up charges. Such utility revenue
bonds may be adversely affected by the lack of availability of Federal and state
grants and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this
category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and revenues
derived from the collection of charges for disposal of solid waste. Repayment of
resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be subject
to mandatory redemption in the event of project non-completion, if the project
is rendered uneconomical or if it is considered an environmental hazard.
Transportation Revenue Bonds. Bonds in this category include
bonds issued for airport facilities, bridges, turnpikes, port authorities,
railroad systems or mass transit systems. Generally, airport facility revenue
bonds are payable from and secured by the revenues derived from the ownership
and operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and licenses
and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of 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
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<PAGE>
bonds are not general obligations of governmental entities and are not backed by
the taxing power of such entities, and are solely dependent upon the
creditworthiness of the corporate user of the project or corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures pursuant to which
the revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and pledged
to the holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds
secured primarily or solely by receipt of certain state or local taxes,
including sales and use taxes or excise taxes. Consequently, such bonds may be
subject to fluctuations in the collection of such taxes. Such bonds do not
include tax increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also
contain revenue bonds which are payable from and secured primarily or solely by
revenues from the ownership and operation of particular facilities, such as
correctional facilities, parking facilities, convention centers, arenas, museums
and other facilities owned or used by a charitable entity. Payment on bonds
related to such facilities is, therefore, primarily or solely dependent on
revenues from such projects, including user fees, charges and rents. Such
revenues may be affected adversely by increased construction and maintenance
costs or taxes, decreased use, competition from alternative facilities,
reduction or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are
secured by direct obligations of the U.S. Government or, in some cases,
obligations guaranteed by the U.S. Government, placed in an escrow account
maintained by an independent trustee until maturity or a predetermined
redemption date. In a few isolated instances to date, bonds which were thought
to be escrowed to maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1995, approximately 89% of Puerto Rico's exports were to the United States
mainland, which was also the source of 65% of Puerto Rico's imports. In fiscal
1995, Puerto Rico experienced a $4.6 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased
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<PAGE>
emphasis on higher wage, high technology industries such as pharmaceuticals,
electronics, computers, microprocessors, professional and scientific
instruments, and certain high technology machinery and equipment. The service
sector, including finance, insurance and real estate, wholesale and retail
trade, and hotel and related services, also plays a major role in the economy.
It ranks second only to manufacturing in contribution to the gross domestic
product and leads all sectors in providing employment. In recent years, the
service sector has experienced significant growth in response to and paralleling
the expansion of the manufacturing sector. Since fiscal 1985, personal income,
both aggregate and per capita, has increased consistently in each fiscal year.
In fiscal 1995, aggregate personal income was $27.0 billion ($22.5 billion in
1987 prices) and personal income per capita was $7,296 ($6,074 in 1987 prices).
Personal income includes transfer payments to individuals in Puerto Rico under
various social programs. Total federal payments to Puerto Rico, which include
many types in addition to federal transfer payments, are lower on a per capita
basis in Puerto Rico than in any state. Transfer payments to individuals in
fiscal 1994 were $5.9 billion, of which $4.0 billion, or 67.6%, represent
entitlement to individuals who had previously performed services or made
contributions under programs such as Social Security, Veterans Benefits and
Medicare. The number of persons employed in Puerto Rico during fiscal 1996
averaged 1,092,300, an increase of 3.9% over fiscal 1995. The unemployment rate
in Puerto Rico for fiscal 1996 remained the same. The Puerto Rico Planning
Board's most recent gross product forecast for fiscal 1997, made in February
1996, showed an increase of 2.7%. The Planning Board's Economic Activity Index,
a composite index for thirteen economic indicators, increased 1.6 % for fiscal
1996 compared to the same period of fiscal 1995, and 2.0% for fiscal 1995,
compared to fiscal 1994. During the first three months of fiscal 1997 the Index
decreased 0.9% compared to the same period of fiscal 1996, which period showed
an increase of 1.7% over the same period of fiscal 1995. Growth in the Puerto
Rico economy in fiscal 1997 depends on several factors, including the state of
the United States economy and the relative stability in the price of oil
imports, the exchange value of the U.S. dollar, the level of federal transfers
and the cost of borrowing.
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
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<PAGE>
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, 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
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<PAGE>
tax. In addition, other litigation or other factors may arise from time to time
which potentially may impair the ability of issuers to meet obligations
undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth below,
which is based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. For the purpose of computing the
sales charge, Bonds are deemed to mature on their expressed maturity dates,
unless: (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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<PAGE>
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.
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
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<PAGE>
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.
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
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<PAGE>
assumes that each Bond is retired on its pricing life date (i.e., that date
which produces the lowest dollar price when yield price calculations are done
for each optional call date and the maturity date of a callable security). If
the Bond is retired on any optional call or maturity date other than the pricing
life date, the yield to the holder of that Bond will be greater than the initial
quoted yield. Since the market values and estimated retirements of the Bonds,
the expenses of the Trust and the Net Annual Interest Income and Public Offering
Price per Unit may change, there is no assurance that the Estimated Long-Term
Return as set forth under "Summary of Essential Financial Information" in Part I
of this Prospectus will be realized in the future.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust portfolio
is, in the opinion of bond counsel to the issuing governmental authorities,
which opinion was rendered at the time of original issuance of the Bonds,
excludable from gross income under the Internal Revenue Code of 1954, as amended
(the "1954 Code"), 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.
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 taxable
income (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 taxable income and 75% of the amount by
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<PAGE>
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 institution'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.
Corporate and non-corporate taxpayers are subject to the alternative
minimum tax (the "AMT") to the extent the "tentative minimum tax" exceeds their
"regular tax". The "regular tax" is the taxpayer's tax liability for the taxable
year, with certain adjustments. The "tentative minimum tax" is a tax on
alternative minimum taxable income (AMTI), minus an 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 after August 7, 1986; (2)
the excess of regular tax depreciation over alternative tax depreciation for
both real and personal property; and (3) percentage depletion in excess of the
adjusted basis of depletable property. Additional adjustments and preferences
are required in the computation of AMTI, some of which are applicable only to
corporate taxpayers, some of which are applicable only to noncorporate
taxpayers, and some of which are applicable to both.
The rate applied in determining the tentative minimum tax for
noncorporate taxpayers is 26% on AMTI up to $175,000 (after the applicable
exemption) and 28% on AMTI over $175,000 (after the applicable exemption). The
exemption amounts are $45,000 for taxpayers filing joint returns, $33,750 for
single individuals, and $22,500 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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<PAGE>
The tentative minimum tax for corporate taxpayers is 20% on AMTI which
exceeds the exemption amount of $40,000. The exemption amount is reduced $0.25
for every $1.00 by which AMTI exceeds $150,000, so that the exemption amount is
zero if AMTI exceeds $310,000. Items of tax preference and adjustments which are
applicable in determining AMTI of corporate taxpayers include but are not
limited to the following: (a) 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, (b) a "book income" preference, which is 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.
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.
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
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<PAGE>
applies to Bonds that are "industrial development bonds" as they are defined in
the 1954 Code in terms similar to those under which private activity bonds are
defined in the Code and are generally subject to the same limitations). Interest
on certain qualified small issue private activity bonds is exempt from all
present Federal income taxation only so long as the "principal user" of the
bond-financed facility and any "related person" remain within the capital
expenditure limitations imposed by Section 144(a)(4) of the Code and only so
long as the aggregate private activity bond limits of Section 144(a)(10) of the
Code (Sections 103(b)(6)(D) and 103(b)(15) of the 1954 Code, respectively) are
met. In addition, interest on private activity bonds will not be exempt from
Federal income tax for any period during which such bonds are held by a
"substantial user" of the facilities financed by the proceeds of such bonds (or
a "related person" to such a "substantial user"). Interest attributable to such
Bonds, if received by a Unit holder who is such a "substantial user" or "related
person," will be taxable (i.e., not tax-exempt) to the same extent as if such
Bonds were held directly as owner.
In addition, a Bond can lose its tax-exempt status as a result
of other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current or
future owners or users of the facilities financed by the bonds, the amount of
such persons' outstanding tax-exempt private activities bonds, or the facilities
themselves, and no assurance can be given that future events will not affect the
tax-exempt status of the Bonds. Investors should consult their tax advisors for
advice with respect to the effect of these provisions on their particular tax
situation.
Under Section 265 of the Code, if borrowed funds are used by a
Unit holder to purchase or carry Units of the Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. Under rules
used by the Internal Revenue Service, the purchase of Units may be considered to
have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of Units. Similar rules are applicable for
purposes of state and local taxation. Also, under Section 291 of the Code,
certain financial institutions that acquired Units on or before August 7, 1986
may be subject to a reduction in the amount of interest expense that would
otherwise be allowable as a deduction for Federal income tax purposes. Subject
to certain exceptions under Section 265 of the Code, no deduction is allowed to
a financial institution for that portion of the institution's interest expense
allocable to tax-exempt interest on Units acquired after August 7, 1986.
Investors with questions regarding this issue should consult their tax advisors.
The Trust may contain Bonds issued with original issue
discount. The Code requires holders of tax-exempt obligations issued with
original issue discount, such as the Trust, to accrue tax-exempt original issue
discount by using the constant interest method provided for the holders of
taxable obligations and to increase the basis of a tax-exempt obligation by the
amount of accrued tax-exempt original issue discount. These provisions are
applicable to obligations issued after September 3, 1982 and acquired after
March 1, 1984.
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The Trust's tax basis in a Bond is increased by any accrued original issue
discount as is a Unit holder's tax basis in his Units. For Bonds issued on or
after June 9, 1980 that are redeemed prior to maturity, the difference between
the Trust's basis, as adjusted, and the amount received will be taxable gain or
loss to the Unit holders.
Unit holders should consult their tax advisors with respect to
the state and local tax consequences of owning original issue discount bonds. It
is possible that, under applicable provisions governing determination of such
state and local taxes, interest on tax-exempt bonds such as any Bonds issued
with original issue discount may be deemed to be received in the year of accrual
even though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a
Bond exceeds his pro rata interest in the Bond's face amount, the Unit holder
will be considered to have purchased his pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating to
his pro rata interest in a Bond prior to the maturity of the Bond. Amortization
of premium on a Bond will reduce a Unit holder's tax basis for his pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a pro rata
interest in a Bond at a premium and resells it at the same price will recognize
taxable gain equal to the portion of the premium that was amortized during the
period the Unit holder is considered to have held such interest.
For obligations issued on or before September 27, 1985, bond
premium must be amortized under the method the Unit holder regularly employs for
amortizing bond premium (assuming such method is reasonable) or, otherwise, on a
straight-line basis. Thus, if a Unit holder has previously amortized bond
premium with respect to other bonds (whether tax-exempt or taxable) on a
straight-line basis, the Unit holder may be prohibited from adopting a more
favorable method of amortizing bond premium such as a constant interest method.
For obligations issued after September 27, 1985, amortizable bond premium must
be computed on the basis of the Unit holder's yield to maturity, determined by
using the Unit holder's basis for the Bond, compounding at the close of each
"accrual period" (as defined in Section 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.
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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.
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.
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Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly,
depending on the method of distribution chosen, principal, including capital
gains, will be distributed only semi-annually; provided, however, that, other
than for purposes of redemption, no distribution need be made from the Principal
Account if the balance therein is less than $1.00 per Unit then outstanding, and
that, if at any time the pro rata share represented by the Units of cash in the
Principal Account exceeds $10.00 as of a Monthly Record Date, the Trustee shall,
on the next succeeding Monthly Distribution Date, distribute the Unit holder's
pro rata share of the balance of the Principal Account. Interest (semi-annually
or monthly) and principal, including capital gains, if any (semi-annually),
received by the Trust will be distributed on each Distribution Date to Unit
holders of record of the Trust as of the preceding Record Date who are entitled
to such distributions at that time under the plan of distribution chosen. All
distributions will be net of applicable expenses and funds required for the
redemption of Units. See "Summary of Essential Financial Information" in Part I
of this Prospectus, "The Trust-Expenses and Charges" and "Rights of Unit
Holders--Redemption."
The Trustee will credit to the Interest Account for the Trust
all interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro rata
share of the Interest Account of the Trust and the pro rata share of cash in the
Principal Account of the Trust represented by each Unit thereof will be computed
by the Trustee each month as of the Record Date. See "Summary of Essential
Financial Information" in Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date and prior to
the next succeeding Distribution Date will be held in the Principal Account for
the Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as of
the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal Account if the
balance therein is less than an amount sufficient to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to
the first Record Date and to the related Distribution Date is an asset of the
respective Unit holder and will be realized in subsequent distributions or upon
the earlier of the sale of such Units or the maturity, redemption or sale of
Securities in the Trust.
The plan of distribution selected by a Unit holder will remain
in effect until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such
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<PAGE>
year if the Unit holder desires to change his plan of distribution, and the
change will become effective on May 16 of such year for the ensuing twelve
months. For a discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units."
As of the fifteenth day of each month the Trustee will deduct
from the Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the Trust
as of the first day of such month. See "The Trust--Expenses and Charges." The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the Trust's assets
until such time as the Trustee shall return all or any part of such amounts to
the appropriate account. In addition, the Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units by the Trustee. See "Rights of Unit Holders--Redemption."
Funds which are available for future distributions, payments of expenses and
redemptions are in accounts which are non-interest bearing to the Unit holders
and are available for use by the Trustee pursuant to normal banking procedures.
Because interest on Securities in the Trust is payable at
varying intervals, usually in semi-annual installments, the interest accruing to
the Trust will not be equal to the amount of money received and available
monthly for distribution from the Interest Account to Unit holders choosing the
monthly payment plan. Therefore, on each monthly Distribution Date, the amount
of interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit holders. Therefore, there will usually remain an item of
accrued interest that is added to the value of the Units. If a Unit holder sells
all or a portion of his Units, he will be entitled to receive his proportionate
share of the accrued interest from the purchaser of his Units. Similarly, if a
Unit holder redeems all or a portion of his Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit
Holders--Redemption-Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
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 canceled.
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 three business days following such tender, the Unit
holder will be entitled to receive in cash an amount for each Unit tendered
equal to the Redemption Price per Unit computed as of the Evaluation Time set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information" as of the next subsequent Evaluation Time. See
"Redemption--Computation of Redemption Price per Unit." The "date of tender" is
deemed to be the date on which Units are received by the Trustee, except that as
regards Units received after the Evaluation Time on the New York Stock Exchange,
the date of tender is the next day on which such Exchange is open for trading or
the next day on which there is a sufficient degree of trading in Units of the
Trust, and such Units will be deemed to have been tendered to the Trustee on
such day for redemption at the Redemption Price computed on that day. For
information relating to the purchase by the Sponsors of Units tendered to the
Trustee for redemption at prices in excess of the Redemption Price, see
"Redemption--Purchase by the Sponsors of Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from
the Interest Account or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn from
the Principal Account. The Trustee is empowered to sell Securities in order to
make funds available for redemption. Such sales, if required, could result in a
sale of Securities by the Trustee at a loss. To the extent Securities are sold,
the size and diversity of the Trust will be reduced.
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<PAGE>
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 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.
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<PAGE>
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,
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<PAGE>
the Trustee, the Empire Builder and Glickenhaus, as investment advisor for
Empire Builder each will have the right to terminate this Plan at any time for
any reason. The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For more complete
information about investing in the Empire Builder through the Plan, including
charges and expenses, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust Division, P.O. Box 972, New York, New
York 10269-0067. Read it carefully before you decide to participate.
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<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 preceding the next
succeeding distribution date, by so notifying the Plan Agent in writing, elect
to terminate his participation in the Plan and
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<PAGE>
[ALTERNATE PAGE]
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 972, New York, New York 10269-0067. Read it carefully before
you decide to participate.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, including all
Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series of
The Glickenhaus Value Portfolios and The Municipal Insured National Trusts, and
for the prior series of Empire State Municipal Exempt Trust, including those
sold under the name of Municipal Exempt Trust, New York Exempt Series 1, New
York Series 2 and New York Series 3. Glickenhaus, in addition to participating
as a member of various selling groups of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of securities
of such companies and sells securities to such companies in its capacity as a
broker or dealer in securities. The principal offices of Glickenhaus are located
at 6 East 43rd Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a
New York partnership in 1925, has been buying and selling municipal bonds for
its own account as a dealer for over 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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<PAGE>
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 automatically discharged under the Trust Agreement
and the other Sponsor acts as the Sponsors.
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<PAGE>
Resignation
Any Sponsor may resign at any time provided that at the time
of such resignation one remaining Sponsor maintains a net worth of $1,000,000
and all the remaining Sponsors are agreeable to such resignation. Concurrent
with or subsequent to such resignation, a new Sponsor may be appointed by the
remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If, at any time, only one Sponsor is acting under the Trust Agreement
and that Sponsor shall resign or fail to perform any of its duties thereunder or
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, then the Trustee may appoint a successor sponsor or
terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1996, the total partners' capital of
Glickenhaus was $144,057,869 (audited); and at March 31, 1997, the total
stockholders' equity of Lebenthal was $5,346,158 (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, 1(800) 221-7771. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a corporation organized under the laws of the United States or
the State of New York, which is authorized 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.
- 42 -
290277.3
<PAGE>
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the Trust which the Trustee may be required to pay under current or
future law of the United States or any other taxing authority having
jurisdiction. See "The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the material set forth
under "Rights of Unit Holders," "Sponsors--Responsibility" and
"Sponsors--Resignation."
Resignation
By executing an instrument in writing and filing the same with
the Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the Unit holders,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If, upon resignation or
removal of a trustee, no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York
corporation, with main offices at 395 Hudson Street, New York, New York 10014.
Muller Data Corporation is a wholly owned subsidiary of Thomson Publishing
Corporation, a Delaware corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations by the
- 43 -
290277.3
<PAGE>
Evaluator under the Trust Agreement shall be made in good faith upon the basis
of the best information available to it; provided, however, that the Evaluator
shall be under no liability to the Trustee, the Sponsors or the Unit holders for
errors in judgment. This provision shall not protect the Evaluator in cases of
its willful misconduct, bad faith, gross negligence or reckless disregard of its
obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day after the
initial offering period, when any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsors. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering prices, see "Public
Offering--Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors and
the Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If upon
resignation of the Evaluator no successor has accepted appointment within thirty
days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust
Agreement without the consent of any of the Unit holders when such an amendment
is (1) to cure any ambiguity or to correct or supplement any provision of the
Trust Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of certificates
evidencing 66-2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in a Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In no
event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities either
in addition to or in substitution for any of the Bonds initially deposited in
the Trust, except in accordance with the provisions of the Trust Agreement. In
the event of any amendment, the Trustee is obligated to notify promptly all Unit
holders of the substance of such amendment.
- 44 -
290277.3
<PAGE>
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. Kroll & Tract LLP, 520 Madison Avenue, New York, New York 10022, acts
as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus 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.
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
- 45 -
290277.3
<PAGE>
occasion, rely on unaudited financial information. The ratings may be changed,
suspended or withdrawn as a result of changes in, or unavailability of, such
information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest and
repay principal is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues
only in small degree.
A: Bonds rated "A" have a strong capacity to pay interest and
repay principal, although they are somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category than for
bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of
credit quality, the ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
- 46 -
290277.3
<PAGE>
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 to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
- 47 -
290277.3
<PAGE>
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.
- 48 -
290277.3
<PAGE>
<TABLE>
<S> <C>
This Prospectus contains information concerning the
Trust and the Sponsors, but does not contain all the
information set forth in the registration statements EMPIRE STATE
and exhibits relating thereto, which the Trust has MUNICIPAL EXEMPT TRUST
filed with the Securities and Exchange Commission, EMPIRE MAXIMUS
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
THE TRUST................................................1 Sponsors:
PUBLIC OFFERING.........................................22
GLICKENHAUS & CO.
ESTIMATED CURRENT RETURN AND ESTIMATED 6 East 43rd Street
LONG-TERM RETURN TO UNIT HOLDERS....................24 New York, New York 10017
(212) 953-7532
TAX STATUS..............................................25
RIGHTS OF UNIT HOLDERS..................................30 LEBENTHAL & CO., INC.
120 Broadway
AUTOMATIC ACCUMULATION ACCOUNT..........................38 New York, New York 10271
(212)425-6116
SPONSORS................................................40
TRUSTEE.................................................42
EVALUATOR...............................................43
AMENDMENT AND TERMINATION OF THE
TRUST AGREEMENT.....................................44
LEGAL OPINIONS..........................................45
AUDITORS................................................45
DESCRIPTION OF BOND RATINGS.............................45
</TABLE>
- -------------------------------------------------------
No person is authorized to give any information or to
make any representations not contained in this
Prospectus and any information or representation
not contained herein must not be relied upon as
having been authorized by the Trust or the Sponsors.
This Prospectus does not constitute an offer to sell,
or a solicitation of an offer to buy, securities in any
state to any person to whom it is not lawful to make
such offer in such state.
290277.3
<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 (incorporated by reference to the Cross-Reference
Sheet to Post-Effective Amendment No. 9 to the Form S-6 Registration
Statement of Empire State Municipal Exempt Trust, Empire Maximus AMT Series
A).
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 Form S-6
Registration Statement No. 333-17307 of Empire State
Municipal Exempt Trust, Guaranteed Series 134 on April 2,
1997, 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
287686.1
<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 29th day of July, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
EMPIRE MAXIMUS AMT SERIES A
(Registrant)
GLICKENHAUS & CO.
(Depositor)
By: /s/ Michael J. Lynch
Michael J. Lynch
(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
ALFRED FEINMAN* General Partner ) July 29, 1997
)
SETH M. GLICKENHAUS* General Partner, ) By:/s/ Michael J. Lynch
--------------------
Chief Investment Officer ) Michael J. Lynch
) Attorney-in-Fact*
)
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 333-17307 on April 2, 1997.
II-2
287686.1
<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 29th day of July, 1997.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
EMPIRE MAXIMUS AMT SERIES A
(Registrant)
LEBENTHAL & CO., INC.
(Depositor)
By: /s/ D. Warren Kaufman
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
Name Title Date
H. GERARD BISSINGER, II* Director )
) July 29, 1997
JEFFREY M. JAMES* Director )
)
/s/ D. WARREN KAUFMAN Director )
D. Warren Kaufman ) By: /s/ D. Warren Kaufman
---------------------
D. Warren Kaufman
) Attorney-in-Fact*
ALEXANDRA LEBENTHAL* Director, President )
)
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
II-3
287686.1
<PAGE>
CONSENT OF COUNSEL
The consent of Brown & Wood to the use of their name in the Prospectus
included in the Registration Statement is contained in their opinion filed
previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustees of
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
EMPIRE MAXIMUS AMT SERIES A
We hereby consent to the use in Post-Effective Amendment No. 10 to
Registration Statement No. 33-12107 of our opinion dated April 30, 1997 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 29, 1997
II-4
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> 810908
<NAME> MAX AMT, SERIES A
<S> <C>
<FISCAL-YEAR-END> Mar-31-1997
<PERIOD-START> Apr-01-1996
<PERIOD-END> Mar-31-1997
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 12,089,316
<INVESTMENTS-AT-VALUE> 12,379,115
<RECEIVABLES> 364,789
<ASSETS-OTHER> 79,796
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,823,700
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,930
<TOTAL-LIABILITIES> 1,930
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 22,656
<SHARES-COMMON-PRIOR> 24,766
<ACCUMULATED-NII-CURRENT> 360,631
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (708,833)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 289,799
<NET-ASSETS> 12,821,770
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 993,796
<OTHER-INCOME> 0
<EXPENSES-NET> 29,529
<NET-INVESTMENT-INCOME> 964,267
<REALIZED-GAINS-CURRENT> (347,071)
<APPREC-INCREASE-CURRENT> 260,471
<NET-CHANGE-FROM-OPS> 877,667
<PAGE>
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,092,606
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 4,412,337
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 2,110
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (4,627,276)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 704.55
<PER-SHARE-NII> 40.66
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 46.08
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 565.93
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MULLER DATA CORPORATION
- -----------------------------------------------------------TSIS-----------------
Thomson Securities Information Services
July 25, 1997
Glickenhaus & Co.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUSTS
Empire Maximus AMT Series A: Post - Effective Amendment No. 10
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement,
File No. 33-12107, for the referenced Trust and acknowledge that Muller Data
Corporation is currently acting as the evaluator for the Empire State Municipal
Exempt Trust Maximus AMT Series A. Subsequently, we hereby consent to the
reference of Muller Data Corporation as Trust evaluator in the post-effective
Amendment.
In addition, we confirm that the ratings of the bonds comprising the portfolio
of the Trust, as indicated in the Amendment to the Registration Statement, are
the ratings currently indicated in our Muniview data base.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
- ---------------
Mario S. Buscemi
Chief Operating Officer
395 Hudson Street New York, NY 10014-3622 212-807-3800
<PAGE>
Managed Fund Ratings
25 Broadway
New York, NY 10004-1064
Tel 212 208 8000
Fax 212 208 8034
Standard & Poor's
A Division of The McGraw-Hill Companies
Glickenhaus & Company
6 East 43rd Street
New York, NY 10017
Re: ESMET Empire Maximus Amt Series A
It is our understanding that you are filing with the Securities and
Exchange Commission a Post Effective Amendment to the above captioned trust, SEC
file number 33-12107.
Since the portfolio is composed solely of securities covered by bond
insurance policies that insure against default in the payment of principal and
interest on the securities for so long as they remain outstanding and such
policies have been issued by one or more insurance companies which have been
assigned `AAA' claims paying ability ratings by Standard & Poor's, we reaffirm
the assignment of a `AAA' rating to the units of the trust and a `AAA' rating to
the securities contained in the trust.
Standard & Poor's will maintain surveillance on the `AAA' rating until
August 31, 1998. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the trust.
You have permission to use the name of Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc. and the above-assigned
ratings in connection with your dissemination of information relating to these
units, provided that it is understood that the ratings are not "market" ratings
nor recommendations to buy, hold, or sell the units of the trust or the
securities in the trust. Further, it should be understood that the rating on the
units does not take into account the extent to which fund expenses or portfolio
asset sales for less than the fund's purchase price will reduce payment to the
unit holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a consent by us, within
the meaning of Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities contained in the
trust. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send a copy of your final prospectus as soon as it
becomes available. Should we not receive it within a reasonable time after the
closing or should it not conform to the representations made to us, we reserve
the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford B. Bragg
Managing Director
<PAGE>
