As filed with the Securities and Exchange Commission on July 29, 1996
Registration No. 33-19567
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 36
B. Name of depositors: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
C. Complete address of depositors' principal executive offices:
GLICKENHAUS & CO. LEBENTHAL & CO., INC.
6 East 43rd Street 120 Broadway
New York, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Battle Fowler LLP
New York, NY 10017 New York, NY 10271 75 East 55th Street
New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ /immediately upon filing pursuant to paragraph (b) of Rule 485
/x/on July 31, 1996 pursuant to paragraph (b)
/ /60 days after filing pursuant to paragraph (a)
/ /on ( date ) pursuant to paragraph (a) of Rule 485
C/M: 10726.0053 287699.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 36
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
I. Organization and General Information
1. (a) Name of trust................... Prospectus front cover
(b) Title of securities issued...... "
2. Name and address of each depositor.. Sponsors
3. Name and address of trustee......... Trustee
4. Name and address of principal
underwriters...................... Sponsors; Public Offering --
Distribution of Units; Back Cover
5. State of organization of trust...... The Trust
6. Execution and termination of
trust agreement................... The Trust; Amendment and Termination of
the Trust Agreement
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities..................... Rights of Unit Holders
(b) Cumulative or distributive
securities..................... "
(c) Redemption...................... "
(d) Conversion, transfer, etc....... "
(e) Periodic payment plan........... Not Applicable
(f) Voting rights................... Amendment and Termination of the Trust
Agreement
(g) Notice to certificateholders.... Rights of Unit Holders--Reports and
Records; Sponsors--Responsibility;
Trustee--Resignation; Amendment and
Termination of the Trust Agreement
(h) Consents required............... Sponsors--Responsibility; Amendment and
Termination of the Trust Agreement
(i) Other provisions................ The Trust--Tax Status
11. Type of securities
comprising units.................. Prospectus front cover; The Trust--
Portfolio
12. Certain information regarding
periodic payment certificates..... Not Applicable
13. (a) Load, fees, expenses, etc....... Prospectus front cover; Summary of
Essential Financial Information;
Rights of Unit Holders--Expenses and
Charges; Public Offering--Offering
Price; Public Offering--Market for
Units
(b) Certain information regarding
periodic payment certificates... Not Applicable
</TABLE>
ii
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<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
(c) Certain percentages............. Public Offering--Offering Price
(d) Certain other fees, etc. payable Rights of Unit Holders--Certificates
by holders......................
(e) Certain profits receivable by
depositors, principal
underwriters, trustee or
affiliated persons.............. Public Offering--Offering Price; Rights
of Unit Holders--Redemption--Purchase by
the Sponsors of Units Tendered for
Redemption
(f) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... The Trust; Rights of Unit Holders--
Certificates
15. Receipt and handling of payments
from purchasers................... Public Offering--Offering Price;
Amendment and Termination of the Trust
Agreement
16. Acquisition and disposition of
underlying securities............. The Trust--Portfolio; Sponsors--
Responsibility
17. Withdrawal or redemption............ Public Offering--Market for Units;
Rights of Unit Holders--Redemption
18. (a) Receipt, custody and
disposition of income........... The Trust--Portfolio--General
Considerations; Insurance on the
Bonds; Public Offering--Offering
Price; Rights of Unit Holders--
Distribution of Interest and
Principal; Rights of Unit Holders--
Reports and Records; Amendment and
Termination of the Trust Agreement
(b) Reinvestment of distributions... Automatic Accumulation Account
(c) Reserves or special funds....... Rights of Unit Holders; Rights of Unit
Holders--Distribution of Interest and
Principal; Expenses and Charges--Other
Charges; Amendment and Termination of
the Trust Agreement
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and
Principal; Amendment and Termination
of the Trust Agreement
20. Certain miscellaneous provisions
of trust agreement................ Sponsors--Resignation; Trustee--
Resignation; Trustee--Limitations on
Liability; Amendment and Termination
of the Trust Agreement
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... "
(e) and (f) Depositor, removal
and successor................... "
21. Loans to security holders........... Not Applicable
22. Limitations on liability............ The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
</TABLE>
iii
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<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
23. Bonding arrangements................ Additional Information--Item A
24. Other material provisions
of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......... Sponsors
26. Fees received by depositors........ Not Applicable
27. Business of depositors............. Sponsors
28. Certain information as to
officials and affiliated
persons of depositor.............. Contents of Registration Statement
29. Voting securities of depositors..... Not Applicable
30. Persons controlling depositors...... "
31. Payments by depositors for certain
services rendered to trust........ "
32. Payment by depositors for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositors for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states.............. Public Offering--Distribution of Units
36. Suspension of sales of trust's
securities........................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Public Offering--Distribution of Units
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation............. Prospectus front cover; Public
Offering--Offering Price; Public
Offering-- Distribution of Units
(b) Schedule as to offering price... Not Applicable
(c) Variation in offering price
to certain persons.............. Public Offering--Offering Price; Public
Offering-- Distribution of Units
</TABLE>
iv
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<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
45. Suspension of redemption rights..... Not Applicable
46. (a) Redemption valuation............ Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption
price................ Not Applicable
47. Maintenance of position in
underlying securities............. Public Offering--Market for Units;
Rights of Unit Holders--Redemption--
Purchase by the Sponsors of Units
Tendered for Redemption; Rights of
Unit Holders--Redemption--Computation
of Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................ Trustee
49. Fees and expenses of trustee........ Rights of Unit Holders--Expenses and
Charges; Rights of Unit Holders--
Distribution of Interest and Principal
50. Trustee's lien...................... Rights of Unit Holders--Expenses and
Charges--Other Charges; Rights of Unit
Holders--Distribution of Interest and
Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................ Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Prospectus front cover;
Sponsors--Responsibility
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsors--Responsibility
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Prospectus front cover; Tax
Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Certain information regarding
periodic payment certificates..... "
56. Certain information regarding
periodic payment certificates..... "
57. Certain information regarding
periodic payment certificates..... "
</TABLE>
v
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<PAGE>
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
<S> <C>
58. Certain information regarding
periodic payment certificates..... "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Net Assets; Statements of
Operations; Statements of Changes in
Net Assets
</TABLE>
vi
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
Prospectus, Part I 7,451 Units Dated: July 31, 1996
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, 1996
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of March 31, 1996. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest on the Bonds which is exempt from federal income tax when
received by the Trust will be excludable from the federal gross income of the
Unit holders and, with certain exceptions, interest income to the Unit holders
is generally exempt from all New York State and New York City income taxes.
Capital gains, if any, are subject to tax. See Part II under "Tax Status."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Corporation.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights
of Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid price
of the Securities in the Trust divided by the number of Units outstanding, plus
a sales charge determined on the basis of the maturities of the Securities in
the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do so,
intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering
- -- Market for Units." If such a market is not maintained, a Unit holder may be
able to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 36
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
<TABLE>
<S> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 7,335,000
Number of Units: 7,451
Fractional Undivided Interest in the Trust Per Unit: 1/7,451
Total Value of Securities in the Portfolio (Based on Bid Side
Evaluations of Securities): $ 7,839,615.40
==================
Sponsors' Repurchase Price Per Unit: $ 1,052.16
Plus Sales Charge(1): 19.54
------------------
Public Offering Price Per Unit(2): $ 1,071.70
==================
Redemption Price Per Unit(3): $ 1,052.16
Excess of Public Offering Price Over Redemption Price Per Unit: $ 19.54
Weighted Average Maturity of Bonds in the Trust: 12.953 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.
Annual Insurance Premium: $6,316
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: April 28, 1988
Date of Trust Agreement: April 28, 1988
Mandatory Termination Date: December 31, 2037
Minimum Principal
Distribution: $1.00 per Unit
Minimum Value of the Trust
under which Trust
Agreement may be
Terminated: $2,000,000
</TABLE>
-2-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 36
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1996
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $ 74.76 $ 74.76
Less Annual Premium on Portfolio Insurance .85 .85
E Less Estimated Annual Expenses 1.30 .72
--------- ----------
R Estimated Net Annual Interest Income: $ 72.61 $ 73.19
======== ========
U Estimated Interest Distribution: $ 6.05 $ 36.59
N Estimated Current Return Based on Public Offering Price (4): 6.78% 6.83%
I
Estimated Long-Term Return Based on Public Offering Price (5): 4.93% 4.99%
T
Estimated Daily Rate of Net Interest Accrual: $.20169 $.20330
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 3, 1996, the expected date of settlement, of
$13.97 monthly and $44.26 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, 1996, the bid side valuation of 3.0% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
97.0% 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 7 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. 13.5% of the aggregate principal amount of the Bonds in the
Portfolio are payable from appropriations. 86.5% of the aggregate principal
amount of the Bonds in the Portfolio are payable from the income of specific
projects or authorities and are not supported by the issuers' power to levy
taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related
dollar weighted percentage of such issues) deriving income from such sources
and the purpose of issue are as follows: Appropriations, 1 (13.5%); Revenue:
Health Care, 2 (33.4%); Public Power, 1 (3.1%); Industrial Development, 1
(13.5%); M.A.C, 1 (13.5%) and Other, 1 (23.0%). The Trust is deemed to be
concentrated in the Health Care Bonds category1. One issue, constituting 3.1%
of the Bonds in the Portfolio, is an original issue discount bond. On March 31,
1996, 4 issues (63.2%) were rated AAA by Standard & Poor's Corporation, 1 issue
(20.2%) was rated Aaa, 1 issue (3.1%) was rated Aa and 1 issue (13.5%) was
rated A1 by Moody's Investors Service, Inc.2 Subsequent to such date, such
ratings may have changed. See "Tax-Exempt Bond Portfolio." For a more detailed
discussion, it is recommended that Unit holders consult the official statements
for each Security in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was rendered on the Date
of Deposit. Consult your tax advisor to discuss any relevant changes in tax
laws since the Date of Deposit. See also "Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable
from gross income under the Internal Revenue Code of 1986, as amended.
See "The Trust -- Portfolio" in Part II of this Prospectus.
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part
II of this Prospectus.
-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,
Guaranteed Series 36:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 36, including the bond portfolio, as
of March 31, 1996, and the related statements of operations and changes in net
assets for the years ended March 31, 1996, 1995 and 1994. These financial
statements are the responsibility of the Sponsors. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of March 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsors, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 36 as of March 31, 1996, and the results of its
operations and changes in net assets for the years ended March 31, 1996, 1995
and 1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 30, 1996
-6-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
STATEMENT OF NET ASSETS
MARCH 31, 1996
CASH $ 70,613
INVESTMENTS IN SECURITIES, at market
value (cost $7,064,180)............................. 7,972,211
ACCRUED INTEREST RECEIVABLE......................... 146,225
-----------
Total trust property........................ 8,189,049
LESS - ACCRUED EXPENSES............................. 960
-------------
NET ASSETS.......................................... $8,188,089
==========
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS..................................... $4,647,295 $3,331,144 $7,978,439
UNDISTRIBUTED NET INVESTMENT
INCOME........................................ 88,448 121,202 209,650
----------- ----------- -----------
Total value................................ $4,735,743 $3,452,346 $8,188,089
========== ========== ==========
UNITS OUTSTANDING................................ 4,389 3,146 7,535
============ ============ ============
VALUE PER UNIT................................... $ 1,079.00 $ 1,097.37
========== ==========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
STATEMENTS OF OPERATIONS
<CAPTION>
Year ended March 31,
----------------------------------------------------------------
1996 1995 1994
----------------- ----------------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST.............................. $582,452 $ 612,836 $ 640,031
-------- --------- ---------
EXPENSES:
Trustee fees 9,529 9,979 10,351
Evaluation fees.......................................... 1,241 1,351 1,472
Insurance premiums....................................... 6,836 7,559 8,308
Sponsors' advisory fees.................................. 1,845 1,993 2,080
Auditors' fees........................................... 1,800 1,800 1,800
--------- ----------- -----------
Total expenses....................................... 21,251 22,682 24,011
--------- ---------- ----------
NET INVESTMENT INCOME 561,201 590,154 616,020
REALIZED GAIN ON SECURITIES SOLD OR
REDEEMED (Note 3)........................................ 33,691 50,339 24,767
NET CHANGE IN UNREALIZED MARKET
DEPRECIATION............................................. (72,007) (213,545) (210,618)
--------- ---------- ---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS.......................................... $522,885 $ 426,948 $ 430,169
======== ========= ==========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Year ended March 31,
--------------------------------------------------------------
1996 1995 1994
------------------- ----------------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 561,201 $ 590,154 $ 616,020
Realized gain on securities sold or redeemed.............. 33,691 50,339 24,767
Net change in unrealized market depreciation.............. (72,007) (213,545) (210,618)
---------- ---------- ------------
Net increase in net assets resulting from
operations............................................ 522,885 426,948 430,169
---------- ---------- -----------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income..................................... (572,093) (603,010) (620,303)
Principal................................................. - (137,583) -
------------- ----------- --------------
Total distributions................................... (572,093) (740,593) (620,303)
---------- ---------- -----------
CAPITAL SHARE TRANSACTIONS:
Redemption of 392, 391 and 145 units...................... (419,270) (413,691) (163,968)
---------- ---------- -----------
NET DECREASE IN NET ASSETS................................. (468,478) (727,336) (354,102)
NET ASSETS:
Beginning of year......................................... 8,656,567 9,383,903 9,738,005
---------- ---------- -----------
End of year............................................... $8,188,089 $8,656,567 $9,383,903
========== ========== ==========
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan............................................ $ 72.05 $72.65 $72.90
Semi-annual plan........................................ $ 72.63 $73.61 $73.77
Principal:
Monthly plan............................................ $ - $16.76 $ -
Semi-annual plan...................................... $ - $16.76 $ -
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
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 August 1994.
<TABLE>
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port-
folio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
- ------ -------- -------- ----------- ------------ ---- -----
Year ended March 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
* $ 15,000 4/28/95 Dormitory Authority of the State of New $ 15,690 $ 14,237 $ 1,453
York, City University System
Consolidated Revenue Bonds, Series 1986
A
1 20,000 6/13/95 Housing New York Corporation, Revenue 22,000 21,160 840
Bonds, 1987 Series A (MBIA Insured)
* 10,000 6/29/95 Dormitory Authority of the State of New 10,270 9,491 779
York, City University System
Consolidated Revenue Bonds, Series 1986
A
* 30,000 8/17/95 Dormitory Authority of the State of New 31,050 28,474 2,576
York, City University System
Consolidated Revenue Bonds, Series 1986
A
</TABLE>
-10-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
NOTES TO FINANCIAL STATEMENTS
(Continued)
NOTE 3 - BONDS SOLD OR REDEEMED (continued)
<CAPTION>
Port-
folio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
---- -------- -------- ----------- ------------ ---- -----
Year ended March 31, 1996 (continued):
<S> <C> <C> <C> <C> <C> <C>
* $ 50,000 9/26/95 Dormitory Authority of the State of New $ 51,900 $ 47,456 $ 4,444
York, City University System
Consolidated Revenue Bonds, Series 1986
A
* 40,000 11/2/95 New York City Municipal Water Finance 43,340 42,673 667
Authority, Water and Sewer System
Revenue Bonds, Fiscal 1988 Series A
* 30,000 11/2/95 Dormitory Authority of the State of New 30,900 28,474 2,426
York, City University System
Consolidated Revenue Bonds, Series 1986
A
6 45,000 11/2/95 Power Authority of the State of New York, 43,695 33,572 10,123
General Purpose Bonds, Series U
5 25,000 11/24/95 New York State Medical Care Facilities 26,250 24,781 1,469
Finance Agency, Hospital Insured
Mortgage Revenue bonds, 1987 Series A
Refunding
5 105,000 2/15/96 New York State Medical Care Facilities 111,825 104,081 7,744
Finance Agency, Hospital Insured
Mortgage Revenue Bonds, 1987 Series A
Refunding
1 35,000 3/13/96 Housing New York Corporation, Revenue 37,713 37,030 683
Bonds, 1987 Series A (MBIA Insured)
5 10,000 3/26/96 New York State Medical Care Facilities 10,400 9,913 487
Finance Agency, Hospital Insured
Mortgage Revenue Bonds, 1987 Series A
Refunding
-------- -------- -------- -------
$415,000 $435,033 $401,342 $33,691
======== ======== ======== =======
</TABLE>
* Portfolio redeemed in its entirety.
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
NOTES TO FINANCIAL STATEMENTS
(Concluded)
NOTE 4 - NET ASSETS
Cost of 10,000 units at Date of Deposit $10,070,089
Less gross underwriting commission 493,300
-----------
Net cost - initial offering price 9,576,789
Realized net gain on securities sold or redeemed 218,239
Principal distributions (137,583)
Redemption of 2,465 units (2,587,037)
Unrealized market appreciation of securities 908,031
Undistributed net investment income 209,650
------------
Net assets $ 8,188,089
===========
-12-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1996
<CAPTION>
Date Redemption Features
Port- Aggregate Coupon of Maturity S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Rate (Note B) Opt. - Optional Call
No. (Note A) Amount Title of Bond (Note B)
----- -------- --------- --------------------------- ------- -------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $1,700,000 Housing New York 8.625% 11/01/06 11/01/00 @ 100 S.F.
Corporation, Revenue 11/01/97 @ 102 Opt.
Bonds, 1987 Series A
(MBIA Insured)
2 AAA 1,000,000 Dormitory Authority of the 7.375 07/01/16 07/01/00 @ 100 S.F.
State of New York, 07/01/96 @ 102 Opt.
Judicial Facilities Lease
Revenue Bonds (Suffolk
County Issue) Series 1986
(MBIA Insured)
3 AAA 970,000 New York Medical Care 7.100 02/15/27 08/15/02 @ 100 S.F.
Facilities Finance Agency, 02/15/97 @ 102 Opt.
Secured Hospital Revenue
Bonds, 1987 Series A
(BIGI Insured)
4 AAA 1,000,000 Municipal Assistance 6.875 07/01/07 07/01/98 @ 100 S.F.
Corporation for the City of 07/01/97 @ 102 Opt.
New York (A Public
Benefit Corporation of the
State of New York) Series
61 Bonds (MBIA Insured)
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds March 31, Income to
No. to Trust 1996 Trust
----- ------------- --------------- ----------
1 $1,798,618 $1,862,163 $146,625
2 940,860 1,198,180 73,750
3 876,463 1,007,927 68,870
4 899,461 1,037,540 68,750
-13-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1996
(Continued)
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
----- -------- ------------- --------------------------- ---------- ------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
5 Aaa* $1,495,000 New York State Medical 8.00% 02/15/25 No Sinking Fund
Care Facilities Finance 08/15/97 @ 102 Opt.
Agency, Hospital Insured
Mortgage Revenue Bonds,
1987 Series A Refunding
6 Aa* 225,000 Power Authority of the 5.750 01/01/18 01/01/17 @ 100 S.F.
State of New York, 07/01/96 @ 100 Opt.
General Purpose Bonds,
Series U
7 A1* 1,000,000 New York State Energy 7.125 12/01/20 No Sinking Fund
Research and 12/01/96 @ 102 Opt.
Development Authority,
Variable Rate Gas
Facilities Revenue Bonds,
Series 1985 I (The
Brooklyn Union Gas
Company Project) (Fixed
Rate Conversion on
May 7, 1986)
----------
$7,390,000
==========
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds March 31, Income to
No. to Trust 1996 Trust
----- ----------------- --------- ------------
5 $1,481,919 $1,610,952 $119,600
6 167,859 224,699 12,938
7 899,000 1,030,750 71,250
---------- ---------- ---------
$7,064,180 $7,972,211 $561,783
========== ========== ========
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 36
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1996
(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.
-15-
<PAGE>
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit
investment trusts. Each Trust was created under the laws of the State of New
York pursuant to a Trust Indenture and Agreement (the "Trust Agreement"),
dated the Date of Deposit as set forth in "Summary of Essential Financial
Information" in Part I of this Prospectus, among the Sponsors, the Trustee and
the Evaluator. The Bank of New York acts as successor trustee of Series 1
through 22 and as Trustee of Series 23 and subsequent Series. Muller Data
Corporation acts as successor Evaluator for all Series. Glickenhaus & Co. and
Lebenthal & Co., Inc. act as co-Sponsors for all Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the
fractional undivided interest in the Trust set forth in Part I of this
Prospectus under "Summary of Essential Financial Information." Thereafter, if
any Units are redeemed by the Trustee, the fractional undivided interest in
the Trust represented by each unredeemed Unit will increase, although the
actual interest in the Trust represented by each such Unit will remain
essentially the same. Units will remain outstanding until redeemed upon tender
to the Trustee by any Unit holder, which may include the Sponsors, or until
the termination of the Trust Agreement for the related Trust. See "Rights of
Unit Holders--Redemption."
On the Date of Deposit for each Trust, the Sponsors
deposited with the Trustee obligations or contracts for the purchase of such
obligations (the "Bonds" or "Securities"). Certain of the Bonds may have been
purchased at prices which resulted in the portfolio as a whole being purchased
at a discount due to original issue discount, market discount or the inclusion
of zero coupon bonds. Bonds selling at market discount tend to increase in
market value as they approach maturity when the principal amount is payable,
thus increasing the potential for capital gain. Any capital gain other than
any earned original issue discount will be taxable and will not be realized
until maturity, redemption or sale of the underlying Bonds or Units.
Objectives
The objective of the Trust is to obtain tax-exempt interest
income through an investment in a fixed, insured portfolio consisting
primarily of various long-term municipal bonds. No assurance can be given that
the Trust's objectives will be achieved because these objectives are subject
to the continuing ability of the respective issuers of the bonds in the
Portfolio to meet their obligations and of the Insurer to meet its obligations
under the insurance. In addition, an investment in the Trust can be affected
by interest rate fluctuations.
Series 1 through 5, Series 6 through 30 and Series 31 and
subsequent Series have obtained insurance guaranteeing the payment of
principal and interest on the Bonds in each respective Trust from National
Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), MBIA Inc.
and MBIA Insurance Corporation ("MBIA"), respectively (National Union, MBIA
Inc. and MBIA are collectively referred to herein as the "Insurer"). Insurance
obtained by the Trust applies only while Bonds are retained in the
279831.3
<PAGE>
Trust. As to Series 18 through Series 30 and Series 31 and subsequent Series,
however, pursuant to irrevocable commitments of MBIA and MBIAC, respectively,
in the event of a sale of a Bond from the Trust the Trustee has the right to
obtain permanent insurance for such Bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Bond. It
is expected that the Trustee will exercise the right to obtain permanent
insurance for a Bond in such Series upon instruction from the Sponsors
whenever the value of that Bond insured to its maturity less the applicable
permanent insurance premium and the related custodial fee exceeds the value of
the Bond without such insurance. Insurance relates only to the payment of
principal and interest on the Bonds in the Trust but neither covers the
nonpayment of any redemption premium on the Bonds nor guarantees the market
value of the Units. Certain Bonds in the Trust may also be insured under
insurance obtained by the issuers of such Bonds or third parties ("Pre-insured
Bonds"). As a result of the insurance, Moody's Investors Service, Inc. has
assigned a rating of "Aaa" to all of the Bonds in Series 6 and subsequent
Series, as insured, and Standard & Poor's Corporation, a division of McGraw-
Hill, has assigned a rating of "AAA" to the Units of the Trust, and to the
Bonds in Series 17 and subsequent Series, as insured, while in the Trust. No
representation is made as to any insurer's ability to meet its commitments.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. A
single or annual premium is paid by the issuer or any other party for its
insurance on Pre-insured Bonds, and a monthly premium is paid by the Trust for
the insurance it obtains from the Insurer on the Bonds in the Trust that are
not pre-insured by such Insurer. No premium will be paid by Series 1 through
5, Series 6 through 30 and Series 31 and subsequent Series on Bonds pre-
insured by National Union, MBIA and MBIAC, respectively. See "Insurance on the
Bonds."
Portfolio
In view of the Trust's objectives, the following factors,
among others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of the State of New York and counties, municipalities, authorities
or political subdivisions thereof or issued by certain United States
territories or possessions, including Puerto Rico, and their public
authorities so that the interest on them will be exempt from Federal, New York
State and New York City income tax under existing law; (2) the Bonds are
varied as to purpose of issue; (3) in the opinion of the Sponsors, the Bonds
are fairly valued relative to other bonds of comparable quality and maturity;
and (4) availability of insurance for the payment of principal and interest on
the Bonds. Subsequent to the Date of Deposit, a Bond may cease to be rated or
its rating may be reduced. Neither event requires an elimination of such Bond
from the portfolio, but such an event may be considered in the Sponsors'
determination to direct the Trustee to dispose of the Bonds. See
"Sponsors--Responsibility."
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates. Inflation and recession, as
well as measures implemented to address these and other economic problems,
contribute to fluctuations in interest rates and the value of fixed-rate bonds
generally. The Sponsors cannot predict future economic policies or their
consequences nor, therefore, can they predict the course or extent of such
fluctuations in the future.
Special Factors Affecting New York
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
- 2 -
279831.3
<PAGE>
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
Economic Trends. Over the long term, the State of New York
(the "State") and the City of New York (the "City") face serious potential
economic problems. The City accounts for approximately 41% of the State's
population and personal income, and the City's financial health affects the
State in numerous ways. The State historically has been one of the wealthiest
states in the nation. For decades, however, the State has grown more slowly
than the nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high State and local
tax burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its
localities.
New York City. The City, with a population of approximately
7.3 million, is an international center of business and culture. Its non-
manufacturing economy is broadly based, with the banking and securities, life
insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's
total employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted primarily
in apparel and printing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late
1989. As a result, the City experienced job losses in 1990 and 1991 and real
Gross City Product (GCP) fell in those two years. Beginning in calendar year
1992, the improvement in the national economy helped stabilize conditions in
the City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. However, after noticeable improvements in the
City's economy during calendar year 1994, economic growth slowed in calendar
year 1995, and the City's current four-year financial plan assumes the
economic growth will continue to slow in calendar year 1996, with local
employment increasing modestly.
For each of the 1981 through 1995 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. For fiscal year 1995, the City adopted a budget which
halted the trend in recent years of substantial increases in City-funded
spending from one year to the next. There can be no assurance that the City
will continue to maintain a balanced budget as required by State law without
additional tax or other
- 3 -
279831.3
<PAGE>
revenue increases or reductions in City services, which could adversely affect
the City's economic base.
Pursuant to the laws of the State, the City prepares an
annual four-year financial plan, which is reviewed and revised on a quarterly
basis and which includes the City's capital, revenue and expense projections
and outlines proposed gap-closing programs for years with projected budget
gaps. The City's current four-year financial plan projects substantial budget
gaps for each of the 1997 through 1999 fiscal years, before implementation of
the proposed gap-closing program contained in the current financial plan. The
City is required to submit its financial plans to review bodies, including the
New York State Financial Control Board ("Control Board"). If the City were to
experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access to the
public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable
the City to balance its budget and to meet its cash requirements. The State's
1995-1996 Financial Plan projects a balanced General Fund. 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 in the City's 1996
fiscal year 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 1996
through 1999 fiscal years (the "1996-1999 Financial Plan" or "Financial
Plan"). The City's projections set forth in the Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the condition of the regional and local economies, the
impact on real estate tax revenues of the real estate market, wage increases
for City employees consistent with those assumed in the Financial Plan,
employment growth, the results of a pending actuarial audit of the City's
pension system which is expected to significantly increase the City's annual
pension costs, the ability to implement proposed reductions in City personnel
and other cost reduction initiatives, which may require in certain cases the
cooperation of the City's municipal unions, the ability of the New York City
Health and Hospitals Corporation ("HHC") and the Board of Education ("BOE") to
take actions to offset reduced revenues, the ability to complete revenue
generating transactions and provision of State and Federal aid and mandate
relief and the impact on City revenues of proposals for Federal and State
welfare reform.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1996 through 1999
contemplates the issuance of $11.8 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital requirements. The success of projected public sales of City bonds and
- 4 -
279831.3
<PAGE>
notes will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from meeting its
planned capital and operating expenditures. Future developments concerning the
City and public discussion of such developments, as well as prevailing market
conditions, may affect the market for outstanding City general obligation
bonds and notes.
On January 31, 1996, the City published the Financial Plan
for the 1996-1999 fiscal year, which relates to the City, BOE and the City
University of New York ("CUNY"). The Financial Plan sets forth proposed
actions by the City for the 1996 fiscal year to close substantial projected
budget gaps resulting from lower than projected tax receipts and other
revenues and greater than projected expenditures. In addition to substantial
proposed agency expenditure reductions, the Financial Plan reflects a strategy
to substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years, and to decrease the City's costs for Medicaid in the 1997 fiscal
year and thereafter by increasing the Federal share of Medicaid costs
otherwise paid by the City. This strategy is the subject of substantial
debate, and implementation of this strategy will be significantly affected by
State and federal budget proposals currently being considered. The Financial
Plan, which is consistent with the City's preliminary budget for the 1997
fiscal year, may be changed significantly by the time the budget for the 1997
fiscal year is adopted.
The Financial Plan set forth proposed actions to close a
previously projected gap of approximately $3.1 billion for the 1996 fiscal
year. The proposed actions in the Financial Plan for the 1996 fiscal year
include (i) a reduction in spending of $400 million, primarily affecting
public assistance and Medicaid payments by the City; (ii) expenditure
reductions in agencies, totaling $1.2 billion; (iii) transitional labor
savings, totalling $600 million; and (iv) the phase-in of the increased annual
pension funding cost due to revisions resulting from an actuarial audit of the
City pension systems, which would reduce such costs in the 1996 fiscal year.
The projections for the 1996 through 1999 fiscal years
reflect the costs of the proposed settlement with the United Federation of
Teachers and the recent settlement with a coalition of unions headed by
District Council 37 of the American Federation of State, County and Municipal
Employees, and assume that the City will reach agreement with its remaining
municipal unions under terms which are generally consistent with such
settlements. The projections for the 1996 through 1999 fiscal years also
assume that BOE will be able to identify actions to offset possible
substantial shortfalls in Federal, State and City revenues.
The Financial Plan also sets forth projections for the 1997
through 1999 fiscal years and outlines a proposed gap-closing program to
eliminate a projected gap of $2.0 billion for the 1997 fiscal year, and to
reduce projected gaps of $3.3 billion and $4.1 billion for the 1998 and 1999
fiscal years, respectively, assuming successful implementation of the gap-
closing program for the 1996 fiscal year.
The Federal and State budgets, when adopted, may result in
substantial reductions in revenues for the City, as well as a reduction in
projected expenditures in entitlement programs, including Medicare, Medicaid
and welfare programs. The Federal and State aid projected in the Financial
Plan, and the substantial savings assumed from cost containment in entitlement
programs included in the Financial Plan gap-closing program for the 1997
through 1999 fiscal years, will be significantly affected both by the outcome
of the current Federal budget negotiations and by the State budget proposals
made by the Governor and to be considered by the State Legislature. The nature
and extent of the impact on the City of the Federal and State budgets,
- 5 -
279831.3
<PAGE>
when adopted, is uncertain, and no assurance can be given that Federal or
State actions included in the Federal and State adopted budgets may not have a
significant adverse impact on the City's budget and its Financial Plan.
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.
From time to time, the Control Board staff, the Municipal
Assistance Corporation for the City of New York ("MAC"), Office of the State
Deputy Comptroller ("OSDC"), the City Comptroller and others issue reports and
make public statements regarding the City's financial condition, commenting
on, among other matters, the City's financial plans, projected revenues and
expenditures and actions by the City to eliminate projected operating
deficits. Some of these reports and statements have warned that the City may
have underestimated certain expenditures and overestimated certain revenues
and have suggested that the City may not have adequately provided for future
contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of
its expenditure increases and to provide necessary services. It is reasonable
to expect that such reports and statements will continue to be issued and to
engender public comment.
On February 29, 1996, the staff of the City Comptroller
issued a report on the Financial Plan. The report projects that there remains
$408 million to $528 million in budget risks for the 1996 fiscal year, before
taking into account the availability of $160 million in the general reserve.
The principal risks for the 1996 fiscal year identified in the report include
$140 million to $190 million of uncertain revenues and projected savings at
BOE and the receipt by the City of $100 million to $130 million from a
proposed MAC refunding. The report also expressed concern as to whether the
required regulatory approval for the sale of the City's television station
would be received before the end of the 1996 fiscal year.
With respect to the 1997 fiscal year, the report states that
the Financial Plan includes total risks of between $2.05 billion and $2.15
billion. The report notes that the gap-closing program for the 1997 fiscal
year assumes the implementation of highly uncertain State and Federal actions
that would provide between $1.2 billion and $1.4 billion in relief to the City
resulting from proposed public assistance and medical assistance entitlement
reductions, a proposed increase in Federal Medicaid reimbursement, additional
- 6 -
279831.3
<PAGE>
State aid and various privatization proposals. The report concludes that it is
unlikely that the City will be able to implement most of these initiatives due
to Federal and State budget difficulties. Additional risks for the 1997 fiscal
year identified in the report include (i) risks attributable to BOE relating
to unspecified additional State aid, unspecified expenditure reductions and
proposals to reduce special education spending, which total $415 million,
without taking into account potential reductions that will likely take place
upon adoption of the Federal and State budgets; (ii) proposals for the sale of
parking meters and other assets; and (iii) the receipt of $244 million to $294
million of lease payments from the Port Authority for the City's airports.
The report concluded that the magnitude of the budget risk
for the 1997 fiscal year, after two years of large agency cutbacks and work
force reductions, indicates the seriousness of the City's continuing budget
difficulties, and that the Financial Plan will require substantial revision in
order to provide a credible program for dealing with the large projected
budget gap for the 1997 fiscal year. The report further notes that the
relative weakness of the national and City economies makes it unlikely that
new jobs and business expansion will generate significant additional tax
revenues and that proposed Federal State reductions in funding will reduce the
levels of the intergovernmental assistance for the City.
On March 6, 1996, the staff of the OSDC issued a report on
the Financial Plan. The report concluded that there remained a budget gap for
the 1996 fiscal year of $4 million, which can be closed with the $200 million
general reserve, and additional significant risks totalling $507 million
involving actions which require the approval of the State and Federal
governments or other third parties. These risks include (i) potential delays
in the sale of the City's television station; (ii) shortfalls in projected
resources from MAC; and (iii) shortfalls of $100 million in projected State
education aid and $50 million in projected Federal assistance. In addition,
the report expressed concern that (i) the City may have to write off a portion
of approximately $300 million in State education aid that was included as
revenue in prior years' budgets, since the State has not made payment and
neither the current nor the proposed State budget include an appropriation
sufficient to cover most of this liability, and (ii) the City must complete
two transactions before the end of the fiscal year, the sale of property tax
liens and housing mortgages, that together are expected to produce resources
of $267 million.
OSDC's report also concluded that the gap for the 1997
fiscal year could be $544 million greater than the City's projected budget gap
of $2 billion, primarily due to the failure of BOE to specify $304 million of
expenditure reductions or additional resources necessary to bring its spending
in line with the resources allocated to it in the Financial Plan. In addition,
the report noted that gap-closing proposals set forth in the Financial Plan
totalling $1.6 billion are at high risk of falling short of target. The
proposals identified in the report as high risk include (i) $800 million in
expected State and Federal assistance, primarily from savings in social
service entitlement programs, which are dependent on the ultimate resolution
of the Federal and State budgets; (ii) $300 million from initiatives to
privatize parking meters and other City assets; (iii) $244 million to be
received from the Port Authority as retroactive lease payments for the City's
two airports; and (iv) $181 million in spending cuts for BOE. Moreover, the
report expressed concern that the potential for budget cuts at BOE could
exceed $1 billion after taking into account the possible loss of $453 million
in proposed reductions in State and Federal funding. The report also stated
that non-recurring resources for the 1996 fiscal year have increased to over
$1.7 billion, approaching the unprecedented $2 billion used in the 1995 fiscal
year, and that one-third of the 1997 fiscal year gap- closing program already
relies on one-time resources.
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New York State and its Authorities. The State budget for the
State's 1997 fiscal year was not adopted by the statutory deadline of April 1,
1996. 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's budget for the 1995-96 fiscal year was enacted by the Legislature
on June 7, 1995, more than two months after the start of the fiscal year. The
State Financial Plan for the 1995-96 fiscal year was formulated on June 20,
1995 and is based on the State's budget as enacted by the Legislature and
signed into law by the Governor.
Prior to adoption of the budget the State had projected a
potential budget gap of approximately $5 billion for its 1996 fiscal year.
This gap was projected to be closed in the 1995-1996 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to
reduce spending on the State workforce, SUNY and CUNY, mental hygiene
programs, capital projects, the prison system and fringe benefits; (iii) $300
million in savings from local assistance reforms, including actions affecting
school aid and revenue sharing while proposing program legislation to provide
relief from certain mandates that increase local spending; (iv) over $400
million in revenue measures, primarily a new Quick Draw Lottery game, changes
to tax payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The Governor presented his 1996-1997 Executive Budget to the
Legislature on December 15, 1995, and subsequently amended it. The Legislature
and the Comptroller will review the Governor's Executive Budget and are
expected to comment on it. There can be no assurance that the Legislature will
enact the Executive Budget into law, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in the Executive Budget.
The Governor's Executive Budget projects balance on a cash
basis in the General Fund. It reflects a continuing strategy of substantially
reduced State spending, including program restructurings, reductions in social
welfare spending, and efficiency and productivity initiatives. Total General
Fund receipts and transfers from other funds are projected to be $31.3
billion, a decrease of $1.4 billion from total receipts projected in the
current fiscal year. Total General Fund disbursements and transfers to other
funds are projected to be $31.2 billion, a decrease of $1.5 billion from
spending totals projected for the current fiscal year.
The 1996-1997 Executive Budget proposes $3.9 billion in
actions to balance the 1996-1997 State Financial Plan. The Executive Budget
proposes to close this gap primarily through a series of spending reductions
and cost containment measures. The Executive Budget projects (i) over $1.8
billion in savings from cost containment and other actions in social welfare
programs, including Medicaid, welfare and various health and mental health
programs; (ii) $1.3 billion in savings from a reduced State General Fund share
of Medicaid made available from anticipated changes in the Medicaid program,
including an increase in the Federal share of Medicaid; (iii) over $450
million in savings from reforms and cost avoidance in educational services
(including school aid and higher education), while providing fiscal relief
from certain State mandates that increase local spending; and (iv) $350
million in savings from efficiencies and reductions in other State programs.
The State has noted that there is considerable uncertainty as to the ultimate
composition of the Federal budget, including uncertainties regarding major
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Federal entitlement reforms. The 1996-1997 Executive Budget seeks to lessen
the effect of the proposed cuts on localities by granting certain mandate
relief to permit them to exercise greater flexibility in allocating their
resources. However, no assurance can be given as to the amount of savings
which the City might realize from any of the Medicaid cost containment or
welfare reform measures proposed in the Executive Budget or the size of any
reductions in State aid to the City. Depending upon the amount of such savings
or the size of any reductions in State aid, the City might be required to make
substantial additional changes in its Financial Plan.
The State Division of the Budget ("DOB") has noted that 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
unpredictablility 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 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 State Financial Plan is based on a projection by DOB of
national and State economic activity. DOB forecasted that national economic
growth would weaken, but not turn negative, during the course of 1995 before
beginning to rebound by the end of the year. This dynamic is often described
as a "soft landing". The national economy achieved the desired "soft landing"
in 1995, as growth slowed from 6.2 percent in 1994 to a rate sufficiently slow
to inhibit the buildup of inflationary pressures. This was achieved without
any material pause in the economic expansion, although recession worries
flared in the late spring and early summer. Growth in the national economy is
expected to moderate during 1996, with the nation's gross domestic product
projected to expand by 4.6 percent in 1996 versus 5.0 percent in 1995.
Declining short-term interest rates, slowing employment growth and continued
moderate inflation also characterize the projected path for the nation's
economy in the year ahead.
The annual growth rates of most economic indicators for the
State improved from 1994 to 1995, as the pace of private sector employment
expansion and personal income and wage growth all accelerated. Government
employment fell as workforce reductions were implemented at federal, State and
local levels. Similar to the nation, some moderation of growth is expected in
the year ahead. Private sector employment is expected to continue to rise,
although somewhat more slowly than in 1995, while public employment should
continue to fall, reflecting government budget cutbacks. Anticipated continued
restraint in wage settlements, a lower rate of employment growth and falling
interest rates are expected to slow personal income growth significantly.
The financial condition of the State is affected by several
factors, including the strength of the State and regional economy and actions
of the Federal government, as well as State actions affecting the level of
receipts and disbursements. Owing to these and other factors, the State may,
in future years, face substantial potential budget gaps resulting from a
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significant disparity between tax revenues projected from a lower recurring
receipts base and the future costs of maintaining State programs at current
levels. Any such recurring imbalance would be exacerbated if the State were to
use a significant amount of nonrecurring resources to balance the budget in a
particular fiscal year. To address a potential imbalance for a given fiscal
year, the State would be required to take actions to increase receipts and/or
reduce disbursements as it enacts the budget for that year, and under the
State Constitution the Governor is required to propose a balanced budget each
year. To correct recurring budgetary imbalances, the State would need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. There can be no assurance, however, that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years.
The 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 1995-96 fiscal year, the General Fund is
expected to account for approximately 49 percent of total governmental-fund
receipts and 69 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.
In recent years, State actions affecting the level of
receipts and disbursements, as well as the relative strength of the State and
regional economy, actions of the Federal government and other factors have
created structural budget gaps for the State. These gaps resulted from a
significant disparity between recurring revenues and the costs of maintaining
or increasing the level of support for State programs. The 1995-96 enacted
budget combines significant tax and program reductions which will, in the
current and future years, lower both the recurring receipts base (before the
effect of any economic stimulus from such tax reductions) and the historical
annual growth in State program spending. The three-year plan to reduce State
personal income taxes will decrease State tax receipts by an estimated $1.7
billion in State fiscal year 1996-97 in addition to the amount of reduction in
State fiscal year 1995-96. Further significant reductions in the personal
income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the
level of receipts in 1995-96. Similarly, many actions taken to reduce
disbursements in the State's 1995-96 fiscal year are expected to provide
greater reductions in State fiscal year 1996-97. These include actions to
reduce the State workforce, reduce Medicaid and welfare expenditures and slow
community mental hygiene program development. The net impact of these and
other factors is expected to produce a potential imbalance in receipts and
disbursements in State fiscal year 1996-97. The Governor has indicated that in
the 1996-97 Executive Budget he will propose to close this potential imbalance
primarily through General Fund expenditure reductions and without increases in
taxes or deferrals of scheduled tax reductions. On October 2, 1995, the State
Comptroller released a report in which he reaffirmed his estimate that the
State will face a budget gap of at least $2.7 billion for the 1996-97 fiscal
year and a projected gap of at least $3.9 billion for the 1997-98 fiscal year.
The State is required to issue three quarterly updates to
the cash-basis State Financial Plan in July, October and January,
respectively. These updates reflect analysis of actual receipts and
disbursements on a cash basis for each respective period, and contain revised
estimates of receipts and disbursements for the then current fiscal year. As
part of the early release of the 1996-97 Executive Budget, the State updated
its 1995-96 cash basis State Financial Plan (the "Financial Plan Update") on
December 15, 1995,
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as a part of the Governor's Executive Budget presentation. The State revised
the cash-basis 1995-96 State Financial Plan on December 15, 1995, in
conjunction with the release of the Executive Budget for the 1996-97 fiscal
year.
Modest changes were made to the cash-basis 1995-96 State
Financial Plan (the "Mid-Year Update"), reflecting two more months of actual
results, deficiency requests by State agencies (the larger of which is for
school aid resulting from revisions to data submitted by school districts),
and administrative efficiencies achieved by State agencies. Total General Fund
receipts are expected to be approximately $73 million lower than estimated at
the time of the second quarterly update to the Mid-Year Update. Tax receipts
are now projected to be $29.57 billion, $8 million less than in the earlier
plan. Miscellaneous receipts and transfers from other funds are estimated at
$3.15 billion, $65 million lower than in the Mid-Year Update. The largest
single change in these estimates is attributable to the lag in achieving $50
million in proceeds from sales of State assets, which are unlikely to be
completed prior to the end of the fiscal year.
Projected General Fund disbursements are reduced by a total
of $73 million, with changes made in most major categories of the 1995-96
State Financial Plan. The reduction in overall spending masks the impact of
deficiency requests totaling more than $140 million, primarily for school aid
and tuition assistance to college students. Offsetting reductions in spending
are attributable to the continued maintenance of strict controls on spending
through the fiscal year by State agencies, yielding savings of $50 million.
Reductions of $49 million in support for capital projects reflect a stringent
review of all capital spending. Reductions of $30 million in debt service
costs reflect savings from refundings undertaken in the current fiscal year,
as well as savings from lower interest rates in the financial market. Finally,
the 1995-96 Financial Plan reflects reestimates based on actual results
through November, the larger of which is a reduction of $70 million in
projected costs for income maintenance. This reduction is consistent with
declining caseload projections.
The balance in the General Fund at the close of the 1995-96
fiscal year is expected to be $172 million, entirely attributable to monies in
the Tax Stabilization Reserve Fund following the required $15 million payment
into that Fund. A $40 million deposit to the Contingency Reserve Fund included
as part of the enacted 1995-96 budget will not be made, and the minor balance
of $1 million currently in the Fund will be transferred to the General Fund.
These Contingency Reserve Fund monies are expected to support payments from
the General Fund for litigation related to the State's Medicaid program, and
for federal disallowances.
Changes in federal aid programs currently pending in
Congress are not expected to have a material impact on the State's 1995-96
Financial Plan, although prolonged interruptions in the receipt of federal
grants could create adverse developments, the scope of which cannot be
estimated at this time. The major remaining uncertainties in the 1995-96 State
Financial Plan continue to be those related to the economy and tax
collections, which could produce either favorable or unfavorable variances
during the balance of the year.
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 October 3,
1995, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and
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contractual obligations from A to Baa1. On October 2, 1995, 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 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 1996-1999 Financial
Plan. The City has estimated that its potential future liability on account of
outstanding claims against it as of June 30, 1995 amounted to approximately
$2.5 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. Because of the insurance obtained
by the Sponsors or by the issuers, however, such changes should not adversely
affect the Trust's ultimate receipt of principal and interest, the Standard &
Poor's or Moody's ratings of the Bonds in the portfolio, or the Standard &
Poor's rating of the Units of the Trust. An investment in Units of the Trust
should be made with an understanding of the risks that such an investment may
entail, certain of which are described below. Unit holders may obtain
additional information concerning a particular Bond by requesting an official
statement from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and
interest. The taxing power of any governmental entity may be limited, however,
by provisions of state constitutions or laws, and an entity's credit will
depend on many factors, including potential erosion of the tax base due to
population declines, natural disasters, declines in the state's industrial
base or inability to attract new industries; economic limits on the ability to
tax without eroding the tax base; state legislative proposals or voter
initiatives to limit ad valorem real property taxes; and the extent to which
the entity relies on Federal or state aid, access to capital markets or other
factors beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease
purchase obligations as a means for financing the acquisition of capital
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projects (e.g., buildings or equipment, among other things). Such obligations
are often made subject to annual appropriations. Certain Series of the Trust
may contain Bonds in the portfolio that are, in whole or in part, subject to
and dependent upon (1) the governmental entity making appropriations from time
to time or (2) the continued existence of special temporary taxes which
require legislative action for their reimposition. The availability of any
appropriation is subject to the willingness of the governmental entity to
continue to make such special appropriations or to reimpose such special
taxes. The obligation to make lease payments exists only to the extent of the
monies available to the governmental entity therefor, and no liability is
incurred by the governmental entity beyond the monies so appropriated. Subject
to the foregoing, once an annual appropriation is made, the governmental
entity's obligation to make lease rental payments is absolute and
unconditional without setoff or counterclaim, regardless of contingencies,
whether or not a given project is completed or used by the governmental entity
and notwithstanding any circumstances or occurrences which might arise. In the
event of non-appropriation, certificate holders' or bondowners' sole remedy
(absent credit enhancement) generally is limited to repossession of the
collateral for resale or releasing, and the obligation of the governmental
lessee is not backed by a pledge of the general credit of the governmental
lessee. In the event of non-appropriation, the Sponsors may instruct the
Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may
contain Bonds in the portfolio that are secured by pledged revenues and
additionally by the so-called "moral obligation" of the State or a local
governmental body. Should the pledged revenues prove insufficient, the payment
of such Bonds is not a legal obligation of the State or local government, and
is subject to its willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage
revenue bonds". Under the Internal Revenue Code of 1986, as amended (the
"Code") (and under similar provisions of the prior tax law), "mortgage revenue
bonds" are obligations the proceeds of which are used to finance
owner-occupied residences under programs which meet numerous statutory
requirements relating to residency, ownership, purchase price and target area
requirements, ceiling amounts for state and local issuers, arbitrage
restrictions, and certain information reporting, certification, and public
hearing requirements. There can be no assurance that additional federal
legislation will not be introduced or that existing legislation will not be
further amended, revised, or enacted after delivery of these Bonds or that
certain required future actions will be taken by the issuing governmental
authorities, which action or failure to act could cause interest on the Bonds
to be subject to federal income tax. If any portion of the Bond proceeds is
not committed for the purpose of the issue, Bonds in such amount could be
subject to earlier mandatory redemption at par, including issues of Zero
Coupon Bonds (see "Original Issue Discount and Zero Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of
Bonds may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. Since such obligations are not general
obligations of a particular state or municipality and are generally payable
primarily or solely from rents and other fees, adverse economic developments
including failure or inability to increase rentals, fluctuations of interest
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
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original issuance dates of such Bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period.
In recent periods of declining interest rates there have been increased
redemptions of housing bonds pursuant to such redemption provisions. In
addition, the housing bonds in the Trust are also subject to mandatory
redemption in part at par at any time that voluntary or involuntary
prepayments of principal on the underlying mortgages are made to the trustee
for such Bonds or that the mortgages are sold by the bond issuer. Prepayments
of principal tend to be greater in periods of declining interest rates; it is
possible that such prepayments could be sufficient to cause a housing bond to
be redeemed substantially prior to its stated maturity date, earliest call
date or sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric
utility industry include difficulty in financing large construction programs
during an inflationary period; restrictions on operations and increased costs
and delays attributable to environmental considerations; the difficulty of the
capital markets in absorbing utility debt and equity securities; the
availability of fuel for electric generation at reasonable prices, including
among other considerations the potential rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal; technical
cost factors and other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including among other considerations the problems associated with the use of
radioactive materials and the disposal of radioactive waste; and the effects
of energy conservation. Certain Bonds may have been issued in connection with
the financing of nuclear generating facilities. In view of recent developments
in connection with such facilities, legislative and administrative actions
have been taken and proposed relating to the development and operation of
nuclear generating facilities. The Sponsors are unable to predict whether any
such actions or whether any such proposals or litigation, if enacted or
instituted, will have an adverse impact on the revenues available to pay the
debt service on the Bonds in the portfolio issued to finance such nuclear
projects.
Each of the problems referred to above could adversely
affect the ability of the issuers of public power revenue bonds to make
payments of principal of and/or interest on such bonds. Certain municipal
utilities or agencies may have entered into contractual arrangements with
investor-owned utilities and large industrial users and consequently may be
dependent in varying degrees on the performance of such contracts for payment
of bond debt service.
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience may
vary considerably from such projections. A hospital's gross receipts and net
income will be affected by future events and conditions including, among other
things, demand for hospital services and the ability of the hospital to
provide them, physicians' confidence in hospital management capability,
economic developments in the service area, competition, actions by insurers
and governmental agencies and the increased cost and possible unavailability
of malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from 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
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the areas noted above, among other things, would affect all hospitals to
varying degrees and, accordingly, any adverse change in these areas may affect
the ability of such issuers to make payment of principal and interest on such
bonds.
Higher Education Revenue Bonds. Higher education revenue
bonds include debt of state and private colleges, universities and systems,
and parental and student loan obligations. The ability of universities and
colleges to meet their obligations is dependent upon various factors,
including the revenues, costs and enrollment levels of the institutions. In
addition, their ability may be affected by declines in Federal, state and
alumni financial support, fluctuations in interest rates and construction
costs, increased maintenance and energy costs, failure or inability to raise
tuition or room charges and adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the
pollution control facilities category include securities issued on behalf of a
private corporation,* including utilities, to provide facilities for the
treatment of air, water and solid waste pollution. Repayment of these bonds is
dependent upon income from the specific pollution control facility and/or the
financial condition of the project corporation. See also "Private Activity
Bonds."
Other Utility Revenue Bonds. Bonds in this category include
securities issued to finance natural gas supply, distribution and transmission
facilities, public water supply, treatment and distribution facilities, and
sewage collection, treatment and disposal facilities. Repayment of these bonds
is dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in
this category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and
revenues derived from the collection of charges for disposal of solid waste.
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
- --------
* 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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<PAGE>
local assistance including motor fuel and motor vehicle taxes, fees and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may
contain other Bonds that are "private activity bonds" (often called industrial
revenue bonds ("IRBs") if issued prior to 1987), which would be primarily of
two types: (1) Bonds for a publicly owned facility that a private entity may
have a right to use or manage to some degree, such as an airport, seaport
facility or water system, and (2) Bonds for facilities deemed owned or
beneficially owned by a private entity but which were financed with tax-exempt
bonds of a public issuer, such as a manufacturing facility or a pollution
control facility. In the case of the first type, bonds are generally payable
from a designated source of revenues derived from the facility and may further
receive the benefit of the legal or moral obligation of one or more political
subdivisions or taxing jurisdictions. In most cases of project financing of
the first type, receipts or revenues of the Issuer are derived from the
project or the operator or from the unexpended proceeds of the bonds. Such
revenues include user fees, service charges, rental and lease payments, and
mortgage and other loan payments.
The second type of issue will generally finance projects
which are owned by or for the benefit of, and are operated by, corporate
entities. Ordinarily, such private activity bonds are not general obligations
of governmental entities and are not backed by the taxing power of such
entities, and are solely dependent upon the creditworthiness of the corporate
user of the project or corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures pursuant to
which the revenues and receipts payable under the issuer's arrangements with
the users or the corporate operator of a particular project have been assigned
and pledged to the holders of the private activity bonds. In certain cases a
mortgage on the underlying project has been assigned to the holders of the
private activity bonds or a trustee as additional security. In addition,
private activity bonds are frequently directly guaranteed by the corporate
operator of the project or by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds
secured primarily or solely by receipt of certain state or local taxes,
including sales and use taxes or excise taxes. Consequently, such bonds may be
subject to fluctuations in the collection of such taxes. Such bonds do not
include tax increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also
contain revenue bonds which are payable from and secured primarily or solely
by 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.
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Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected
by general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1995, approximately 89% of Puerto Rico's exports were to the United States
mainland, which was also the source of 65% of Puerto Rico's imports. In fiscal
1995, Puerto Rico experienced a $4.6 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the
years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real
estate, wholesale and retail trade, and hotel and related services, also plays
a major role in the economy. It ranks second only to manufacturing in
contribution to the gross domestic product and leads all sectors in providing
employment. In recent years, the service sector has experienced significant
growth in response to and paralleling the expansion of the manufacturing
sector. Since fiscal 1985, personal income, both aggregate and per capita, has
increased consistently in each fiscal year. In fiscal 1995, aggregate personal
income was $27.0 billion ($22.5 billion in 1987 prices) and personal income
per capita was $7,296 ($6,074 in 1987 prices). Personal income includes
transfer payments to individuals in Puerto Rico under various social programs.
Total federal payments to Puerto Rico, which include many types in addition to
federal transfer payments, are lower on a per capita basis in Puerto Rico than
in any state. Transfer payments to individuals in fiscal 1994 were $5.9
billion, of which $4.0 billion, or 67.6%, represent entitlement to individuals
who had previously performed services or made contributions under programs
such as Social Security, Veterans Benefits and Medicare. The number of persons
employed in Puerto Rico during fiscal 1995 averaged 1,051,000, an increase of
4.0% over fiscal 1994. The unemployment rate in Puerto Rico for fiscal 1995
decreased from 16.0% to 13.8%. The Puerto Rico Planning Board's most recent
gross product forecast for fiscal 1996, made in February 1995, showed an
increase of 2.7%. The Planning Board's Economic Activity Index, a composite
index for thirteen economic indicators, increased 2.7% for the first seven
months of fiscal 1995 compared to the same period of fiscal 1994, which period
showed an increase of 1.7% over the same period of fiscal 1993. During the
first four months of fiscal 1996 the Index increased 1.8% compared to the same
period of fiscal 1995, which period showed an increase of 2.7% over the same
period of fiscal 1994. Growth in the Puerto Rico economy in fiscal 1996
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.
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
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of taxable obligations. In addition, the Code provides that the basis of a
tax-exempt obligation is increased by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax
basis in a Bond is increased by any accrued original issue discount as is a
Unit holder's tax basis in his Units. For Bonds issued after June 9, 1980 that
are redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any such gain may be taxable as ordinary income.
There can be no assurance that additional Federal
legislation will not be enacted or that existing legislation will not be
amended hereafter with the effect that interest on bonds becomes subject to
Federal income taxation. If the interest on the Bonds should ultimately be
deemed to be taxable, the Sponsors may instruct the Trustee to sell them, and,
since they would be sold as taxable securities, it is expected that they would
have to be sold at a substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption
prior to their stated maturity date pursuant to sinking fund or call
provisions. A sinking fund is a reserve fund accumulated over a period of time
for retirement of debt. Sinking fund provisions are designed to redeem a
significant portion of an issue gradually over the life of the issue.
Obligations to be redeemed are generally chosen by lot. A callable debt
obligation is one which is subject to redemption prior to maturity at the
option of the issuer. To the extent that obligations in the Trust have a bid
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
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of pollution control revenue bonds under recently enacted environmental
protection statutes, may affect the validity of such Securities or the
tax-free nature of the interest thereon. While the outcome of such litigation
can never be entirely predicted with certainty, bond counsel have given
opinions to the issuing authorities of each Bond on the date of issuance to
the effect that such Securities have been validly issued and that the interest
thereon is exempt from regular Federal income tax. In addition, other
litigation or other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with respect to
Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth
below, which is based upon the maturities of each Bond in the Trust. The
Sponsors have implemented this variable format as a more equitable method of
assessing the sales charge for secondary market purchases. For the purpose of
computing the sales charge, Bonds are deemed to mature on their expressed
maturity dates, unless the Evaluator evaluates the price of the Bonds to a
different date, such as a call date or a mandatory tender date, in which case
the maturity will be deemed to be such other date. This method of computing
the sales charge will apply different sales charge rates to each Bond in the
Trust depending on the maturity of each Bond in accordance with the following
schedule:
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
0 Months to 2 Years 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price
is applied to all secondary market unit purchases. There is no reduction of
the sales charge for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest
on the Securities at the date of delivery of the Units to the purchaser is
also added to the Public Offering Price.
Unless Securities are in default in payment of principal or
interest or in significant risk of such default, the Evaluator will not
attribute any value to the Units due to the insurance obtained by the Trust.
See also "Rights of Unit Holders--Certificates" and "Rights of Unit
Holders--Redemption" for information relating to redemption of Units. The
Evaluator will consider in its evaluation of Defaulted Bonds which are covered
by insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments as well as the market value of the Securities
and the market value of similar securities of issuers whose securities, if
identifiable, carry identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or risk of
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<PAGE>
default. If such other securities are not identifiable, the Evaluator will
compare prices of securities with substantially identical interest rates and
maturities and of a creditworthiness of minimum investment grade. As to Series
18 and subsequent Series, the value of the insurance will be equal to the
difference between (i) the market value of Defaulted Bonds assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance and the related
custodial fee) and (ii) the market value of such Defaulted Bonds not covered
by Permanent Insurance. In any case the Evaluator will consider the ability of
the Insurer to meet its commitments under the Trust's insurance policy and, in
the case of Series 18 and subsequent Series, MBIA's or MBIAC's commitment to
issue Permanent Insurance. For a description of the circumstances under which
a full or partial suspension of the right of Unit holders to redeem their
Units may occur, see "Rights of Unit Holders--Redemption."
It is the present intention of the Trustee (and, in the case
of Series 18 and subsequent Series, assuming the Trustee does not exercise the
right to obtain Permanent Insurance on any Defaulted Bonds), so long as the
Trust contains either some Bonds not in default or any Pre-insured Bonds, not
to sell Defaulted Bonds to effect redemptions or for any other reason but
rather to retain them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE
INSURANCE OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance
obtained by the issuer of a Pre-insured Bond, or by some other party, is
effective so long as such Pre-insured Bond is outstanding and the insurer of
such Bond continues to fulfill its obligations. Therefore, any such insurance
may be considered to represent an element of market value in regard to the
Pre-insured Bond, but the exact effect, if any, of this insurance on such
market value cannot be predicted. Regardless of whether the insurer of a Pre-
insured Bond continues to fulfill its obligations, however, such Bond will in
any case continue to be insured under the policy obtained by the Trust from
the Insurer as long as the Bond is held in the Trust.
Certain commercial banks are making Units of the Trust
available to their customers on an agency basis. A portion of the sales charge
discussed above is retained by or remitted to the banks. Under the Glass-
Steagall Act, banks are prohibited from underwriting Trust Units; however, the
Glass-Steagall Act does permit certain agency transactions, and banking
regulators have not indicated that these particular agency transactions are
not permitted under such Act.
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
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the Securities in the Trust may be expected to be less than the aggregate
offering price. If a Unit holder wishes to dispose of his Units, he should
inquire of the Sponsors as to current market prices prior to making a tender
for redemption to the Trustee. See "Rights of Unit Holders--Redemption" and
"Sponsors."
Employees (and their immediate families) of the Sponsors
may, pursuant to employee benefit arrangements, purchase Units of the Trust at
a price equal to the bid side evaluation of the underlying securities in the
Trust, divided by the number of Units outstanding. Such arrangements result in
less selling effort and selling expenses than sales to employee groups of
other companies. Resales or transfers of Units purchased under the employee
benefit arrangements may only be made through the Sponsors' secondary market,
so long as it is being maintained.
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is
the Sponsors' intention to effect a public distribution of the Units solely
through their own organizations. Units may, however, be sold to dealers who
are members of the National Association of Securities Dealers, Inc. at a
discount. Such discount is subject to change from time to time by the Agent
for the Sponsors. Sales will be made only with respect to whole Units, and the
Sponsors reserve the right to reject, in whole or in part, any order for the
purchase of Units. It is the Sponsors' intention to continue to qualify Units
of the Trust for sale where such qualification is necessary. In maintaining a
market for the Units (see "Public Offering--Market for Units"), the Sponsors
will realize profits or sustain losses in the amount of any difference between
the price at which they buy Units and the price at which they resell such
Units (the Public Offering Price described in the currently effective
Prospectus which includes the sales charge set forth in Part I of this
Prospectus under "Summary of Essential Financial Information") or the price at
which they may redeem such Units (based upon the aggregate bid side evaluation
of the Securities), as the case may be, and to the extent that they earn sales
charges on resales.
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
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as set forth under "Summary of Essential Financial Information" in Part I of
this Prospectus will be realized in the future.
Estimated Long-Term Return is calculated using a formula
that (i) takes into consideration, and determines and factors in the relative
weightings of, the market values, yields (taking into account the amortization
of premiums and the accretion of discounts) and estimated retirements of all
the Bonds in the portfolio and (ii) takes into account the expenses and sales
charge associated with each Unit of the Trust. The Estimated Long-Term Return
assumes that each Bond is retired on its pricing life date (i.e., that date
which produces the lowest dollar price when yield price calculations are done
for each optional call date and the maturity date of a callable security). If
the Bond is retired on any optional call or maturity date other than the
pricing life date, the yield to the holder of that Bond will be greater than
the initial quoted yield. Since the market values and estimated retirements of
the Bonds, the expenses of the Trust and the Net Annual Interest Income and
Public Offering Price per Unit may change, there is no assurance that the
Estimated Long-Term Return as set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Trust has been obtained from the
Insurer by the Trust. The Insurer has issued a policy of insurance covering
each of the Bonds in the Trust, including Pre-insured Bonds. As to each Trust,
the Insurer shall not have any liability under the policy with respect to any
Bonds which do not constitute part of the Trust. In determining to insure the
Bonds, the Insurer has applied its own respective standards which generally
correspond to the standards it has established for determining the
insurability of new issues of municipal bonds.
By the terms of its policy, the Insurer unconditionally
guarantees to the Trust the payment, when due, required of the issuer of the
Bonds of an amount equal to the principal of (either at the stated maturity or
by any advancement of maturity pursuant to a mandatory sinking fund payment)
and interest on the Bonds as such payments shall become due but not paid.
Except as provided below with respect to small issue industrial development
Bonds and pollution control revenue Bonds, in the event of any acceleration of
the due date of principal by reason of mandatory or optional redemption (other
than mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been
due had there not been an acceleration. The Insurer will be responsible for
such payments less any amounts received by the Trust from any trustee for the
Bond issuers or from any other source. The policy issued by the Insurer does
not guarantee payment on an accelerated basis, the payment of any redemption
premium or the value of the Units. The MBIA and MBIAC policies also do not
insure against nonpayment of principal of or interest on the Bonds resulting
from the insolvency, negligence or any other act or omission of the trustee or
other paying agent for the Bonds. With respect to small issue industrial
development Bonds and pollution control revenue Bonds in Series 9 through
Series 30 and Series 31 and subsequent Series, however, MBIA and MBIAC,
respectively, guarantee the full and complete payments required to be made by
or on behalf of an issuer of such Bonds if there occurs pursuant to the terms
of the Bonds an event which results in the loss of the tax-exempt status of
interest on such Bonds, including principal, interest or premium payments
payable thereon, if any, as and when required to be made by or on behalf of
the issuer pursuant to the terms of such Bonds. No assurance can be given that
the policy issued by the Insurer would insure the payment of principal or
interest on Bonds which is not required to be paid by the issuer thereof
because the Bonds were not validly issued. At the respective times of
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issuance of the Bonds, opinions relating to the validity thereof were rendered
by bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is
non-cancellable and will continue in force so long as the Trust is in
existence and the Securities described in the policy continue to be held in
and owned by the Trust. Failure to pay premiums on the policy obtained by the
Trust will not result in the cancellation of insurance but will force the
Insurer to take action against the Trustee to recover premium payments due it.
The Trustee in turn will be entitled to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any
Bond which has been redeemed from or sold by the Trustee on the date of such
redemption or on the settlement date of such sale, and the Insurer shall not
have any liability under the policy as to any such Bond thereafter. If the
date of such redemption or the settlement date of such sale occurs between a
record date and a date of payment of any such Bonds, any MBIA or MBIAC policy
will terminate as to such Bond on the business day next succeeding such date
of payment. The termination of a MBIA or MBIAC policy as to any Bond shall not
affect MBIA's or MBIAC's obligations regarding any other Bond in such Trust or
any other Trust which has obtained a MBIA or MBIAC insurance policy. The
policy issued by the Insurer will terminate as to all Bonds on the date on
which the last of the Bonds matures, is redeemed or is sold by the Trust.
In the case of Series 18 through 30 and Series 31 and
subsequent Series, pursuant to irrevocable commitments of MBIA and MBIAC,
respectively, the Trustee upon the sale of a Bond in the Trust has the right
to obtain permanent insurance with respect to such Bond (i.e., insurance to
maturity of the Bonds) (the "Permanent Insurance") upon the payment of a
single predetermined insurance premium from the proceeds of the sale of such
Bond. Accordingly, any Bond in such Series of the Trust is eligible to be sold
on an insured basis. It is expected that the Trustee will exercise the right
to obtain Permanent Insurance for a Bond in the Trust upon instruction from
the Sponsors only if upon such exercise the Trust would receive net proceeds
(sale of Bond proceeds less the insurance premium attributable to the
Permanent Insurance and the related custodial fee) from such sale in excess of
the sale proceeds if such Bond was sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness
of such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to
an increase predetermined at the Date of Deposit and payable from the proceeds
of the sale of such Bond.
Except as indicated below, insurance obtained by the Trust
has no effect on the price or redemption value of Units thereof. It is the
present intention of the Evaluator to attribute a value to the insurance
obtained by the Trust (including, as to Series 18 and subsequent Series, the
right to obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units thereof only if the Bonds covered by such insurance
are in default in payment of principal or interest or, in the Sponsors'
opinion, in significant risk of such default ("Defaulted Bonds"). The value of
the insurance will be equal to the difference between (1) the market value of
a Defaulted Bond insured by the Trust (as to Series 18 and subsequent Series,
the market value of a Defaulted Bond assuming the exercise of the right to
obtain Permanent Insurance less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of similar securities not in default or significant risk thereof
(as to Series 18 and subsequent Series, the market value of such Defaulted
Bonds not covered by Permanent Insurance). Insurance obtained by the issuer
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of a Bond or by parties other than the Trust is effective so long as such Pre-
insured Bond is outstanding and the insurer of such Pre-insured Bond continues
to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond
continues to fulfill its obligations, however, such Bond will continue to be
insured under the policy obtained by the Trust from MBIA or MBIAC as long as
the Bond is held in the Trust. Insurance obtained by the issuer of a Bond or
by other parties may be considered to represent an element of market value in
regard to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
In the event that interest on or principal of a Bond is due
for payment but is unpaid by reason of nonpayment by the issuer thereof, the
Insurer will make payments to its fiscal agent, as identified in the insurance
policy (the "Fiscal Agent"), equal to such unpaid amounts of principal and
interest not later than one business day after the Insurer has been notified
by the Trustee that such nonpayment has occurred (but not earlier than the
date such payment is due). The Fiscal Agent will disburse to the Trustee the
amount of principal and interest which is then due for payment but is unpaid
upon receipt by the Fiscal Agent of (1) evidence of the Trust's right to
receive payment of such principal and interest and (2) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or interest then due for payment shall thereupon vest in the
Insurer. Upon payment by the Insurer of any principal or interest payments
with respect to any Bonds, the Insurer shall succeed to the rights of the
owner of such Bonds with respect to such payment.
National Union, which was incorporated in Pennsylvania in
1901, is a stock insurance company which provides fire and casualty insurance
and is a wholly-owned subsidiary of American International Group, Inc.
MBIA Insurance Corporation ("MBIA"), formerly known as
Municipal Bond Investors Assurance Corporation, is the principal operating
subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc.
is not obligated to pay the debts of or claims against MBIA. MBIA is domiciled
in the State of New York and licensed to do business in all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA has one European branch in the Republic of France.
As of March 31, 1996 MBIA had admitted assets of $4.0
billion (unaudited), total liabilities of $2.7 billion (unaudited), and total
capital and surplus of $1.3 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, MBIA had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital and
surplus of $1.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. All information regarding MBIA, a wholly owned subsidiary of MBIA
Inc., including the financial statements of MBIA for the year ended December
31, 1995, prepared in accordance with generally accepted accounting
principles, included in the Annual Report on Form 10-K of MBIA Inc. for the
year ended December 31, 1995 is hereby incorporated by reference into this
Official Statement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated by reference herein shall be modified or
superseded for purposes of this Official Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Official Statement.
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<PAGE>
No representation is made herein as to the accuracy or
adequacy of such information or as to the absence of material adverse changes
in such information subsequent to the date thereof. The Sponsors are not aware
that the information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the
negotiations in respect thereof (and, in the case of Series 18 and subsequent
Series, certain agreements relating to Permanent Insurance) represent the only
significant relationship between the Insurer and the Trust. Otherwise, neither
the Insurer nor any associate thereof has any material business relationship,
direct or indirect, with the Trust or the Sponsors, except that the Sponsors
may from time to time in the normal course of their business participate as
underwriters or as managers or as members of underwriting syndicates in the
distribution of new issues of municipal bonds for which a policy of insurance
guaranteeing the payment of interest and principal has been obtained from the
Insurer, and except that James A. Lebenthal, Chairman of the Board of
Directors of Lebenthal & Co., Inc., is a director of MBIA Inc. Although all
issues contained in the portfolio of the Trust are individually insured,
neither the Trust, the Units nor the portfolio is insured directly or
indirectly by the Insurer.
A purpose of the insurance on the Bonds in the portfolio
obtained by the Trust is to obtain a higher yield on the Trust portfolio than
would be available if all the Securities in such portfolio had Standard &
Poor's Rating group, a division of McGraw-Hill ("Standard & Poor's"), "AAA"
rating and/or Moody's Investors Service, Inc. ("Moody's") "Aaa" rating but
were uninsured and yet at the same time to have the protection of insurance of
payment of interest and principal on the Securities. There is, of course, no
certainty that this result will be achieved. Any Pre-insured Bonds in the
Trust (all of which are rated "AAA" by Standard & Poor's and/or "Aaa" by
Moody's, respectively) may or may not have a higher yield than uninsured bonds
rated "AAA" by Standard & Poor's and/or "Aaa" by Moody's, respectively.
Because the Securities are insured by the Insurer as to the
payment of principal and interest, Standard & Poor's has assigned its "AAA"
investment rating to the Units of the Trust and, in the case of Series 17 and
subsequent Series, to all the Bonds, as insured, and, in the case of Series 6
and subsequent Series, Moody's has assigned a rating of "Aaa" to all of the
Bonds in the Trust, as insured. See "Tax Exempt Bond Portfolio" in Part I of
this Prospectus. The obtaining of these ratings by the Trust should not be
construed as an approval of the offering of the Units by Standard & Poor's or
Moody's or as a guarantee of the market value of the Trust or of the Units.
These ratings are not a recommendation to buy, hold or sell and do not take
into account the extent to which Trust expenses or portfolio asset sales for
less than the Trust's acquisition price will reduce payment to the Unit
holders of the interest or principal.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust
portfolio is, in the opinion of bond counsel to the issuing governmental
authorities, which opinion was rendered at the time of original issuance of
the Bonds, excludible from gross income under the Internal Revenue Code of
1954, as amended (the "1954 Code"), or the Internal Revenue Code of 1986, as
amended (the "Code"), depending upon the date of issuance of the Bonds in any
particular Series.
See "The Trust--Portfolio."
Gain (or loss) realized on a sale, maturity or redemption of
the Bonds or on a sale or redemption of a Unit is, however, includible in
gross income as capital gain (or loss) for Federal, state and local income tax
purposes, assuming that the Unit is held as a capital asset. Such gain (or
loss) does not include any amount received in respect of accrued interest. In
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addition, such gain (or loss) may be long- or short-term, depending on the
holding period of the Units. Bonds selling at a market discount tend to
increase in market value as they approach maturity when the principal amount
is payable, thus increasing the potential for taxable gain (or reducing the
potential for loss) on their redemption, maturity or sale. Gain on the
disposition of a Bond purchased at a market discount generally will be treated
as ordinary income, rather than capital gain, to the extent of accrued market
discount. The deductibility of capital losses is limited to the amount of
capital gain; in addition, up to $3,000 of capital losses of non-corporate
Unit holders may be deducted against ordinary income. Since the proceeds from
sales of Bonds, under certain circumstances, may not be distributed pro-rata,
a Unit holder's taxable income for any year may exceed the actual cash
distributions to the Unit holder in that year.
Among other things, the Code provides for the following: (1)
interest on certain private activity bonds issued after August 7, 1986 is
included in the calculation of the individual's alternative minimum tax
(currently taxed at a rate of up to 28%); none of the Bonds in the Trust is a
private activity bond, the interest on which is subject to the alternative
minimum tax; (2) interest on certain private activity bonds issued after
August 7, 1986 is included in the calculation of the corporate alternative
minimum tax and 75% of the amount by which adjusted current earnings
(including interest on all tax-exempt bonds, such as the Bonds) exceed
alternative minimum taxable income, as modified for this calculation, will be
included in alternative minimum taxable income. Interest on the Bonds is
includible in the adjusted current earnings of a corporation for purposes of
such alternative minimum tax, the Code does not otherwise require
corporations, and does not require taxpayers other than corporations,
including individuals, to treat interest on the Bonds as an item of tax
preference in computing an alternative minimum tax; (3) subject to certain
exceptions, no financial institution is allowed a deduction for that portion
of the institutions's interest expense allocable to tax-exempt interest on
tax-exempt bonds acquired after August 7, 1986; (4) the amount of the
deduction allowed to property and casualty insurance companies for
underwriting loss is decreased by an amount determined with regard to
tax-exempt interest income and the deductible portion of dividends received by
such companies; (5) all taxpayers are required to report for informational
purposes on their Federal income tax returns the amount of tax-exempt interest
they receive; (6) an issuer must meet certain requirements on a continuing
basis in order for interest on a tax-exempt bond to be tax-exempt, with
failure to meet such requirements resulting in the loss of tax exemption; and
(7) a branch profits tax on U.S. branches of foreign corporations is
implemented which, because of the manner in which the branch profits tax is
calculated, may have the effect of subjecting the U.S. branch of a foreign
corporation to Federal income tax on the interest on bonds otherwise exempt
from such tax.
Section 86 of the Code provides that a portion of social
security benefits is includible in taxable income for taxpayers whose
"modified adjusted gross income," combined with a portion of their social
security benefits, exceeds a base amount. The base amount is $25,000 for an
individual, $32,000 for a married couple filing a joint return and zero for
married persons filing separate returns. Interest on tax-exempt bonds is 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
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<PAGE>
interest thereon from regular Federal income tax were or (with respect to
"when, as and if issued" Bonds) were to be rendered by bond counsel to the
issuing governmental authorities. Neither the Sponsors nor their special
counsel have made any review of proceedings relating to the issuance of such
Bonds or the basis for bond counsel's opinions.
In the case of certain Bonds which may be included in the
Trust, the opinions of bond counsel indicate that, although interest on such
Bonds is generally exempt from Federal income tax, such Bonds are "industrial
development bonds" under the 1954 Code or are "private activity bonds" as that
term is defined in the Code (the following discussion also applies to Bonds
that are "industrial development bonds" as they are defined in the 1954 Code
in terms similar to those under which private activity bonds are defined in
the Code and are generally subject to the same limitations). Interest on
certain qualified small issue private activity bonds is exempt from all
present Federal income taxation only so long as the "principal user" of the
bond-financed facility and any "related person" remain within the capital
expenditure limitations imposed by Section 144(a)(4) of the Code and only so
long as the aggregate private activity bond limits of Section 144(a)(10) of
the Code (Sections 103(b)(6)(D) and 103(b)(15) of the 1954 Code, respectively)
are met. In addition, interest on private activity bonds will not be exempt
from Federal income tax for any period during which such bonds are held by a
"substantial user" of the facilities financed by the proceeds of such bonds
(or a "related person" to such a "substantial user"). Interest attributable to
such Bonds, if received by a Unit holder who is such a "substantial user" or
"related person," will be taxable (i.e., not tax-exempt) to the same extent as
if such Bonds were held directly as owner.
In addition, a Bond can lose its tax-exempt status as a
result of other subsequent but unforeseeable events such as prohibited
"arbitrage" activities by the issuer of the Bond or the failure of the Bond to
continue to satisfy the conditions required for the exemption of interest
thereon from regular federal income tax. No investigation has been made as to
the current or future owners or users of the facilities financed by the bonds,
the amount of such persons' outstanding tax-exempt private activities bonds,
or the facilities themselves, and no assurance can be given that future events
will not affect the tax-exempt status of the Bonds. Investors should consult
their tax advisors for advice with respect to the effect of these provisions
on their particular tax situation.
Under Section 265 of the Code, if borrowed funds are used by
a Unit holder to purchase or carry Units of the Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. Under
rules used by the Internal Revenue Service, the purchase of Units may be
considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Units. Similar rules are
applicable for purposes of state and local taxation. Also, under Section 291
of the Code, certain financial institutions that acquired Units on or before
August 7, 1986 may be subject to a reduction in the amount of interest expense
that would otherwise be allowable as a deduction for Federal income tax
purposes. Subject to certain exceptions under Section 265 of the Code, no
deduction is allowed to a financial institution for that portion of the
institution's interest expense allocable to tax-exempt interest on Units
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
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applicable to obligations issued after September 3, 1982 and acquired after
March 1, 1984. The Trust's tax basis in a Bond is increased by any accrued
original issue discount as is a Unit holder's tax basis in his Units. For
Bonds issued on or after June 9, 1980 that are redeemed prior to maturity, the
difference between the Trust's basis, as adjusted, and the amount received
will be taxable gain or loss to the Unit holders.
Unit holders should consult their tax advisors with respect
to the state and local tax consequences of owning original issue discount
bonds. It is possible that, under applicable provisions governing
determination of such state and local taxes, interest on tax-exempt bonds such
as any Bonds issued with original issue discount may be deemed to be received
in the year of accrual even though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a
Bond exceeds his pro rata interest in the Bond's face amount, the Unit holder
will be considered to have purchased his pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating
to his pro rata interest in a Bond prior to the maturity of the Bond.
Amortization of premium on a Bond will reduce a Unit holder's tax basis for
this pro rata interest in the Bond, but will not result in any deduction from
the Unit holder's income. Thus, for example, a Unit holder who purchases a pro
rata interest in a Bond at a premium and resells it at the same price will
recognize taxable gain equal to the portion of the premium that was amortized
during the period the Unit holder is considered to have held such interest.
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.
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
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<PAGE>
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.
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
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<PAGE>
rata share of the Interest Account of the Trust and the pro rata share of cash
in the Principal Account of the Trust represented by each Unit thereof will be
computed by the Trustee each month as of the Record Date. See "Summary of
Essential Financial Information" in Part I of this Prospectus. Proceeds
received from the disposition of any of the Securities subsequent to a Record
Date and prior to the next succeeding Distribution Date will be held in the
Principal Account for the Trust and will not be distributed until the second
succeeding Distribution Date. Because interest on the Securities is not
received by the Trust at a constant rate throughout the year, any particular
interest distribution may be more or less than the amount credited to the
Interest Account of the Trust as of the Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units
under the applicable plan of distribution. No distribution need be made from
the Principal Account if the balance therein is less than an amount sufficient
to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to
the first Record Date and to the related Distribution Date is an asset of the
respective Unit holder and will be realized in subsequent distributions or
upon the earlier of the sale of such Units or the maturity, redemption or sale
of Securities in the Trust.
The plan of distribution selected by a Unit holder will
remain in effect until changed. Unit holders purchasing Units in the secondary
market will initially receive distributions in accordance with the election of
the prior owner. Each April, the Trustee will furnish each Unit holder a card
to be returned together with the Certificate by May 15 of such year if the
Unit holder desires to change his plan of distribution, and the change will
become effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units."
As of the fifteenth day of each month the Trustee will
deduct from the Interest Account and, to the extent funds are not sufficient
therein, from the Principal Account, amounts necessary to pay the expenses of
the Trust as of the first day of such month. See "The Trust--Expenses and
Charges." The Trustee also may withdraw from said accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of the Trust. Amounts so withdrawn shall not be considered a part
of the Trust's assets until such time as the Trustee shall return all or any
part of such amounts to the appropriate account. In addition, the Trustee may
withdraw from the Interest Account and the Principal Account such amounts as
may be necessary to cover redemption of Units by the Trustee. See "Rights of
Unit Holders--Redemption." Funds which are available for future distributions,
payments of expenses and redemptions are in accounts which are non-interest
bearing to the Unit holders and are available for use by the Trustee pursuant
to normal banking procedures.
Because interest on Securities in the Trust is payable at
varying intervals, usually in semi-annual installments, the interest accruing
to the Trust will not be equal to the amount of money received and available
monthly for distribution from the Interest Account to Unit holders choosing
the monthly payment plan. 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
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<PAGE>
receive his proportionate share of the accrued interest from the purchaser of
his Units. Similarly, if a Unit holder redeems all or a portion of his Units,
the Redemption Price per Unit which he is entitled to receive from the Trustee
will also include accrued interest on the Securities. Thus, the accrued
interest attributable to a Unit will not be entirely recovered until the Unit
holder either redeems or sells such Unit or until the Trust is terminated. See
"Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit."
Expenses and Charges
Initial Expenses
At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the cost of the
initial preparation, printing and execution of the Trust Agreement and the
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth
under "Summary of Essential Financial Information" in Part I of this
Prospectus. The Sponsors' fee, if any, which is earned for portfolio
supervisory services, is based on the face amount of Securities in the Trust
at December 1 of each year. The Sponsors' fee, which is not to exceed the
maximum amount set forth in the "Summary of Essential Financial Information"
in Part I of this Prospectus, may exceed the actual costs of providing
portfolio supervisory services for a particular Series, but at no time will
the total amount received by the Sponsors for portfolio supervisory services
rendered to all Series of Empire State Municipal Exempt Trust in any calendar
year exceed the aggregate cost to them of supplying such services in such
year.
The Trustee will receive for its ordinary recurring services
to the Trust an annual fee in the amount set forth in the "Summary of
Essential Financial Information" in Part I of this Prospectus. There is no
minimum fee and, except as hereinafter set forth, no maximum fee. For a
discussion of certain benefits derived by the Trustee from the Trust's funds,
see "Rights of Unit Holders--Distribution of Interest and Principal." For a
discussion of the services performed by the Trustee pursuant to its
obligations under the Trust Agreement, reference is made to the material set
forth under "Rights of Unit Holders."
The Trustee's and Evaluator's fees are payable monthly on or
before each Distribution Date and the Sponsors' annual fee is payable annually
on December 1, each from the Interest Account to the extent funds are
available and then from the Principal Account. These fees may be increased
without approval of the Unit holders by amounts not exceeding proportionate
increases in consumer prices for services as measured by the United States
Department of Labor's Consumer Price Index entitled "All Services Less Rent."
If the balances in the Principal and Interest Accounts are insufficient to
provide for amounts payable by the Trust, or amounts payable to the Trustee
which are secured by its prior lien on the Trust, the Trustee is permitted to
sell Bonds to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth
under "Summary of Essential Financial Information" in Part I of this
Prospectus is based on the aggregate amount of Bonds in the Trust as of the
date of such information. The premium, which is an obligation of each
respective Trust, is payable monthly by the Trustee on behalf of the Trust. As
Securities in the
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<PAGE>
portfolio of the Trust mature, are redeemed by their respective issuers or are
sold by the Trustee, the amount of the premium will be reduced in respect of
those Securities no longer owned by and held in the Trust. The Trust does not
incur any premium expense for any insurance which has been obtained by an
issuer of a Pre-insured Bond, since the premium or premiums for such insurance
have been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on
Bonds which are also MBIAC Pre-insured Bonds or MBIA Pre-insured Bonds. The
premium payable for Permanent Insurance and the related custodial fee will be
paid solely from the proceeds of the sale of a Bond from the Trust in the
event that the Trustee exercises the right to obtain Permanent Insurance on
such Bond.
Other Charges
The following additional charges are or may be incurred by
the Trust: all expenses (including audit and counsel fees) of the Trustee
incurred in connection with its activities under the Trust Agreement,
including annual audit expenses by independent public accountants selected by
the Sponsors (so long as the Sponsors maintain a secondary market, the
Sponsors will bear any audit expense which exceeds 50 cents per Unit), the
expenses and costs of any action undertaken by the Trustee to protect the
Trust and the rights and interests of the Unit holders; fees of the Trustee
for any extraordinary services performed under the Trust Agreement;
indemnification of the Trustee for any loss or liability accruing to it
without willful misconduct, bad faith or gross negligence on its part, arising
out of or in connection with its acceptance or administration of the Trust;
and all taxes and other governmental charges imposed upon the Securities or
any part of the Trust (no such taxes or charges are being levied or made or,
to the knowledge of the Sponsors, contemplated). The above expenses, including
the Trustee's fee, when paid by or owing to the Trustee, are secured by a lien
on the Trust. In addition, the Trustee is empowered to sell Securities in
order to make funds available to pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders of the Trust in
connection with each distribution a statement of the amount of interest, if
any, and the amount of other receipts, if any, which are being distributed,
expressed in each case as a dollar amount per Unit. Within a reasonable time
after the end of each calendar year, the Trustee will furnish to each person
who at any time during the calendar year was a Unit holder of record a
statement providing the following information: (1) as to the Interest Account:
interest received (including amounts representing interest received upon any
disposition of Securities and any earned original issue discount), and, if the
issuers of the Securities are located in different states or territories, the
percentage of such interest by such states or territories, deductions for
payment of applicable taxes and for fees and expenses of the Trust (including
insurance costs), redemptions of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (2) as to the Principal Account: the
dates of disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest, with respect to the Trust the premium attributable to
the Trustee's exercise of the right to obtain Permanent Insurance and any
related custodial fee), deductions for payments of applicable taxes and for
fees and expenses of the Trust, redemptions of Units, the amount of any "when
issued" interest treated as a return of capital and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
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Securities held and the number of Units outstanding on the last business day
of such calendar year; (4) the Redemption price per Unit based upon the last
computation thereof made during such calendar year; and (5) amounts actually
distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each Unit
outstanding.
The Trustee shall keep available for inspection by Unit
holders, at all reasonable times during usual business hours, books of record
and account of its transactions as Trustee including records of the names and
addresses of Unit holders, certificates issued or held, a current list of
Securities in the portfolio of the Trust and a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the
secondary market, Units may also be tendered to the Trustee for redemption at
its corporate trust office at 101 Barclay Street, New York, New York 10286,
upon payment of any applicable tax. At the present time there are no specific
taxes related to the redemption of the Units. No redemption fee will be
charged by the Sponsors or the Trustee. Units redeemed by the Trustee will be
cancelled.
Certificates for Units to be redeemed must be delivered to
the Trustee and must be properly endorsed and accompanied by a written
instrument of transfer. Thus, redemption of Units cannot be effected until
certificates representing such Units have been delivered to the person seeking
redemption. See "Rights of Unit Holders--Certificates." Unit holders must sign
exactly as their names appear on the face of the certificate with signature(s)
guaranteed by an officer of a national bank or trust company, a member firm of
either the New York, Midwest or Pacific Stock Exchange, or in such other
manner as may be acceptable to the Trustee. In certain instances the Trustee
may require additional documents such as, but not limited to, trust
instruments, certificates of death, appointments as executor or administrator
or certificates of corporate authority.
Within seven calendar days following such tender or, if the
seventh calendar day is not a business day, on the first business day prior
thereto, the Unit holder will be entitled to receive in cash an amount for
each Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time set forth in Part I of this Prospectus under "Summary of
Essential Financial Information" as of the next subsequent Evaluation Time.
See "Redemption--Computation of Redemption Price per Unit." The "date of
tender" is deemed to be the date on which Units are received by the Trustee,
except that as regards Units received after the Evaluation Time on the New
York Stock Exchange, the date of 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
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<PAGE>
result in a sale of Securities by the Trustee at a loss. To the extent
Securities are sold, the size and diversity of the Trust will be reduced.
As to Series 18 and subsequent Series, if the Trustee
exercises the right to obtain Permanent Insurance on a Bond, such Bond will be
sold from the Trust on an insured basis. In the event that the Trustee does
not exercise the right to obtain Permanent Insurance on a Bond, such Bond will
be sold from the Trust on an uninsured basis since the insurance obtained by
the Trust covers the timely payment of principal and interest when due on the
Bonds only while the Bonds are held in and owned by the Trust. If the Trustee
does not obtain Permanent Insurance on a Defaulted Bond, to the extent that
(and, in the case of Series 18 and subsequent Series, assuming that the
Trustee does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond) Bonds which are current in payment of interest are sold from
the Trust portfolio in order to meet redemption requests and Defaulted Bonds
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Bonds, the overall value of the Bonds remaining
in the Trust will tend to diminish. See "Sponsors--Responsibility" for the
effect of selling Defaulted Bonds to meet redemption requests.
The Trustee reserves the right to suspend the right of
redemption and to postpone the date of payment of the Redemption Price per
Unit for any period during which the New York Stock Exchange is closed, other
than weekend and holiday closings, or during which trading on that Exchange is
restricted or during which (as determined by the Securities and Exchange
Commission by rule or regulation) an emergency exists as a result of which
disposal or evaluation of the underlying Bonds is not reasonably practicable,
or for such other periods as the Securities and Exchange Commission has by
order permitted.
Because insurance obtained by the Trust terminates as to
Bonds which are sold by the Trustee, and because the insurance obtained by the
Trust does not have a realizable cash value which can be used by the Trustee
to meet redemptions of Units (assuming, in the case of Series 18 and
subsequent Series, that the Trustee does not exercise the right to obtain
Permanent Insurance on Defaulted Bonds), under certain circumstances the
Sponsors may apply to the Securities and Exchange Commission for an order
permitting a full or partial suspension of the right of Unit holders to redeem
their Units if a significant portion of the Bonds in the portfolio is in
default in payment of principal or interest or in significant risk of such
default. No assurances can be given that the Securities and Exchange
Commission will permit the Sponsors to suspend the rights of Unit holders to
redeem their Units, and, without the suspension of such redemption rights when
faced with excessive redemptions, the Sponsors may not be able to preserve the
benefits of the Trust's insurance on Defaulted Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee
on the basis of the bid prices of the Securities in the Trust, as of the
Evaluation Time stated under "Summary of Essential Financial Information" in
Part I of this Prospectus on the day any such determination is made. The
Redemption Price per Unit is each Unit's pro rata share, determined by the
Trustee, of (1) the aggregate value of the Securities in the Trust (determined
by the Evaluator as set forth below), except for those cases in which the
value of insurance has been included, (2) cash on hand in the Trust, and (3)
accrued and unpaid interest on the Securities as of the date of computation,
less (a) amounts representing taxes or governmental charges payable out of the
Trust, (b) the accrued expenses of the Trust, and (c) cash held for
distribution to Unit holders of record as of a date prior to the evaluation.
The Evaluator may determine the value of the Securities in the Trust (i) on
the basis of current bid prices for the Securities, (ii) if bid prices are not
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<PAGE>
available for any Securities, on the basis of current bid prices for
comparable bonds, (iii) by appraisal, or (iv) by any combination of the above.
In determining the Redemption Price per Unit, no value will be assigned to the
portfolio insurance obtained by the Trust on the Bonds in the Trust unless
such Bonds are in default in payment of principal or interest or in
significant risk of such default. On the other hand, Pre-insured Bonds in the
Trust are entitled at all times to the benefits of insurance obtained by their
respective issuers so long as the Pre-insured Bonds are outstanding and the
insurer continues to fulfill its obligations, and such benefits are reflected
and included in the market value of Pre-insured Bonds. For a description of
the situations in which the Evaluator may value the insurance obtained by the
Trust, see "Public Offering--Market for Units."
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the
Sponsors of any tender of Units for redemption. So long as the Sponsors are
maintaining a bid in the secondary market, the Sponsors, prior to the close of
business on the second succeeding business day, will purchase any Units
tendered to the Trustee for redemption at the price so bid by making payment
therefor to the Unit holder in an amount not less than the Redemption Price on
the date of tender not later than the day on which the Units would otherwise
have been redeemed by the Trustee. See "Public Offering--Market for Units."
Units held by the Sponsors may be tendered to the Trustee for redemption as
any other Units, provided that the Sponsors shall not receive for Units
purchased as set forth above a higher price than they paid, plus accrued
interest.
The offering price of any Units resold by the Sponsors will
be the Public Offering Price determined in the manner provided in this
Prospectus. See "Public Offering-- Offering Price." Any profit resulting from
the resale of such Units will belong to the Sponsors which likewise will bear
any loss resulting from a lower offering or redemption price subsequent to
their acquisition of such Units.
Exchange Option
The Sponsors of the Series of Empire State Municipal Exempt
Trust (including the Series of Municipal Exempt Trust, the predecessor trust
to Empire State Municipal Exempt Trust) (the "Trust") are offering Unit
holders of those Series of the Trust for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any Series of the Trust for a
Unit of a different Series of the Trust being offered by the Sponsors (other
than in the initial offering period) at a Public Offering Price generally
based on the bid prices of the underlying Securities divided by the number of
Units outstanding (see "Public Offering--Market for Units") plus a fixed sales
charge of $15 per Unit (in lieu of the normal sales charge). However, a Unit
holder must have held his Unit for a period of at least six months in order to
exercise the exchange option or agree to pay a sales charge based on the
greater of $15 per Unit or an amount which together with the initial sales
charge paid in connection with the acquisition of Units being exchanged equals
the normal sales charge of the Series into which the investment is being
converted, determined as of the date of the exchange. Such exchanges will be
effected in whole Units only. Any excess proceeds from the Units being
surrendered will be returned, and the Unit holder will not be permitted to
advance any new money in order to complete an exchange. The Sponsors reserve
the right to modify, suspend or terminate this plan at any time without
further notice to the Unit holders. In the event that the exchange option is
not available to a Unit holder at the time he wishes to exercise it, the Unit
holder will be immediately notified and no action will be taken with respect
to his Units without further instructions from the Unit holder.
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<PAGE>
Unit holders are urged to consult their tax advisors as to
the tax consequences of exchanging Units.
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<PAGE>
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan")
with Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits
Unit holders of the Trust to elect to have distributions from Units in the
Trust automatically reinvested in shares of the Empire Builder. The Empire
Builder is an open-end, non-diversified investment company whose investment
objective is to seek as high a level of current income exempt from Federal
income tax, New York State and New York City income taxes as is believed to be
consistent with preservation of capital. It is the policy of the Empire
Builder to invest primarily in debt securities the interest income from which
is exempt from such taxes.
The Empire Builder has an investment objective which differs
in certain respects from that of the Trust. The bonds purchased by the Empire
Builder will be of "investment grade" quality - that is, at the time of
purchase by the Empire Builder, such bonds either will be rated not lower than
the four highest ratings of either Moody's (Aaa, Aa, A or Baa) or Standard &
Poor's (AAA, AA, A, or BBB) or will be unrated bonds which at the time of
purchase are judged by the Empire Builder's investment advisor to be of
comparable quality to bonds rated within such four highest grades. It is a
fundamental policy of the Empire Builder that under normal market conditions
at least 90% of the income distributed to its shareholders will be exempt from
Federal income tax, New York State and New York City personal income taxes.
However, during times of adverse market conditions when the Empire Builder is
investing for temporary defensive purposes in obligations other than New York
tax-exempt bonds, more than 10% of the Empire Builder's income distributions
could be subject to Federal income tax, New York State income tax and/or New
York City income tax, as described in the current prospectus relating to the
Empire Builder (the "Empire Builder Prospectus"). Glickenhaus & Co.
("Glickenhaus"), a sponsor of the Trust, acts as the investment advisor and
distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the
"Plan Agent") a copy of the Empire Builder Prospectus describing the Empire
Builder and a form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable Distribution
Date, automatically be applied as of that date by the Trustee to purchase
shares (or fractions thereof) of the Empire Builder at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such
date, as described in the Empire Builder Prospectus. Unless otherwise
indicated, new Participants in the Empire Builder Plan will be deemed to have
elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each such Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the Empire Builder
purchased on his behalf. A Participant may at any time prior to ten days
preceding the next succeeding distribution date, by so notifying the Plan
Agent in writing, elect to terminate his participation in the Plan and receive
future distributions on his Units in cash. There will be no charge or other
penalty for such termination. The Sponsors, the Trustee, the Empire Builder
and Glickenhaus, as investment advisor for Empire Builder each will have the
right to terminate this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the Empire Builder through the Plan, including charges and expenses, request a
copy of the Empire Builder Prospectus from The Bank of New York, Unit
Investment Trust Division, P.O. Box 988, Wall Street Station, New York, New
York 10268. Read it carefully before you decide to participate.
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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 receive future distributions on his Units in
cash. There will be no charge or other penalty for such termination. The
Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc., as manager for
the Bond Fund, each will have the right to terminate this Plan at any time for
any reason. The reinvestment of distributions from the Trust through the Plan
will not affect the income tax status of such distributions. For more complete
information about investing in the Bond Fund through the Plan, including
charges and expenses, request a copy of the Bond Fund Prospectus from The Bank
of New York, Unit Investment Trust Division, P.O. Box 988, Wall Street
Station, New York, New York 10268. Read it carefully before you decide to
participate.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, including all
Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in
the underwriting and securities brokerage business and in the investment
advisory business. It is a member of the New York Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. and is an associate member of
the American Stock Exchange. Glickenhaus acts as a sponsor for successive
Series of The 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. In the event that the
Trustee does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond or Bonds, to the extent that Bonds are sold which are current
in payment of principal and interest in order to meet redemption requests and
Defaulted Bonds are retained in the portfolio in order to preserve the related
insurance protection applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's portfolio will tend to diminish. As to Series 18 and
subsequent Series, in the event that the Trustee does not exercise the right
to obtain Permanent Insurance on a Defaulted Bond or Bonds, except as
described below and in certain other unusual circumstances for which it is
determined by the Trustee to be in the best interests of the Unit holders or
if there is no alternative, the Trustee is not empowered to sell Defaulted
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<PAGE>
Bonds for which value has been attributed for the insurance obtained by the
Trust. Because of such restrictions on the Trustee, under certain
circumstances the Sponsors may seek a full or partial suspension of the right
of Unit holders to redeem their Units. See "Rights of Unit
Holders--Redemption." The Sponsors are empowered, but not obligated, to direct
the Trustee to dispose of Bonds in the event of advance refunding. It is the
responsibility of the Sponsors to instruct the Trustee to reject any offer
made by an issuer of any of the Securities to issue new obligations in
exchange and substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsors
may deem proper if the issuer is in default with respect to such Securities or
in the judgment of the Sponsors the issuer will probably default with respect
to such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will
be held by the Trustee subject to the terms and conditions of the Trust
Agreement to the same extent as Securities originally deposited thereunder.
Within five days after the deposit of obligations in exchange or substitution
for underlying Securities, the Trustee is required to give notice thereof to
each Unit holder, identifying the obligations eliminated and the Securities
substituted therefor. Except as stated in this and the preceding paragraph,
the acquisition by the Trust of any securities other than the Securities
initially deposited is prohibited.
If any default in the payment of principal or interest on
any Bond occurs and no provision for payment is made therefor either pursuant
to the portfolio insurance with respect to the Trust or otherwise within 30
days, the Trustee is required to notify the Sponsors thereof. If the Sponsors
fail to instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may
in its discretion sell the Defaulted Bond and not be liable for any
depreciation or loss thereby incurred. See "The Trust--Insurance on the
Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon
default in the payment of principal or interest, institution of certain legal
proceedings or the existence of certain other impediments to the payment of
Bonds, default under other documents which may adversely affect debt service,
default in the payment of principal or interest on other obligations of the
same issuer, decline in projected income pledged for debt service on revenue
Bonds, or decline in price or the occurrence of other market factors,
including advance refunding, so that in the opinion of the Sponsors the
retention of such Bonds in a Trust would be detrimental to the interest of the
Unit holders. The proceeds from any such sales will be credited to the
Principal Account of the affected Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final
distributions to Unit holders (if, as to Series 18 and subsequent Series, the
Trustee does not exercise the right to obtain Permanent Insurance on any
Defaulted Bond), because the portfolio insurance obtained by the Trust is
applicable only while Bonds so insured are held by the Trust, the price to be
received by the Trust upon the disposition of any such Defaulted Bond will not
reflect any value based on such insurance. Therefore, in connection with any
liquidation with respect to a Trust, it shall not be necessary for the Trustee
to, and the Trustee does not currently intend to, dispose of any Bonds if
retention of such Bonds, until due, shall be deemed to be in the best interest
of Unit holders, including, but not limited to, situations in which Bonds so
insured are in default and situations in which Bonds so insured have a
deteriorated market price resulting from a significant risk of default. Since
the Pre-insured Bonds will reflect the value of the insurance obtained by the
Bond issuer, it is the present intention of the Sponsors not to direct the
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<PAGE>
Trustee to hold any Pre-insured Bonds after the date of termination. All
proceeds received, less applicable expenses, from insurance on Defaulted Bonds
not disposed of at the date of termination will ultimately be distributed to
Unit holders of record as of such date of termination as soon as practicable
after the date such Defaulted Bonds become due and applicable insurance
proceeds have been received by the Trustee. See "Summary of Essential
Financial Information" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of
Essential Information" in Part I of this Prospectus has been appointed by the
other Sponsor as agent for purposes of taking action under the Trust
Agreement. In those Trusts for which there is a sole Sponsor, references
herein to the Agent for Sponsors shall be deemed to refer to such sole
Sponsor. If the Sponsors are unable to agree with respect to action to be
taken jointly by them under the Trust Agreement and they cannot agree as to
which Sponsor shall act as sole Sponsor, then the Agent for Sponsors shall act
as sole Sponsor. If one of the Sponsors fails to perform its duties under the
Trust Agreement or becomes incapable of acting or becomes bankrupt or its
affairs are taken over by public authorities, that Sponsor is automatically
discharged under the Trust Agreement and the other Sponsor acts as the
Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time
of such resignation one remaining Sponsor maintains a net worth of $1,000,000
and all the remaining Sponsors are agreeable to such resignation. Concurrent
with or subsequent to such resignation, a new Sponsor may be appointed by the
remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If, at any time, only one Sponsor is acting under the Trust Agreement
and that Sponsor shall resign or fail to perform any of its duties thereunder
or becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities, then the Trustee may appoint a successor sponsor
or terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1995, the total partners' capital of
Glickenhaus was $146,106,000 (audited); and at March 31, 1996, the total
stockholders' equity of Lebenthal was $4,518,542 (audited).
The foregoing information with regard to the Sponsors
relates to the Sponsors only, and not to any series of Empire State Municipal
Exempt Trust. Such information is included in this Prospectus only for the
purpose of informing investors as to the financial responsibility of the
Sponsors and their ability to carry out their contractual obligations shown
herein. More comprehensive financial information can be obtained upon request
from any Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company
organized under the laws of New York, having its offices at 101 Barclay
Street, New York, New York 10286. 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
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<PAGE>
exercise corporate trust powers, and must have at all times an aggregate
capital, surplus and undivided profits of not less than $5,000,000 and its
principal office and place of business in the Borough of Manhattan, New York
City. The duties of the Trustee are primarily ministerial in nature. The
Trustee did not participate in the selection of Securities for the portfolio
of any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way
for depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not
be personally liable for any taxes or other governmental charges imposed upon
or in respect of the Trust which the Trustee may be required to pay under
current or future law of the United States or any other taxing authority
having jurisdiction. See "The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the
Trustee under the Trust Agreement, reference is made to the material set forth
under "Rights of Unit Holders," "Sponsors--Responsibility" and
"Sponsors--Resignation."
Resignation
By executing an instrument in writing and filing the same
with the Sponsors, the Trustee and any successor may resign. In such an event
the Sponsors are obligated to appoint a successor trustee as soon as possible.
If the Trustee becomes incapable of acting or becomes bankrupt or its affairs
are taken over by public authorities, or, in the case of Series 11 and
subsequent Series, if the Sponsors deem it to be in the best interest of the
Unit holders, the Sponsors may remove the Trustee and appoint a successor as
provided in the Trust Agreement. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor trustee. If,
upon resignation or removal of a trustee, no successor has been appointed and
has accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York
corporation, with main offices at 395 Hudson Street, New York, New York 10014.
Muller Data Corporation is a wholly owned subsidiary of Thomson Publishing
Corporation, a Delaware corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the accuracy
thereof. Determinations by the Evaluator under the Trust Agreement shall be
made in good faith upon the basis of the best information available to it;
provided, however, that the Evaluator shall be under no liability to the
Trustee, the Sponsors or the Unit holders for errors in judgement. This
provision shall
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<PAGE>
not protect the Evaluator in cases of its willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the
Securities on the basis of their bid prices on each business day after the
initial offering period, when any Unit is tendered for redemption and on any
other day such evaluation is desired by the Trustee or is requested by the
Sponsors. For information relating to the responsibility of the Evaluator to
evaluate the Securities on the basis of their offering prices, see "Public
Offering--Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors
and the Trustee, and the Sponsors and the Trustee are to use their best
efforts to appoint a satisfactory successor. Such resignation or removal shall
become effective upon the acceptance of appointment by the successor
evaluator. If upon resignation of the Evaluator no successor has accepted
appointment within thirty days after notice of resignation, the Evaluator may
apply to a court of competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the
Trust Agreement without the consent of any of the Unit holders when such an
amendment is (1) to cure any ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders; and the Sponsors
and the Trustee may amend the Trust Agreement with the consent of the holders
of certificates evidencing 66-2/3% of the Units then outstanding, provided
that no such amendment will reduce the interest in a Trust of any Unit holder
without the consent of such Unit holder or reduce the percentage of Units
required to consent to any such amendment without the consent of all the Unit
holders. In no event shall the Trust Agreement be amended to increase the
number of Units issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
initially deposited in the Trust, except in accordance with the provisions of
the Trust Agreement. In the event of any amendment, the Trustee is obligated
to notify promptly all Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption,
sale or other disposition, as the case may be, of the last of the Securities.
The Trustee shall notify all Unit holders when the value of the Trust as shown
by any evaluation is less than $2,000,000 or less than 20% of the value of the
Trust as of the Date of Deposit, whichever is lower, at which time the Trust
may be terminated (i) by the consent of the holders of 66-2/3% of the Units or
(ii) by the Trustee; provided, however, that the holders of at least 33-1/3%
of the Units may instruct the Trustee not to terminate the Trust. In no event,
however, may the Trust continue beyond the Mandatory Termination Date set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information"; provided, however, as to Series 9 and subsequent Series, that
prior to the Mandatory Termination Date the Trustee shall not dispose of any
Bonds if the retention of such Bonds, until due, shall be deemed to be in the
best interest of the Unit holders of the affected Trust. In the event of
termination, written notice thereof will be sent by the Trustee to all Unit
holders. Within a reasonable period after termination, the Trustee will sell
any remaining Securities and, after paying all expenses and charges incurred
by the Trust, will distribute to each Unit holder, upon surrender for
- 42 -
279831.3
<PAGE>
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Hall,
McNicol, Hamilton & Clark, The News Building, 220 East 42nd Street, New York,
New York 10017, as counsel for the Sponsors as to Series 1 through 8, by Brown
& Wood, One World Trade Center, New York, New York 10048, as special counsel
for the Sponsors as to Series 9 through 64 and by Battle Fowler LLP, 75 East
55th Street, New York, New York 10022 as special counsel for the Sponsors as
to Series 65 subsequent Series of Empire State Municipal Exempt Trust,
Guaranteed Series. Kroll & Tract, 520 Madison Avenue, New York, New York
10022, acts as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus 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 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.
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279831.3
<PAGE>
AA: Bonds rated "AA" have a very strong capacity to pay
interest and repay principal and differ from the highest rated issues
only in small degree.
A: Bonds rated "A" have a strong capacity to pay interest
and repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications
of credit quality, the ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own
judgment with respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation as a
matter of policy.
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's Investors Service, Inc. ("Moody's") rating. A summary of the meaning
of the applicable rating symbols as published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be 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
- 44 -
279831.3
<PAGE>
as can be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise
what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large
as in "Aaa" securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than in "Aaa"
securities.
A: Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium
grade obligations; i.e, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any long
period of time may be small.
Con.(...): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers "1," "2" and "3" in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier "1" indicates that the security ranks in the higher end of its
generic rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the security ranks in the lower end of its
generic rating category.
- 45 -
279831.3
<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 EMPIRE STATE
statements and exhibits relating thereto, which the MUNICIPAL EXEMPT TRUST
Trust has filed with the Securities and Exchange
Commission, Washington, D.C. under the
Securities Act of 1933 and the Investment Company
Act of 1940, and to which reference is hereby made.
GUARANTEED SERIES
- -------------------------------------------------------
PROSPECTUS, PART II
INDEX
- -------------------------------------------------------
Page Sponsors:
THE TRUST.............................................. 1
GLICKENHAUS & CO.
PUBLIC OFFERING........................................ 19 6 East 43rd Street
New York, New York 10017
(212)953-7532
ESTIMATED CURRENT RETURN
AND ESTIMATED LONG-TERM
RETURN TO UNIT HOLDERS................................. 21
LEBENTHAL & CO., INC.
INSURANCE ON THE BONDS................................. 22 120 Broadway
New York, New York 10271
TAX STATUS............................................. 25 (212)425-6116
RIGHTS OF UNIT HOLDERS................................. 29
AUTOMATIC ACCUMULATION ACCOUNT......................... 37
SPONSORS............................................... 38
TRUSTEE................................................ 40
EVALUATOR.............................................. 41
AMENDMENT AND TERMINATION OF
THE TRUST AGREEMENT.................................... 42
LEGAL OPINIONS......................................... 43
AUDITORS............................................... 43
DESCRIPTION OF BOND RATINGS............................ 43
- -------------------------------------------------------
No person is authorized to give any information or
to make any representations not contained in this
Prospectus and any information or representation
not contained herein must not be relied upon as
having been authorized by the Trust or the
Sponsors. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy,
securities in any state to any person to whom it is not
lawful to make such offer in such state.
- ------------------------------------------------------- --------------------------------------------------------------
</TABLE>
279831.3
<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.
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. 33-64155 of Glickenhaus Value
Portfolios, The 1996 Equity Collection on November 13, 1995,
and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 6.2 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-55385 of Empire State Municipal Exempt Trust, Guaranteed
Series 109 on November 2, 1994, and incorporated herein by
reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-1
C/M: 10726.0053 287699.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Guaranteed Series 36,
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, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 36
(Registrant)
GLICKENHAUS & CO.
(Depositor)
By:/s/Brian C. Laux
Brian C. Laux
(Authorized Signator)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Name Title Date
ALFRED FEINMAN* General Partner ) July 29, 1996
)
SETH M. GLICKENHAUS* General Partner, ) By:/s/ Brian C. Laux
-----------------
Chief Investment Officer ) Brian C. Laux
) Attorney-in-Fact*
STEVEN B. GREEN* Chief Financial Officer )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 33-64155 on November 13, 1995.
II-2
C/M: 10726.0053 287699.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, Empire State Municipal Exempt Trust, Guaranteed Series 36,
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, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 36
(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, 1996
JEFFREY M. JAMES* Director )
)
/s/ D. WARREN KAUFMAN Director )
) By: /s/ D. Warren Kaufman
ALEXANDRA LEBENTHAL* Director, President ) D. Warren Kaufman
) Attorney-in-Fact*
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
II-3
C/M: 10726.0053 287699.1
<PAGE>
CONSENT OF COUNSEL
The consent of Brown & Wood to the use of their name in the Prospectus
included in the Registration Statement is contained in their opinion filed
previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST GUARANTEED SERIES 36
We hereby consent to the use in Post-Effective Amendment No. 8 to
Registration Statement No. 33-19567 of our opinion dated April 30, 1996
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 36 and to the reference to our firm under the heading
"Auditors" in the Prospectus which is a part of such Registration Statement.
BDO SEIDMAN, LLP
New York, New York
July 31, 1996
<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> 0000827887
<NAME> ESMET, GTD 36
<S> <C>
<FISCAL-YEAR-END> Mar-31-1996
<PERIOD-START> Apr-1-1995
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 7,064,180
<INVESTMENTS-AT-VALUE> 7,972,211
<RECEIVABLES> 146,225
<ASSETS-OTHER> 70,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,189,049
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 960
<TOTAL-LIABILITIES> 960
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 7,535
<SHARES-COMMON-PRIOR> 7,927
<ACCUMULATED-NII-CURRENT> 209,650
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 908,031
<NET-ASSETS> 8,188,089
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 582,452
<OTHER-INCOME> 0
<EXPENSES-NET> 21,251
<NET-INVESTMENT-INCOME> 561,201
<REALIZED-GAINS-CURRENT> 33,691
<APPREC-INCREASE-CURRENT> (72,007)
<NET-CHANGE-FROM-OPS> 522,885
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 572,093
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 419,270
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 392
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (468,478)
<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> 966.97
<PER-SHARE-NII> 74.47
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 75.92
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1,086.67
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
Muller Data Corporation
A Thomson Financial Services Company
395 Hudson Street
New York, NY 10014-3622
July 31, 1996
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 36 - Post-effective Amendment No. 8
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement
File No. 33-19567 for the above captioned trust. We hereby acknowledge that
Muller Data Corporation is currently acting as the evaluator for the trust and
consent to the reference to Muller Data Corporation as evaluator in the
Prospectus which is part of such Registration Statement.
In addition, we hereby confirm that the ratings indicated in the above
referenced Amendment to the Registration Statement for the respective bonds
comprising the trust's portfolio are the ratings currently indicated in our
Muniview data base.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
Mario S. Buscemi
Chief Operating Officer
MSB:tg
290069.1
