Rule 497(b)
Registration No. 33-39304
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
Prospectus, Part I 10,794 Units Dated: July 29, 1999
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, 1999 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, 1999. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of
obtaining tax-exempt interest income through investment in a diversified,
insured portfolio of long-term bonds, issued by or on behalf of the State of New
York and counties, municipalities, authorities or political subdivisions thereof
or issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited in
the portfolio of the Trust are sometimes referred to herein as the "Securities."
Insurance guaranteeing the payment of principal and interest on the Securities
while in the Trust has been obtained by the Trust from the Insurer as set forth
in Part II under "Insurance on the Bonds." Such insurance does not guarantee the
market value of the Securities or the Units offered hereby. The payment of
interest and the preservation of principal are, of course, dependent upon the
continuing ability of the issuers of the Bonds and any other insurer to meet
their obligations. As a result of the insurance on the Bonds, the Units are
rated "AAA" by Standard & Poor's Corporation.
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest on the Bonds which is exempt from federal income tax when
received by the Trust will be excludable from the federal gross income of the
Unit holders and, with certain exceptions, interest income to the Unit holders
is generally exempt from all New York State and New York City income taxes.
Capital gains, if any, are subject to tax. See Part II under "Tax Status."
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights of
Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units outstanding,
plus a sales charge determined on the basis of the maturities of the Securities
in the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering --
Market for Units." If such a market is not maintained, a Unit holder may be able
to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
859708.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 74
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1999
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: $ 7,800,000
Number of Units: 10,794
Fractional Undivided Interest in the Trust Per Unit: 1/10,794
Total Value of Securities in the Portfolio (Based on Bid Side Evaluations of Securities): $7,538,565.02
=============
Sponsors' Repurchase Price Per Unit: $ 698.40
Plus Sales Charge(1): 21.82
------------------
Public Offering Price Per Unit(2): $ 720.22
===============
Redemption Price Per Unit(3): $ 698.40
Excess of Public Offering Price Over Redemption Price Per Unit: $ 21.82
Weighted Average Maturity of Bonds in the Trust: 16.086 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: $31,116
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, $.91
under the monthly and $.51 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying securities.
Date of Deposit: May 10, 1991
Date of Trust Agreement: May 10, 1991
Mandatory Termination Date: December 31, 2040
Minimum Principal
Distribution: $1.00 per Unit
Minimum Value of the Trust under which Trust
Agreement may be Terminated: $2,000,000
</TABLE>
859708.1
-2-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 74
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT APRIL 30, 1999
(Continued)
<TABLE>
<CAPTION>
Monthly Semi-annual
--------------------- -----------------------
<S> <C> <C>
P Estimated Annual Interest Income: $47.87 $47.87
Less Annual Premium on Portfolio Insurance 2.88 2.88
E Less Estimated Annual Expenses 1.14 .85
--------------------- -----------------------
R Estimated Net Annual Interest Income: $43.85 $44.14
===================== =======================
U Estimated Interest Distribution: $3.65 $22.07
N Estimated Current Return Based on Public Offering Price (4): 6.09% 6.13%
I
Estimated Long-Term Return Based on Public Offering Price (5): 3.41% 3.45%
T
Estimated Daily Rate of Net Interest Accrual: $.12180 $.12261
Record Dates: 15th Day of Month 15th Day of May and
November
Payment Dates: 1st Day of Month 1st Day of June and
December
</TABLE>
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to May 5, 1999, the expected date of settlement,
of $9.06 monthly and $27.94 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.
859708.1
-3-
<PAGE>
Portfolio Information
On March 31, 1999, the bid side valuation of 76.9% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 23.1% 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 5 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. 32.9% of the aggregate principal amount of the Bonds in the Portfolio
are general obligations of the governmental entities issuing them and are backed
by the taxing power thereof. 17.0% of the aggregate principal amount of the
Bonds in the Portfolio are payable from appropriations. 50.1% of the aggregate
principal amount of the Bonds in the Portfolio are payable from the income of
specific projects or authorities and are not supported by the issuers' power to
levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: General Obligation, 2 (32.9%); Appropriations,
1 (17.0%); Revenue: Housing, 1 (37.6%); and Higher Education, 1 (12.5%). The
Trust is deemed to be concentrated in the General Obligation and Housing Bonds
categories1. Four issues, constituting 62.4% of the Bonds in the Portfolio, are
original issue discount bonds, of which one is a zero coupon bond. On March 31,
1999, 2 issues (40.7%) were rated AAA, 1 issue (10.3%) was rated A- and 1 issue
(12.8%) was rated BBB+ by Standard & Poor's Corporation; and 1 issue (36.2%) was
rated Aa2 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.
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.
859708.1
-4-
<PAGE>
Tax Status
Interest on the Bonds in the Trust Portfolio is generally exempt from
federal income taxes. It is also generally exempt from New York State and local
personal income taxes. Bond counsel to the issuing governmental authorities
delivered their opinions the confirming the tax exempt status of the interest on
the dates of issuance of the Bonds. See "The Trust - Portfolio" in Part II of
this Prospectus.
In the opinion of counsel to the sponsor, the Trust is not treated as a
separate taxable entity, and instead the Unit Holders will be treated as owning
the Trust's assets and as receiving the Trust's income.
Gain or loss realized on a sale, maturity or redemption of the Bonds by the
Trust or on a sale or redemption of a Unit by a Unit Holder must be taken into
account for federal, state and local income tax purposes. It will be capital
gain or loss if the Units are held as capital assets and will be long-term if
the Units (and the Bonds) have been held for more than one year. The gain or
loss on disposition does not include any amount received that is attributable to
accrued interest or earned original issue discount (which is generally treated
as tax exempt interest) or any accrued market discount (which is treated as
ordinary income). Long-term capital gains realized by noncorporate taxpayers are
taxed at a maximum federal income tax rate of 20% while ordinary income and
short-term capital gains received by noncorporate taxpayers will be taxed at
regular federal income tax rates of up to 39.6%.
859708.1
-5-
<PAGE>
INDEPENDENT AUDITORS' REPORT
======================================================
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 74:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 74, including the bond portfolio, as
of March 31, 1999, and the related statements of operations and changes in net
assets for the years ended March 31, 1999, 1998 and 1997. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of March 31, 1999, by correspondence with
the Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 74 as of March 31, 1999, and the results of its
operations and changes in net assets for the years ended March 31, 1999, 1998
and 1997, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
April 30, 1999
859708.1
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
STATEMENT OF NET ASSETS
MARCH 31, 1999
==================================================================
<TABLE>
<S> <C>
CASH............................................................................ $ 3,075
INVESTMENTS IN SECURITIES, at market value (cost $6,822,671).................... 7,575,477
RECEIVABLE FOR INVESTMENTS SOLD................................................. 175,000
ACCRUED INTEREST RECEIVABLE..................................................... 171,977
-------------------
Total trust property........................................................ 7,925,529
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES................................... 4,707
-------------------
NET ASSETS...................................................................... $7,920,822
===================
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS REPRESENTED BY:
Monthly
distribution Semi-annual
plan distribution plan Total
---------------- ------------------ ------------------
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED INTERESTS........................ $5,134,352 $2,613,474 $7,747,826
UNDISTRIBUTED NET INVESTMENT INCOME............................ 87,173 85,823 172,996
---------------- ------------------ ------------------
Total value................................................ $5,221,525 $2,699,297 $7,920,822
================ ================== ==================
UNITS OUTSTANDING.............................................. 7,153 3,641 10,794
================ ================== ==================
VALUE PER UNIT................................................. $ 729.98 $ 741.36
================ ==================
</TABLE>
See accompanying notes to financial statements.
859708.1
-7-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
STATEMENTS OF OPERATIONS
==================================================================
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------
1999 1998 1997
------------------ ------------------------ -----------------------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST................................. $ 542,017 $ 723,183 $833,685
------------------ ------------------------ -----------------------
EXPENSES:
Trustee fees............................................. 10,032 11,325 11,695
Evaluation fees.......................................... 751 834 1,120
Insurance premiums....................................... 31,596 35,077 42,605
Sponsors' advisory fees.................................. 2,493 2,710 2,750
Auditors' fees........................................... 1,955 1,800 1,946
------------------ ------------------------ -----------------------
Total expenses............................... 46,827 51,746 60,116
------------------ ------------------------ -----------------------
NET INVESTMENT INCOME........................................ 495,190 671,437 773,569
REALIZED GAIN (LOSS) ON SECURITIES SOLD OR REDEEMED (Note 3). (38,134) 152,746 59,551
NET CHANGE IN UNREALIZED MARKET DEPRECIATION................. (4,410) (120,131) (238,008)
------------------ ------------------------ -----------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS......... $ 452,646 $ 704,052 $595,112
================== ======================== =======================
</TABLE>
See accompanying notes to financial statements.
859708.1
-8-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
STATEMENTS OF CHANGES IN NET ASSETS
==================================================================
<TABLE>
<CAPTION>
Year ended March 31,
-----------------------------------------------------------------------
1999 1998 1997
----------------- ---------------------- ----------------------
OPERATIONS:
<S> <C> <C> <C>
Net investment income....................................$ 495,190 $ 671,437 $ 773,569
Realized gain (loss) on securities sold or redeemed...... (38,134) 152,746 59,551
Net change in unrealized market depreciation............. (4,410) (120,131) (238,008)
----------------- ---------------------- ----------------------
Net increase in net assets resulting from operations.. 452,646 704,052 595,112
----------------- ---------------------- ----------------------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income.................................... (548,953) (718,662) (799,593)
Principal................................................ (1,539,063) - -
----------------- ---------------------- ----------------------
Total distributions............................... (2,088,016) (718,662) (799,593)
----------------- ---------------------- ----------------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 401, 1,986 and 882......................... (309,430) (1,708,009) (763,559)
----------------- ----------------------
----------------------
NET DECREASE IN NET ASSETS................................... (1,944,800) (1,722,619) (968,040)
NET ASSETS:
Beginning of year........................................ 9,865,622 11,588,241 12,556,281
----------------- ---------------------- ----------------------
End of year..............................................$ 7,920,822 $ 9,865,622 $11,588,241
================= ====================== ======================
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan.......................................... $ 48.40 $56.15 $55.89
Semi-annual plan...................................... $ 51.50 $56.49 $57.58
Principal:
Monthly plan.......................................... $139.37 $ - $ -
Semi-annual plan...................................... $139.37 $ - $ -
</TABLE>
See accompanying notes to financial statements.
859708.1
-9-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
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. Securities transactions are recorded on trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed. Interest income and expenses are accrued on the
accrual basis.
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 June 1998.
NOTE 3 - BONDS SOLD OR REDEEMED
<TABLE>
<CAPTION>
Port-
folio
No. Principal Amount Date Redeemed Description Net Proceeds Cost
- ------------ ----------------- -------------- ----------------------------------------------------- ---------------- --------------
Year ended March 31, 1999:
<S> <C> <C> <C> <C> <C>
5 $ 65,000 4/7/98 Metropolitan Transportation Authority, Transit $ 70,330 $ 66,318
Facilities Service Contract Bonds Series 4
5 30,000 6/15/98 Metropolitan Transportation Authority, Transit 32,235 30,608
Facilities Service Contract Bonds Series 4
5 85,000 7/27/98 Metropolitan Transportation Authority, Transit 91,290 86,723
Facilities Service Contract Bonds Series 4
5 50,000 2/11/99 Metropolitan Transportation Authority, Transit 53,125 51,013
Facilities Service Contract Bonds Series 4
* 1,650,000 4/16/98 New York Medical Care Facilities Finance Agency, 1,683,000 1,727,451
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1988 Series A (MBIA Insured)
2 175,000 3/15/99 State of New York Mortgage Agency, Homeowner 175,000 181,001
Mortgage Revenue Bonds, Series RR
----------------- ---------------- --------------
$2,055,000 $2,104,980 $2,143,114
========== ========== ==========
</TABLE>
* Portfolio redeemed in its entirety.
Port-
folio Realized Gain
No. (Loss)
- ------------ ----------------
Year ended March 31, 1999:
5 $ 4,012
5 1,627
5 4,567
5 2,112
1 (44,451)
2 (6,001)
----------------
$(38,134)
========
859708.1
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
NOTES TO FINANCIAL STATEMENTS
(Concluded)
==================================================================
NOTE 4 - NET ASSETS
Cost of 16,000 units at Date of Deposit $15,999,378
Less gross underwriting commission 783,840
-----------------
Net cost - initial offering price 15,215,538
Realized net gain on securities sold or redeemed 289,760
Principal distributions (3,726,893)
Redemption of 5,206 units (4,783,385)
Unrealized market appreciation of securities 752,806
Undistributed net investment income 172,996
-----------------
Net assets $ 7,920,822
=================
NOTE 5 - SUBSEQUENT EVENT
On April 1, 1999, a monthly income distribution of $3.75 per unit
was paid to all monthly distribution plan Unit holders of record March 15, 1999.
859708.1
-11-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1999
==================================================================
<TABLE>
<CAPTION>
Port- Date of
folio Rating Aggregate Principal Maturity
No. (Note A) Amount Name of Issuer and Title of Bond Coupon Rate (Note B)
- ------------ ------------- ---------------------- ---------------------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
1 Aa2* $2,825,000 State of New York Mortgage 7.750% 10/01/17
Agency, Homeowner Mortgage
Revenue Bonds, Series RR
2 AAA 1,820,000 The City of New York, General 7.750 08/15/19
Obligation Bonds, Fiscal
1990 Series I
3 A- 800,000 The City of New York, General 0.000 06/01/20
Obligation Bonds, Principal
New York CitySaves, Fiscal
1991 Series B
4 AAA 1,355,000 Metropolitan Transportation 7.875 07/01/17
Authority, Transit
Facilities Service Contract
Bonds Series 4
5 BBB+ 1,000,000 Dormitory Authority of The State 5.000 07/01/17
of New York, City University
System Consolidated Second
General Resolution Revenue
Bonds, Series 1990C
----------------------
$7,800,000
==========
</TABLE>
<TABLE>
<CAPTION>
Port- Redemption Features
folio S.F. - Sinking Fund Cost of Bonds to Market Value as of Annual Interest
No. Opt. - Optional Call (Note B) Trust March 31, 1999 Income to Trust
- ------------ - ---------------------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
1 04/01/11 @ 100 S.F. $2,921,869 $2,999,783 $218,938
10/01/00 @ 102 Opt.
2 No Sinking Fund 1,711,146 1,871,997 141,050
08/15/99 @ 101.5 Opt.
3 No Sinking Fund 92,000 268,376 -
No Optional Call
4 07/01/09 @ 100 S.F. 1,382,466 1,451,381 106,706
07/01/00 @ 101.5 Opt.
5 No Sinking Fund 715,190 983,940 50,000
07/01/00 @ 100 Opt.
--------------------- ---------------------- ----------------------
$6,822,671 $7,575,477 $516,694
===================== ====================== ======================
</TABLE>
859708.1
-12-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 74
TAX-EXEMPT BOND PORTFOLIO
MARCH 31, 1999
(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.
859708.1
-13-
<PAGE>
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit investment
trusts. Each Trust was created under the laws of the State of New York pursuant
to a Trust Indenture and Agreement (the "Trust Agreement"), dated the Date of
Deposit as set forth in "Summary of Essential Financial Information" in Part I
of this Prospectus, among the Sponsors, the Trustee and the Evaluator. The Bank
of New York acts as successor Trustee of Series 1 through 22 and as Trustee of
Series 23 and subsequent Series. Muller Data Corporation acts as successor
Evaluator for Series 1 through 90 and as Evaluator for Series 91 and subsequent
Series. Glickenhaus & Co. and Lebenthal & Co., Inc. act as co-Sponsors for all
Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the fractional
undivided interest in the Trust set forth in Part I of this Prospectus under
"Summary of Essential Financial Information." Thereafter, if any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual interest
in the Trust represented by each such Unit will remain essentially the same.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unit holder, which may include the Sponsors, or until the termination of the
Trust Agreement for the related Trust. See "Rights of Unit Holders--Redemption."
On the Date of Deposit for each Trust, the Sponsors deposited with the
Trustee obligations or contracts for the purchase of such obligations (the
"Bonds" or "Securities"). Certain of the Bonds may have been purchased at prices
which resulted in original issue discount, market discount or the inclusion of
zero coupon bonds. Bonds selling at market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for gain. Any gain other than any earned original issue
discount or accrued interest will be taxable, but that income will not be
realized until maturity, redemption or sale of the underlying Bonds or Units.
Objectives
The objective of the Trust is to obtain tax-exempt interest income
through an investment in a fixed, insured portfolio consisting primarily of
various long-term municipal bonds. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective issuers of the bonds in the Portfolio to
meet their obligations and of the Insurer to meet its obligations under the
insurance. In addition, an investment in the Trust can be affected by interest
rate fluctuations.
Series 6 through 30 and Series 31 and subsequent Series have obtained
insurance guaranteeing the payment of principal and interest on the Bonds in
each respective Trust from MBIA Inc. and MBIA Insurance Corporation ("MBIA
Corp."), respectively (MBIA Inc. and MBIA Corp. are collectively referred to
herein as the "Insurer"). Insurance obtained by the Trust applies only while
Bonds are retained in the Trust. Pursuant to irrevocable commitments of MBIA
Inc. and MBIA Corp., however, in the event of a sale of a Bond from the Trust
the Trustee has the right to obtain permanent insurance for such Bond upon the
payment of a single predetermined insurance premium from the proceeds of the
sale of such Bond. It is expected that the Trustee will exercise the right to
obtain permanent insurance for a Bond in such Series upon instruction from the
Sponsors whenever the value of that Bond insured to its maturity less the
applicable permanent insurance premium and the related custodial fee exceeds the
value of the Bond without such insurance. Insurance relates only to the payment
of principal and interest on the Bonds in the Trust but neither covers the
nonpayment of any redemption premium on the Bonds nor guarantees the market
value of the Units. Certain Bonds in the Trust may also be insured under
insurance obtained by the issuers of such Bonds or third parties ("Pre-insured
Bonds"). As a result of the insurance, Moody's Investors Service, Inc.
("Moody's") has assigned a rating of "Aaa" to all of the Bonds in the Trust, as
insured, and Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc. ("Standard & Poor's"), has assigned a rating of "AAA" to the
Bonds while in the Trust. No representation is made as to any insurer's ability
to meet its commitments. Insurance is not a substitute for the basic credit of
an issuer, but supplements the existing credit and provides additional security
therefor. A single or annual premium is paid by the issuer or any other party
for its insurance on Pre-insured Bonds, and a monthly premium is paid by the
Trust for the insurance it obtains from the Insurer on the Bonds in the Trust
that are not pre-insured by such Insurer. No premium will be paid by the Trust
on Bonds pre-insured by MBIA Inc. and MBIA Corp. See "Insurance on the Bonds."
Portfolio
In view of the Trust's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) all the Bonds are obligations of the
State of New York and counties, municipalities, authorities or political
subdivisions thereof or issued by certain United States territories or
possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) availability of
insurance for the payment of principal and interest on the Bonds. Subsequent to
the Date of Deposit, a Bond may cease to be rated or its rating may be reduced.
Neither event requires an elimination of such Bond from the portfolio, but such
an event may be considered in the Sponsors' determination to direct the Trustee
to dispose of the Bonds. See "Sponsors--Responsibility."
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates. Inflation and recession, as well
as measures implemented to address these and other economic problems, contribute
to fluctuations in interest rates and the value of fixed-rate bonds generally.
The Sponsors cannot predict future economic policies or their
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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 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 7.4
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.
For each of the 1981 through 1998 fiscal years, the City had an
operating surplus, before discretionary transfers, and achieved balanced
operating results as reported in accordance with then applicable generally
accepted accounting principles ("GAAP"), after discretionary transfers. The City
has been required to close substantial gaps between forecast revenues and
forecast expenditures in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain balanced operating
results as required by State law without tax or other revenue increases or
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reductions in City services or entitlement programs, which could adversely
affect the City's economic base.
As required by law, the City prepares a four-year annual 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
financial plan projects a surplus in the 1999 and 2000 fiscal years, before
discretionary transfers, and budget gaps for each of the 2001, 2002 and 2003
fiscal years. This pattern of current year surplus operating results and
projected subsequent year budget gaps has been consistent through the entire
period since 1982, during which the City has achieved surplus operating results,
before discretionary transfers, for each fiscal year.
The City depends on aid from the State of New York (the "State") both
to enable the City to balance its budget and to meet its cash requirements.
There can be no assurance that there will not be reductions in State aid to the
City from amounts currently projected; that State budgets will be adopted by the
April 1 statutory deadline, or interim appropriations enacted; or that any such
reductions or delays will not have adverse effects on the City's cash flow or
expenditures. In addition, the Federal budget negotiation process could result
in a reduction in or a delay in the receipt of Federal grants which could have
additional adverse effects on the City's cash flow or revenues.
The Mayor is responsible for preparing the City's financial plan,
including the City's current financial plan for the 2000 through 2003 fiscal
years (the "2000-2003 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. Such
assumptions and contingencies include the condition of the regional and local
economies, the provision of State and Federal aid and the impact on City
revenues and expenditures of any future Federal or State policies affecting the
City.
Implementation of the Financial Plan is dependent upon the City's
ability to market its securities successfully. The City's financing program for
fiscal years 1999 through 2003 contemplates the issuance of $10.091 billion of
general obligation bonds and $5.340 billion of bonds to be issued by the New
York City Transitional Finance Authority (the "Finance Authority") to finance
City capital projects. In addition, it is currently expected that approximately
$2.8 billion of bonds will be issued by the Tobacco Settlement Asset
Securitization Corporation ("TSASC") and paid from revenues received pursuant to
a settlement of litigation with the leading cigarette companies. The Finance
Authority and TSASC were created as part of the City's effort to assist in
keeping the City's indebtedness within the forecast level of the constitutional
restrictions on the amount of debt the City is authorized to incur. If TSASC is
not able to issue bonds in the amount expected, the City will need to find
another source of financing or substantially curtail or halt its capital
program. In addition, the City issues revenue and tax anticipation notes to
finance its seasonal working capital requirements. The success of projected
public sales of City bonds and notes, New York City Municipal Water Finance
Authority ("Water Authority") bonds and Finance Authority bonds will be subject
to prevailing market conditions. The City's planned capital and operating
expenditures are dependent upon the sale of its general obligation bonds and
notes, and the Water Authority, Finance Authority and TSASC bonds. Future
developments concerning the City and public
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discussion of such developments, as well as prevailing market conditions, may
affect the market for outstanding City general obligation bonds and notes.
For the 1998 fiscal year, the City had a operating surplus, before
discretionary and other transfers, and achieved balanced operating results,
after discretionary and other transfers, in accordance with GAAP. The 1998
fiscal year is the eighteenth year that the City has achieved an operating
surplus, before discretionary and other transfers, and balanced operating
results, after discretionary and other transfers.
The most recent quarterly modification to the City's financial plan for
the 1999 fiscal year, submitted to the New York State Financial Control Board
(the "Control Board") on June 14, 1999 (the "1999 Modification"), projects a
balanced budget in accordance with GAAP for the 1999 fiscal year.
On June 14, 1999, the City released the Financial Plan for the 2000
through 2003 fiscal years, which relates to the City and certain entities which
receive funds from the City. The Financial Plan reflects changes as a result of
the City's expense and capital budgets for fiscal year 2000, which were adopted
on June 7, 1999. The Financial Plan projects revenues and expenditures for the
2000 fiscal year balanced in accordance with GAAP and projects gaps of $1.8
billion, $1.9 billion and $1.8 billion for fiscal years 2001 through 2003,
respectively.
Changes since adoption of the City's Expense Budget for the 1999 fiscal
year in June 1998, prior to the financial plan submitted to the Control Board on
June 26, 1998 include: (i) an increase in projected tax revenues of $976
million, $813 million, $558 million, $417 million and $1.4 billion in fiscal
years 1999 through 2003, respectively; (ii) $300 million, $250 million, $300
million and $300 million of projected resources in fiscal years 2000 through
2003, respectively, from the receipt by the City of funds from the settlement of
litigation with the leading cigarette companies; (iii) a reduction in the
assumed collection of $350 million of projected rent payments for the City's
airports to $210 million and a delay in the receipt of such payments from fiscal
year 2000 to fiscal year 2001; (iv) anticipated proceeds from the proposed sale
of the Coliseum in fiscal year 2001 totaling $345 million; and (v) net increases
in spending of $638 million, $691 million, $679 million and $1.0 billion in
fiscal years 2000 through 2003, including spending for Medicaid, education
initiatives, anti-smoking programs, employee fringe benefit costs, and other
agency programs. The 1999 Modification and the 2000-2003 Financial Plan includes
a proposed discretionary transfer in the 1999 fiscal year of $2.6 billion to pay
debt service due in fiscal year 2000, for budget stabilization purposes, a
proposed discretionary transfer in fiscal year 2000 to pay debt service due in
fiscal year 2001 totaling $429 million, and a proposed discretionary transfer in
fiscal year 2001 to pay debt service due in fiscal year 2002 totaling $345
million.
In addition, the Financial Plan sets forth gap-closing actions to
eliminate a previously projected gap for the 2000 fiscal year and to reduce
projected gaps for fiscal years 2001 through 2003. The gap-closing actions for
the 2000 through 2003 fiscal years include: (i) additional agency actions
totaling $605 million $486 million, $409 million and $397 million for fiscal
years 2000 through 2003, respectively; (ii) additional Federal aid of $75
million in each of fiscal years 2000 through 2003, which include the proposed
restoration of $25 million of Federal revenue sharing and $50 million of
increased Federal Medicaid aid; and (iii) additional State actions totaling
approximately $125 million in each of fiscal years 2000 through 2003,
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including Medicaid cost containment initiatives proposed in the Governor's
Executive Budget for State fiscal year 1999-2000, which would reduce
expenditures by the City by approximately $50 million in each of fiscal years
2000 through 2003, and proposals by the City that the State enact tort reform
legislation, increase revenue sharing payments and expand State funding for low
income uninsured disabled children. The Financial Plan also reflects a tax
reduction program, which includes the elimination of the City's non-residents
earning tax, the proposed extension of current tax reductions for owners of
cooperative and condominium apartments and a proposed income tax credit for low
income wage earners.
The Financial Plan assumes: (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, which is
scheduled to expire on December 31, 1999, and which is projected to provide
revenue of $572 million, $585 million, $600 million and $638 million in the 2000
through 2003 fiscal years, respectively; (ii) collection of projected rent
payments for the City's airports, totaling $365 million, $185 million and $155
million in the 2001 through 2003 fiscal years, respectively, a substantial
portion of which may depend on the successful completion of negotiat ions with
The Port Authority of New York and New Jersey or the enforcement of the City's
rights under the existing leases through pending legal action; (iii) State and
Federal approval of the State and Federal gap-closing actions proposed by the
City in the Financial Plan; and (iv) receipt of the tobacco settlement funds
providing revenues or expenditure offsets in annual amounts ranging between $250
million and $300 million. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001. In addition, the economic and financial condition of the City may be
affected by various financial, social, economic and political factors which
could have a material effect on the City.
On June 7, 1999, the City Council adopted a budget for fiscal year
2000. The adopted budget includes lower estimated debt service expenditures in
fiscal year 2000 resulting from a $456 million increase, from $2.1 billion to
$2.6 billion, in the proposed discretionary transfer in the 1999 fiscal year to
pay debt service due in fiscal year 2000. The $456 million increase in the
discretionary transfer reflects increased tax revenues and decreased
expenditures in the 1999 fiscal year. The adopted budget also includes $220
million of spending initiatives proposed by the City Council, other increased
spending and the net cost of revised tax reduction proposals, which reflect the
repeal of all of the City non-resident earnings tax and the elimination of
certain of the previously proposed tax reduction initiatives.
On July 16, 1998, Standard & Poor's revised its rating of City bonds
upward from BBB+ to A-. Moody's rating of City bonds was revised in February
1998 to A3 from Baa1. On March 8, 1999, Fitch revised its rating of City bonds
upward to A. Moody's, Standard & Poor's and Fitch currently rate the City's
outstanding general obligation bonds A3, A- and A, respectively.
New York State and its Authorities. The State ended the 1998-1999
fiscal year in balance on a cash basis for the 1998-1999 fiscal year, with a
reported closing balance in the General Fund of $892 million, after reserving a
projected $1.8 billion surplus for use in future years. The Governor's Executive
Budget projects balance on a cash basis for the 1999-2000 fiscal year, with a
closing balance in the General Fund of $2.5 billion, including a projected
reserve of $1.79 billion for use in fiscal years 2000-2001 and 2001-2002.
Subsequently, as a result of revisions to national and State economic forecasts,
the State Division of the Budget has revised its estimate of receipts for the
1999-2000 fiscal year to include an additional $150 million
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in receipts. The Legislature and the State Comptroller will review the
Governor's Executive Budget and are expected to comment on it. The State
Assembly and the State Senate have each adopted budget resolutions which provide
an outline of intended spending and revenue changes to the 1999-2000 Executive
Budget which, the Division of the Budget believes, would, if enacted, increase
the size of the State's future budget gaps. 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. Depending on the amount of State
aid provided to localities, and whether the Medicaid cost containment
initiatives proposed in the Executive Budget are approved by the State, the City
might be required to make substantial additional changes in its Financial Plan.
The State budget for the State's 1999-2000 fiscal year was not adopted by the
statutory deadline of April 1, 1999. However, legislation making interim
appropriations has been enacted. A prolonged delay in the adoption of the
State's budget beyond the statutory April 1 deadline without continuing interim
appropriations could delay the projected receipt by the City of State aid.
The State Financial Plan for the 1999-2000 fiscal year, which reflects
the 1999-2000 Executive Budget, contains projections of a potential imbalance in
the 2000-2001 fiscal year of $1.14 billion and in the 2001-2002 fiscal year of
$2.07 billion, assuming implementation of the 1999-2000 Executive Budget
recommendations, the application of the $1.79 billion reserve fund and
implementation of $500 million of unspecified efficiency initiatives and other
actions in each of the 2000-2001 and 2001-2002 fiscal years, respectively. The
Executive Budget identifies various risks, including either a financial market
or broader economic correction during the period, which could adversely affect
these projections.
Standard & Poor's rates the State's general obligation bonds A, and
Moody's rates the State's general obligation bonds A2. On August 28, 1997,
Standard & Poor's revised its rating on the State's general obligation bonds
from A- to A.
Litigation. A number of court actions have been brought involving State
finances. The court actions in which the State is a defendant generally involve
State programs and miscellaneous tort, real property, and contract claims. While
the ultimate outcome and fiscal impact, if any, on the State of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the State's ability to
carry out the 1999 Modification and 2000-2003 Financial Plan.
The City has estimated that its potential future liability on account
of outstanding claims against it as of June 30, 1998 amounted to approximately
$3.5 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
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Part I of this Prospectus, interest accrues to the benefit of Unit holders
commencing with the expected date of settlement for purchase of the Units.
Neither the Sponsors nor the Trustee shall be liable in any way for any default,
failure or defect in any Security.
The following paragraphs discuss the characteristics of the Bonds in
the Trust and of certain types of issuers of the Bonds in the Trust. See
"Special Factors Concerning the Portfolio" in Part I of this Prospectus. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments of principal of
and interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. Because of the insurance obtained by the
Sponsors or by the issuers, however, such changes should not adversely affect
the Trust's ultimate receipt of principal and interest or the Standard & Poor's
or Moody's ratings of the Bonds in the portfolio. An investment in Units of the
Trust should be made with an understanding of the risks that such an investment
may entail, certain of which are described below. Unit holders may obtain
additional information concerning a particular Bond by requesting an official
statement from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population declines,
natural disasters, declines in the state's industrial base or inability to
attract new industries; economic limits on the ability to tax without eroding
the tax base; state legislative proposals or voter initiatives to limit ad
valorem real property taxes; and the extent to which the entity relies on
Federal or state aid, access to capital markets or other factors beyond the
state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects (e.g.,
buildings or equipment, among other things). Such obligations are often made
subject to annual appropriations. Certain Series of the Trust may contain Bonds
in the portfolio that are, in whole or in part, subject to and dependent upon
(1) the governmental entity making appropriations from time to time or (2) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special taxes. The obligation to make lease
payments exists only to the extent of the monies available to the governmental
entity therefor, and no liability is incurred by the governmental entity beyond
the monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to make lease rental
payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or used
by the governmental entity and notwithstanding any circumstances or occurrences
which might arise. In the event of non-appropriation, certificate holders' or
bondowners' sole remedy (absent credit enhancement) generally is limited to
repossession of the collateral for resale or releasing, and the obligation of
the governmental lessee is not backed by a pledge of the general credit of the
governmental
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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 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.
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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 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,
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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
local assistance including motor fuel and motor vehicle taxes, fees and licenses
and, therefore, may be subject to fluctuations in such assistance.
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
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* 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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be subject to fluctuations in the collection of such taxes. Such bonds do not
include tax increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also contain
revenue bonds which are payable from and secured primarily or solely by revenues
from the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are secured by
direct obligations of the U.S. Government or, in some cases, obligations
guaranteed by the U.S. Government, placed in an escrow account maintained by an
independent trustee until maturity or a predetermined redemption date. In a few
isolated instances to date, bonds which were thought to be escrowed to maturity
have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations and/or
revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is fully
integrated with that of the mainland United States. During fiscal 1998,
approximately 90% of Puerto Rico's exports were to the United States mainland,
which was also the source of 61% of Puerto Rico's imports. In fiscal 1998,
Puerto Rico experienced a $8.5 billion positive adjusted merchandise trade
balance. The dominant sectors of the Puerto Rico economy are manufacturing and
services. Gross product in fiscal 1993 was $25.1 billion ($24.5 billion in 1992
prices) and gross product in fiscal 1997 was $32.1 billion ($27.7 billion in
1992 prices). This represents an increase in gross product of 27.7% from fiscal
1993 to 1997 (13.0% in 1992 prices). According to the Labor Department's
Household Employment Survey, during fiscal 1998, total employment increased 0.8%
over fiscal 1997. The preliminary figures of gross product for fiscal 1998,
released in November 1998, was $34.7 billion ($28.5 billion in 1992 prices).
This represents an increase of 8.1% (3.1% in 1992 prices) over fiscal 1997. This
preliminary growth rate is 0.1% above the original base line forecast for fiscal
1998. The Planning Board's gross product forecast for fiscal 1999, made in
February 1998, projected an increase of 2.7% over fiscal 1998. According to the
Labor Department's Household Employment Survey, during the first five months of
fiscal 1999, total employment decreased 1.2% over the same period for fiscal
1998. Total monthly employment averaged 1,124,800 during the first five months
of fiscal 1999, compared to 1,138,400 over the same period in fiscal 1998. The
seasonally adjusted unemployment rate for November 1998 was 13.3%.
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 any current
interest. For Federal income tax purposes, original issue discount on tax-exempt
bonds is treated as tax-exempt interest and must be
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accrued over the term of the 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 accrual of original issue discount) will be
treated as taxable income or loss. Holders of tax-exempt obligations issued with
original issue discount, (including holders of Units in a trust such as the
Trust), must accrue tax-exempt original issue discount by using a constant
interest method. 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 its Units. It is possible that
additional Federal legislation will be enacted or that existing legislation will
be amended hereafter with the effect that interest on the bonds becomes subject
to Federal income taxation. If the interest on the Bonds should ultimately be
deemed to be taxable, the Sponsors may instruct the Trustee to sell them, and,
since they would be sold as taxable securities, it is expected that they would
have to be sold at a substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to their
stated maturity date pursuant to sinking fund or call provisions. A sinking fund
is a reserve fund accumulated over a period of time for retirement of debt.
Sinking fund provisions are designed to redeem a significant portion of an issue
gradually over the life of the issue. Obligations to be redeemed are generally
chosen by lot. A callable debt obligation is one which is subject to redemption
prior to maturity at the option of the issuer. To the extent that obligations in
the Trust have a bid side valuation higher than their par value, redemption of
such obligations at par would result in a loss of capital to a purchaser of
Units at the public offering price. The estimated current return of the Units
might also be adversely affected if the return on the retired Bonds is greater
than the average return on the Bonds in the Trust. In general, call provisions
are more likely to be exercised when the offering side valuation is at a premium
over par than when it is at a discount from par. See "Special Factors Concerning
the Portfolio" in Part I of this Prospectus for information for the number of
bonds in the Portfolio that are original issue discount and zero coupon bonds
and "Portfolio Information" in Part I of this Prospectus for a breakdown of the
percentage of Bonds in the Trust with offering side valuations at a premium,
discount or at par. See also "Estimated Current Return and Estimated Long Term
Return". "The Portfolio" in Part I of this Prospectus contains a listing of the
sinking fund and call provisions, if any, with respect to each of the Bonds
therein.
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.
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To the best knowledge of the Sponsors, there is no litigation pending
as of the date hereof in respect of any Securities which might reasonably be
expected to have a material adverse effect on the Trust, unless otherwise stated
in Part I of this Prospectus. At any time, however, litigation may be initiated
on a variety of grounds with respect to Securities in the Trust. Such litigation
as, for example, suits challenging the issuance of pollution control revenue
bonds under recently enacted environmental protection statutes, may affect the
validity of such Securities or the tax-free nature of the interest thereon.
While the outcome of such litigation can never be entirely predicted with
certainty, bond counsel have given opinions to the issuing authorities of each
Bond on the date of issuance to the effect that such Securities have been
validly issued and that the interest thereon is exempt from regular Federal
income tax. In addition, other litigation or other factors may arise from time
to time which potentially may impair the ability of issuers to meet obligations
undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the aggregate bid
price of the Bonds in the Trust (as determined by the Evaluator) plus a sales
charge determined in accordance with the schedule set forth below, which is
based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. For the purpose of computing the
sales charge, Bonds are deemed to mature on their expressed maturity dates,
unless the Evaluator evaluates the price of the Bonds to a different date, such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date. This method of computing the sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
--------------------------- --------------------- ---------------
0 Months to 2 Years 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price is applied
to all secondary market unit purchases. There is no reduction of the sales
charge for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on the
Securities at the date of delivery of the Units to the purchaser is also added
to the Public Offering Price.
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Unless Securities are in default in payment of principal or interest or
in significant risk of such default, the Evaluator will not attribute any value
to the Units due to the insurance obtained by the Trust. See also "Rights of
Unit Holders--Certificates" and "Rights of Unit Holders--Redemption" for
information relating to redemption of Units. The Evaluator will consider in its
evaluation of Defaulted Bonds which are covered by insurance obtained by the
Trust the value of the insurance guaranteeing interest and principal payments as
well as the market value of the Securities and the market value of similar
securities of issuers whose securities, if identifiable, carry identical
interest rates and maturities and are of creditworthiness comparable to the
issuer prior to the default or risk of default. If such other securities are not
identifiable, the Evaluator will compare prices of securities with substantially
identical interest rates and maturities and of a creditworthiness of minimum
investment grade. As to Series 18 and subsequent Series, the value of the
insurance will be equal to the difference between (i) the market value of
Defaulted Bonds assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (ii) the market value of such Defaulted Bonds
not covered by Permanent Insurance. In any case the Evaluator will consider the
ability of the Insurer to meet its commitments under the Trust's insurance
policy and, in the case of Series 18 and subsequent Series, MBIA Inc.'s or MBIA
Corp.'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
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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 its
Units may be able to do so only by tendering such Units to the Trustee for
redemption at the Redemption Price, which is based upon the aggregate bid price
of the underlying Securities. The aggregate bid price of the Securities in the
Trust may be expected to be less than the aggregate offering price. If a Unit
holder wishes to dispose of its 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
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Estimated Current Return and Estimated Long-Term Return. Estimated Current
Return based on the Public Offering Price per Unit and Estimated Long-Term
Return per Unit and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus
will be realized in the future.
Estimated Long-Term Return is calculated using a formula that (i) takes
into consideration, and determines and factors in the relative weightings of,
the market values, yields (taking into account the amortization of premiums and
the accretion of discounts) and estimated retirements of all the Bonds in the
portfolio and (ii) takes into account the expenses and sales charge associated
with each Unit of the Trust. The Estimated Long-Term Return assumes that each
Bond is retired on its pricing life date (i.e., that date which produces the
lowest dollar price when yield price calculations are done for each optional
call date and the maturity date of a callable security). If the Bond is retired
on any optional call or maturity date other than the pricing life date, the
yield to the holder of that Bond will be greater than the initial quoted yield.
Since the market values and estimated retirements of the Bonds, the expenses of
the Trust and the Net Annual Interest Income and Public Offering Price per Unit
may change, there is no assurance that the Estimated Long-Term Return as set
forth under "Summary of Essential Financial Information" in Part I of this
Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on the Bonds in the Trust has been obtained from the Insurer by the
Trust. The Insurer has issued a policy of insurance covering each of the Bonds
in the Trust, including Pre-insured Bonds. As to each Trust, the Insurer shall
not have any liability under the policy with respect to any Bonds which do not
constitute part of the Trust. In determining to insure the Bonds, the Insurer
has applied its own respective standards which generally correspond to the
standards it has established for determining the insurability of new issues of
municipal bonds.
By the terms of its policy, the Insurer unconditionally guarantees to
the Trust the payment, when due, required of the issuer of the Bonds of an
amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. Except
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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 Inc. and MBIA Corp. policies also do not
insure against nonpayment of principal of or interest on the Bonds resulting
from the insolvency, negligence or any other act or omission of the trustee or
other paying agent for the Bonds. With respect to small issue industrial
development Bonds and pollution control revenue Bonds, however, MBIA Inc. and
MBIA Corp., respectively, guarantee the full and complete payments required to
be made by or on behalf of an issuer of such Bonds if there occurs pursuant to
the terms of the Bonds an event which results in the loss of the tax-exempt
status of interest on such Bonds, including principal, interest or premium
payments payable thereon, if any, as and when required to be made by or on
behalf of the issuer pursuant to the terms of such Bonds. No assurance can be
given that the policy issued by the Insurer would insure the payment of
principal or interest on Bonds which is not required to be paid by the issuer
thereof because the Bonds were not validly issued. At the respective times of
issuance of the Bonds, opinions relating to the validity thereof were rendered
by bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancelable and will
continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the policy obtained by the Trust will not result in the
cancellation of insurance but will force the Insurer to take action against the
Trustee to recover premium payments due it. The Trustee in turn will be entitled
to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any Bond which
has been redeemed from or sold by the Trustee on the date of such redemption or
on the settlement date of such sale, and the Insurer shall not have any
liability under the policy as to any such Bond thereafter. If the date of such
redemption or the settlement date of such sale occurs between a record date and
a date of payment of any such Bonds, any MBIA Inc. or MBIA Corp. policy will
terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA Inc. or MBIA Corp. policy as to any Bond
shall not affect MBIA Inc.'s or MBIA Corp.'s obligations regarding any other
Bond in such Trust or any other Trust which has obtained a MBIA Inc. or MBIA
Corp. insurance policy. The policy issued by the Insurer will terminate as to
all Bonds on the date on which the last of the Bonds matures, is redeemed or is
sold by the Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon
the sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bonds) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in such Series of
the Trust is eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for a Bond in the
Trust upon instruction from the Sponsors only if upon such exercise the Trust
would receive net proceeds (sale of Bond proceeds less the insurance premium
attributable to the Permanent Insurance
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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 the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units thereof only if the Bonds
covered by such insurance are in default in payment of principal or interest or,
in the Sponsors' opinion, in significant risk of such default ("Defaulted
Bonds"). The value of the insurance will be equal to the difference between (1)
the market value of a Bond which is in default in payment of principal or
interest or a significant risk of default assuming the exercise of the right to
obtain Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of such Bonds not covered by Permanent Insurance. Insurance
obtained by the issuer of a Bond or by parties other than the Trust is effective
so long as such Pre-insured Bond is outstanding and the insurer of such
Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from MBIA Inc. or MBIA Corp. 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.
MBIA Corp. 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 Corp. MBIA Corp. is a limited liability corporation
rather than a several liability association. MBIA Corp. is domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of all 50 states, the District of Columbia, the
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Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Virgin Islands of the United States and the Territory of Guam.
As of December 31, 1998, MBIA Corp. had admitted assets of $6.5 billion
(audited), total liabilities of $4.2 billion (audited), and total capital and
surplus of $2.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1999, MBIA Corp. had admitted assets of $6.7
billion (unaudited), total liabilities of $4.4 billion (unaudited), and total
capital and surplus of $2.3 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. The address of MBIA Corp. is 113 King Street, Armonk, New York
10504.
As of the Evaluation Date, the claims-paying ability of MBIA Corp. has
been rated "AAA" by Standard & Poor's and "Aaa" by Moody's.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such information
subsequent to the date thereof. The Sponsors are not aware that the information
herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the negotiations in
respect thereof and certain agreements relating to Permanent Insurance represent
the only significant relationship between the Insurer and the Trust. Otherwise,
neither the Insurer nor any associate thereof has any material business
relationship, direct or indirect, with the Trust or the Sponsors, except that
the Sponsors may from time to time in the normal course of their business
participate as underwriters or as managers or as members of underwriting
syndicates in the distribution of new issues of municipal bonds for which a
policy of insurance guaranteeing the payment of interest and principal has been
obtained from the Insurer, and except that James A. Lebenthal, Chairman of the
Board of Directors of Lebenthal & Co., Inc., is a director of MBIA Inc. Although
all issues contained in the portfolio of the Trust are individually insured,
neither the Trust, the Units nor the portfolio is insured directly or indirectly
by the Insurer.
A purpose of the insurance on the Bonds in the portfolio obtained by
the Trust is to obtain a higher yield on the Trust portfolio than would be
available if all the Securities in such portfolio had Standard & Poor's "AAA"
rating and/or Moody's "Aaa" rating but were uninsured and yet at the same time
to have the protection of insurance of payment of interest and principal on the
Securities. There is, of course, no certainty that this result will be achieved.
Any Pre-insured Bonds in the Trust (all of which are rated "AAA" by Standard &
Poor's and/or "Aaa" by Moody's, respectively) may or may not have a higher yield
than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa" by Moody's,
respectively.
Because the Securities are insured by the Insurer as to the payment of
principal and interest, Moody's has assigned a rating of "Aaa" to all of the
Bonds in the Trust, as insured, and Standard & Poor's has assigned its "AAA"
investment rating to the Units and Bonds in the Trust. See "Tax Exempt Bond
Portfolio" in Part I of this Prospectus. These ratings apply to the Bonds only
while they are held in the Trust. The obtaining of these ratings by the Trust
should not be construed as an approval of the offering of the Units by Standard
& Poor's or Moody's or as a guarantee of the market value of the Trust
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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 rendered at
the time of original issuance of the Bonds, excludable from gross income under
the Internal Revenue Code of 1954, as amended (the "1954 Code"), or the Internal
Revenue Code of 1986, as amended (the "Code"), depending upon the date of
issuance of the Bonds in any particular Series. See "The Trust--Portfolio."
Gain (or loss) realized on a sale, maturity or redemption of the Bonds
or on a sale or redemption of a Unit is, however, includable in gross income as
capital gain (or loss) for Federal, state and local income tax purposes,
assuming that the Unit is held as a capital asset. Such gain (or loss) does not
include any amount received in respect of accrued interest, accrued original
issue discount or accrued market discount. The Administration's Fiscal Year 2000
budget proposal would require accrual method taxpayers to accrue market discount
income on a current basis. 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 Administration
Fiscal Year 2000 Budget proposal would require accrual method taxpayers to
accrue market discount income on a current basis. 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. Capital
gains realized by noncorporate Unit holders on the disposition of Bonds or Units
will be taxed at a maximum federal income tax rate of 20% if the Unit and the
Bonds have been held for more than one year), whereas ordinary income received
by noncorporate Unit holders will be taxed at a maximum federal income tax rate
of 39.6%. The deductibility of capital losses is limited to the amount of
capital gain; in addition, up to $3,000 ($1,500 for married persons filing
separately) 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, 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 an item of tax
preference included in the calculation of the individual's alternative minimum
tax currently taxed at a rate of up to 28% and the corporate alternative minimum
tax currently at a rate of 20%(however, none of the Bonds in the Trust is a
private activity bond, the interest on which is subject to this alternative
minimum tax); (2) 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
includable in the adjusted current earnings of a corporation for purposes of
this 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
alternative minimum tax; (3) subject to certain exceptions, no financial
institution is allowed a deduction for the portion of the institution's interest
expense that is allocable to tax-exempt interest on
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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 is imposed
on U.S. branches of foreign corporations 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 includable in taxable income for taxpayers whose "modified adjusted
gross income," combined with a portion of their social security benefits,
exceeds a base amount. The base amount is $25,000 for an individual, $32,000 for
a married couple filing a joint return and zero for married persons filing
separate returns. Interest on tax-exempt bonds is added to adjusted gross income
for purposes of determining whether an individual's income exceeds the base
amount described above.
In addition, certain "S corporations" may be subject to minimum tax on
certain passive income, including tax-exempt interest, such as interest on the
Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from 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 Federal income tax only so
long as the "principal user" of the bond-financed facility and any "related
person" remain within the capital expenditure limitations of the Code and only
so long as the aggregate private activity bond limits of the Code 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
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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 may be applicable for purposes
of state and local taxation. 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 (and therefore the Unit holders), to accrue
tax-exempt original issue discount by using the constant interest method
provided for the holders of taxable obligations and to increase the basis of a
tax-exempt obligation by the amount of accrued tax-exempt original issue
discount. These provisions are applicable to obligations issued after September
3, 1982 and acquired after March 1, 1984. The Trust's tax basis in a Bond is
increased by any accrued original issue discount, as is a Unit holder's tax
basis in its Units. For Bonds issued on or after June 9, 1980 that are redeemed
prior to maturity, the difference between the Trust's basis, as adjusted, and
the amount received will be taxable gain or loss to the Unit holders.
If a Unit holder's tax cost for its pro rata interest in a Bond exceeds
its pro rata interest in the Bond's face amount, the Unit holder will be
considered to have purchased its pro rata interest in the Bond at a "premium."
The Unit holder will be required to amortize any premium relating to its pro
rata interest in a Bond prior to the maturity of the Bond. Amortization of
premium on a Bond will reduce a Unit holder's tax basis for this pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a pro rata
interest in a Bond at a premium and resells it at the same price will recognize
taxable gain equal to the portion of the premium that was amortized during the
period the Unit holder is considered to have held such interest.
The exemption of interest on municipal obligations for Federal income
tax purposes does not necessarily result in exemption under the income tax laws
of any state or local government. Interest income derived from the Bonds is not
excluded from net income in determining New York State or New York City
franchise taxes on corporations or financial institutions. The laws of 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
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enacted and what the effect of such legislation would be on Bonds in the Trust.
In addition, the enactment of a "flat tax" or other legislation that
significantly alters the federal income tax system may have a material adverse
effect on the value of Units. If the interest on any Bonds in the Trust should
ultimately be deemed to be taxable, the Sponsors may instruct the Trustee to
sell such Bonds, and, since they would be sold as taxable securities, it is
expected that they would be sold at a substantial discount from current market
prices.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exclusion from gross income of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
The opinions of counsel to the issuing governmental authorities to the
effect that interest on the Bonds is exempt from regular federal income tax may
be limited to law existing at the time the Bonds were issued, and may not apply
to the extent that future changes in law, regulations or interpretations affect
such Bonds. Investors are advised to consult their own advisors for advice with
respect to the effect of any legislative changes.
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,
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distribute the Unit holder's pro rata share of the balance of the Principal
Account. Interest (semi-annually or monthly) and principal, including capital
gains, if any (semi-annually), received by the Trust will be distributed on each
Distribution Date to Unit holders of record of the Trust as of the preceding
Record Date who are entitled to such distributions at that time under the plan
of distribution chosen. All distributions will be net of applicable expenses and
funds required for the redemption of Units. See "Summary of Essential Financial
Information" in Part I of this Prospectus, "The Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption" in Part II.
The Trustee will credit to the Interest Account for the Trust all
interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro rata
share of the Interest Account of the Trust and the pro rata share of cash in the
Principal Account of the Trust represented by each Unit thereof will be computed
by the Trustee each month as of the Record Date. See "Summary of Essential
Financial Information" in Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date and prior to
the next succeeding Distribution Date will be held in the Principal Account for
the Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as of
the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal Account if the
balance therein is less than an amount sufficient to distribute $1.00 per Unit.
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 its 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
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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 its Units, he will be entitled to receive its proportionate
share of the accrued interest from the purchaser of its Units. Similarly, if a
Unit holder redeems all or a portion of its Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
All the expenses of creating and establishing the Trust for Series 118
and prior Series have been borne by the Sponsors, including the cost of the
initial preparation, printing and execution of the Trust Agreement and the
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
All or a portion of the expenses incurred in creating and establishing
the Trust for Series 119 and subsequent Series, including the cost of the
initial preparation and execution of the Trust Agreement, the initial fees and
expenses of the Trustee, legal expenses and other actual out-of-pocket expenses,
have been paid by the Trust. For Series 119 through 140 such expenses will be
amortized over a five year period. Organizational expenses for Series 141 and
subsequent Series will be charged upon the investor's purchase of Units during
the initial offering period and will be paid at the close of the initial
offering period by the Trust. All advertising and selling expenses, as well as
any organizational expenses not paid by the Trust, will be borne by the Sponsors
at no cost to the Trust.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus. The
Sponsors' fee, if any, which is earned for portfolio supervisory services, is
based on the face amount of Securities in the Trust at December 1 of each year.
The Sponsors' fee, which is not to exceed the maximum amount set forth in the
"Summary of Essential Financial Information" in Part I of this
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Prospectus, may exceed the actual costs of providing portfolio supervisory
services for a particular Series, but at no time will the total amount received
by the Sponsors for portfolio supervisory services rendered to all Series of
Empire State Municipal Exempt Trust in any calendar year exceed the aggregate
cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the
Trust an annual fee in the amount set forth in the "Summary of Essential
Financial Information" in Part I of this Prospectus. There is no minimum fee
and, except as hereinafter set forth, no maximum fee. For a discussion of
certain benefits derived by the Trustee from the Trust's funds, see "Rights of
Unit Holders--Distribution of Interest and Principal." For a discussion of the
services performed by the Trustee pursuant to its obligations under the Trust
Agreement, reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date and the Sponsors' annual fee is payable annually on
December 1, each from the Interest Account to the extent funds are available and
then from the Principal Account. These fees may be increased without approval of
the Unit holders by amounts not exceeding proportionate increases in consumer
prices for services as measured by the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent." If the balances in the
Principal and Interest Accounts are insufficient to provide for amounts payable
by the Trust, or amounts payable to the Trustee which are secured by its prior
lien on the Trust, the Trustee is permitted to sell Bonds to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus is
based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
portfolio of the Trust mature, are redeemed by their respective issuers or are
sold by the Trustee, the amount of the premium will be reduced in respect of
those Securities no longer owned by and held in the Trust. The Trust does not
incur any premium expense for any insurance which has been obtained by an issuer
of a Pre-insured Bond, since the premium or premiums for such insurance have
been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on Bonds
which are also MBIA Corp 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
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for any extraordinary services performed under the Trust Agreement;
indemnification of the Trustee for any loss or liability accruing to it without
willful misconduct, bad faith or gross negligence on its part, arising out of or
in connection with its acceptance or administration of the Trust; and all taxes
and other governmental charges imposed upon the Securities or any part of the
Trust (no such taxes or charges are being levied or made or, to the knowledge of
the Sponsors, contemplated). The above expenses, including the Trustee's fee,
when paid by or owing to the Trustee, are secured by a lien on the Trust. In
addition, the Trustee is empowered to sell Securities in order to make funds
available to pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders of the Trust in connection with
each distribution a statement of the amount of interest, if any, and the amount
of other receipts, if any, which are being distributed, expressed in each case
as a dollar amount per Unit. Within a reasonable time after the end of each
calendar year, the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom (including
any unearned original issue discount but excluding any portion representing
interest, with respect to the Trust the premium attributable to the Trustee's
exercise of the right to obtain Permanent Insurance and any related custodial
fee), deductions for payments of applicable taxes and for fees and expenses of
the Trust, redemptions of Units, the amount of any "when issued" interest
treated as a return of capital and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) a list of the Securities held and
the number of Units outstanding on the last business day of such calendar year;
(4) the Redemption price per Unit based upon the last computation thereof made
during such calendar year; and (5) amounts actually distributed during such
calendar year from the Interest Account and from the Principal Account,
separately stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders, at all
reasonable times during usual business hours, books of record and account of its
transactions as Trustee including records of the names and addresses of Unit
holders, certificates issued or held, a current list of Securities in the
portfolio of the Trust and a copy of the Trust Agreement.
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Redemption
Tender of Units
While it is anticipated that Units can be sold in the secondary market,
Units may also be tendered to the Trustee for redemption at its corporate trust
office at 101 Barclay Street, New York, New York 10286, upon payment of any
applicable tax. At the present time there are no specific taxes related to the
redemption of the Units. No redemption fee will be charged by the Sponsors or
the Trustee. Units redeemed by the Trustee will be canceled.
Certificates for Units to be redeemed must be delivered to the Trustee
and must be properly endorsed and accompanied by a written instrument of
transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption.
See "Rights of Unit Holders--Certificates." Unit holders must sign exactly as
their names appear on the face of the certificate with signature(s) guaranteed
by an officer of a national bank or trust company, a member firm of either the
New York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
By the third business day following such tender, the Unit holder will
be entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in Part I
of this Prospectus under "Summary of Essential Financial Information" as of the
next subsequent Evaluation Time. See "Redemption--Computation of Redemption
Price per Unit." The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that as regards Units received after the
Evaluation Time on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading or the next day on which there is
a sufficient degree of trading in Units of the Trust, and such Units will be
deemed to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day. For information relating to the purchase
by the Sponsors of Units tendered to the Trustee for redemption at prices in
excess of the Redemption Price, see "Redemption--Purchase by the Sponsors of
Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from the
Interest Account or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account. The Trustee is empowered to sell Securities in order to make
funds available for redemption. Such sales, if required, could result in a sale
of Securities by the Trustee at a loss. To the extent Securities are sold, the
size and diversity of the Trust will be reduced.
If the Trustee exercises the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an insured basis. In the event
that the Trustee does not exercise the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an uninsured basis since the
insurance obtained by the Trust covers the timely payment of principal and
interest when due on the Bonds only while the Bonds are held in and owned by the
Trust. If the Trustee does not exercise the right to obtain Permanent Insurance
on a Defaulted Bond, to the extent that Bonds which are current in payment of
interest are sold from the Trust portfolio in order to
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meet redemption requests and Defaulted Bonds are retained in the portfolio in
order to preserve the related insurance protection applicable to said Bonds, the
overall value of the Bonds remaining in the Trust will tend to diminish. See
"Sponsors--Responsibility" for the effect of selling Defaulted Bonds to meet
redemption requests.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule or
regulation) an emergency exists as a result of which disposal or evaluation of
the underlying Bonds is not reasonably practicable, or for such other periods as
the Securities and Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to Bonds which
are sold by the Trustee, and because the insurance obtained by the Trust does
not have a realizable cash value which can be used by the Trustee to meet
redemptions of Units (assuming, in the case of Series 18 and subsequent Series,
that the Trustee does not exercise the right to obtain Permanent Insurance on
Defaulted Bonds), under certain circumstances the Sponsors may apply to the
Securities and Exchange Commission for an order permitting a full or partial
suspension of the right of Unit holders to redeem their Units if a significant
portion of the Bonds in the portfolio is in default in payment of principal or
interest or in significant risk of such default. No assurances can be given that
the Securities and Exchange Commission will permit the Sponsors to suspend the
rights of Unit holders to redeem their Units, and, without the suspension of
such redemption rights when faced with excessive redemptions, the Sponsors may
not be able to preserve the benefits of the Trust's insurance on Defaulted
Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on the basis
of the bid prices of the Securities in the Trust, as of the Evaluation Time
stated under "Summary of Essential Financial Information" in Part I of this
Prospectus on the day any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of (1) the
aggregate value of the Securities in the Trust (determined by the Evaluator as
set forth below), except for those cases in which the value of insurance has
been included, (2) cash on hand in the Trust, and (3) accrued and unpaid
interest on the Securities as of the date of computation, less (a) amounts
representing taxes or governmental charges payable out of the Trust, (b) the
accrued expenses of the Trust, and (c) cash held for distribution to Unit
holders of record as of a date prior to the evaluation. The Evaluator may
determine the value of the Securities in the Trust (i) on the basis of current
bid prices for the Securities, (ii) if bid prices are not available for any
Securities, on the basis of current bid prices for comparable bonds, (iii) by
appraisal, or (iv) by any combination of the above. In determining the
Redemption Price per Unit, no value will be assigned to the portfolio insurance
obtained by the Trust on the Bonds in the Trust unless such Bonds are in default
in payment of principal or interest or in significant risk of such default. On
the other hand, Pre-insured Bonds in the Trust are entitled at all times to the
benefits of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to fulfill its
obligations, and such benefits are reflected and included in the market value of
Pre-insured Bonds. For a description of
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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 its
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 its Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as high
a level of current income exempt from Federal income tax, New York State and New
York City income taxes as is believed to be consistent with preservation of
capital. It is the policy of the Empire Builder to invest primarily in debt
securities the interest income from which is exempt from such taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Empire Builder will
be of "investment grade" quality - that is, at the time of purchase by the
Empire Builder, such bonds either will be rated not lower than the four highest
ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A,
or BBB) or will be unrated bonds which at the time of purchase are judged by the
Empire Builder's investment advisor to be of comparable quality to bonds rated
within such four highest grades. It is a fundamental policy of the Empire
Builder that under normal market conditions at least 90% of the income
distributed to its shareholders will be exempt from Federal income tax, New York
State and New York City personal income taxes. However, during times of adverse
market conditions when the Empire Builder is investing for temporary defensive
purposes in obligations other than New York tax-exempt bonds, more than 10% of
the Empire Builder's income distributions could be subject to Federal income
tax, New York State income tax and/or New York City income tax, as described in
the current prospectus relating to the Empire Builder (the "Empire Builder
Prospectus"). Glickenhaus & Co. ("Glickenhaus"), a sponsor of the Trust, acts as
the investment advisor and distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan
Agent") a copy of the Empire Builder Prospectus describing the Empire Builder
and a form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable Distribution
Date, automatically be applied as of that date by the Trustee to purchase shares
(or fractions thereof) of the Empire Builder at a net asset value as computed as
of the close of trading on the New York Stock Exchange on such date, as
described in the Empire Builder Prospectus. Unless otherwise indicated, new
Participants in the Empire Builder Plan will be deemed to have elected the
monthly distribution plan with respect to their Units. Confirmations of all
transactions undertaken for each Participant in the Plan will be mailed to each
such Participant by the Plan Agent indicating distributions and shares (or
fractions thereof) of the Empire Builder purchased on its 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 its
participation in the Plan and receive future distributions on its Units in cash.
There will be no charge or other penalty for such termination. The Sponsors, the
Trustee, the Empire Builder and Glickenhaus, as investment advisor for Empire
Builder each will have the right to terminate this Plan at any time for any
reason. The reinvestment of distributions from the Trust through the Plan will
not affect the income tax status of such distributions. For more complete
information about investing in the Empire Builder through the Plan, including
charges and expenses, request a copy of the Empire Builder Prospectus from The
Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co., Inc.,
the Sponsors have entered into an arrangement (the "Plan") with Lebenthal New
York Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the
Trust who receive distributions from the Trust on a semi-annual basis to elect
to have distributions from Units in the Trust automatically reinvested in shares
of the Bond Fund. The Bond Fund is an open-end, non-diversified investment
company whose investment objective is to maximize current income exempt from
regular Federal income tax, and from New York State and New York City income
taxes, consistent with preservation of capital and with consideration given to
opportunities for capital gain. It is the policy of the Bond Fund to invest
primarily in long term investment grade tax-exempt securities the interest
income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund will be of
"investment grade" quality -- that is, at the time of purchase by the Bond Fund,
such bonds either will be rated not lower than the four highest ratings of
either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, A or BBB) or
will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within such
four highest grades. It is a fundamental policy of the Bond Fund that under
normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts as
the manager and distributor for the Bond Fund.
Each Unit holder who receives distributions from the Trust on a
semi-annual basis 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 its 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
its participation in the Plan and receive future distributions on its 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 or modify this Plan at any
time for any reason. The reinvestment of distributions from the Trust through
the Plan will not affect the income tax status of such distributions. For more
complete information about investing in the Bond Fund through the Plan,
including charges and expenses, request a copy of the Bond Fund Prospectus from
The Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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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 73 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
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to obtain Permanent Insurance on a Defaulted Bond or Bonds, except as described
below and in certain other unusual circumstances for which it is determined by
the Trustee to be in the best interests of the Unit holders or if there is no
alternative, the Trustee is not empowered to sell Defaulted Bonds for which
value has been attributed for the insurance obtained by the Trust. Because of
such restrictions on the Trustee, under certain circumstances the Sponsors may
seek a full or partial suspension of the right of Unit holders to redeem their
Units. See "Rights of Unit Holders--Redemption." The Sponsors are empowered, but
not obligated, to direct the Trustee to dispose of Bonds in the event of advance
refunding. It is the responsibility of the Sponsors to instruct the Trustee to
reject any offer made by an issuer of any of the Securities to issue new
obligations in exchange and substitution for any Securities pursuant to a
refunding or refinancing plan, except that the Sponsors may instruct the Trustee
to accept such an offer or to take any other action with respect thereto as the
Sponsors may deem proper if the issuer is in default with respect to such
Securities or in the judgment of the Sponsors the issuer will probably default
with respect to such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held by
the Trustee subject to the terms and conditions of the Trust Agreement to the
same extent as Securities originally deposited thereunder. Within five days
after the deposit of obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to each Unit holder,
identifying the obligations eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited is
prohibited.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance with respect to the Trust or otherwise within 30 days, the
Trustee is required to notify the Sponsors thereof. If the Sponsors fail to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may in
its discretion sell the Defaulted Bond and not be liable for any depreciation or
loss thereby incurred. See "The Trust--Insurance on the Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon default in
the payment of principal or interest, institution of certain legal proceedings
or the existence of certain other impediments to the payment of Bonds, default
under other documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same issuer,
decline in projected income pledged for debt service on revenue Bonds, or
decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds in
a Trust would be detrimental to the interest of the Unit holders. The proceeds
from any such sales will be credited to the Principal Account of the affected
Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions
to Unit holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by the
Trust is applicable only while Bonds so insured are held by the Trust, the price
to be received by the Trust upon the disposition of any such Defaulted Bond will
not reflect any value based on such insurance. Therefore, in connection with any
liquidation with respect to a Trust, it
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shall not be necessary for the Trustee to, and the Trustee does not currently
intend to, dispose of any Bonds if retention of such Bonds, until due, shall be
deemed to be in the best interest of Unit holders, including, but not limited
to, situations in which Bonds so insured are in default and situations in which
Bonds so insured have a deteriorated market price resulting from a significant
risk of default. Since the Pre-insured Bonds will reflect the value of the
insurance obtained by the Bond issuer, it is the present intention of the
Sponsors not to direct the Trustee to hold any Pre-insured Bonds after the date
of termination. All proceeds received, less applicable expenses, from insurance
on Defaulted Bonds not disposed of at the date of termination will ultimately be
distributed to Unit holders of record as of such date of termination as soon as
practicable after the date such Defaulted Bonds become due and applicable
insurance proceeds have been received by the Trustee. See "Summary of Essential
Financial Information" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of Essential
Information" in Part I of this Prospectus has been appointed by the other
Sponsor as agent for purposes of taking action under the Trust Agreement. In
those Trusts for which there is a sole Sponsor, references herein to the Agent
for Sponsors shall be deemed to refer to such sole Sponsor. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsor acts as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation, a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under the Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1998, the total partners' capital of Glickenhaus was
$185,620,531 (audited); and at March 31, 1999, the total stockholders' equity of
Lebenthal was $6,269,873 (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.
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TRUSTEE
The Trustee is The Bank of New York, a trust company organized under
the laws of New York, having its offices at 101 Barclay Street, New York, New
York 10286, (800) 221-7771. The Bank of New York is subject to supervision and
examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a corporation organized under the laws of the United States or
the State of New York, which is authorized under such laws to exercise corporate
trust powers, and must have at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000 and its principal office and place
of business in the Borough of Manhattan, New York City. The duties of the
Trustee are primarily ministerial in nature. The Trustee did not participate in
the selection of Securities for the portfolio of any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not be
personally liable for any taxes or other governmental charges imposed upon or in
respect of the Trust which the Trustee may be required to pay under current or
future law of the United States or any other taxing authority having
jurisdiction. See "The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the Trustee under
the Trust Agreement, reference is made to the material set forth under "Rights
of Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation."
Resignation
By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the Unit holders,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If, upon resignation or
removal of a trustee, no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
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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 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.
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The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust as
of the Date of Deposit, whichever is lower, at which time the Trust may be
terminated (i) by the consent of the holders of 66-2/3% of the Units or (ii) by
the Trustee; provided, however, that upon affirmative written notice of their
opportunity to object to such termination and to the Sponsors and the holders of
at least 33-1/3% of the Units do not instruct the Trustee not to terminate the
Trust. In no event, however, may the Trust continue beyond the Mandatory
Termination Date set forth in Part I of this Prospectus under "Summary of
Essential Financial Information"; provided, however, that prior to the Mandatory
Termination Date the Trustee shall not dispose of any Bonds if the retention of
such Bonds, until due, shall be deemed to be in the best interest of the Unit
holders of the affected Trust. In the event of termination, written notice
thereof will be sent by the Trustee to all Unit holders. Within a reasonable
period after termination, the Trustee will sell any remaining Securities and,
after paying all expenses and charges incurred by the Trust, will distribute to
each Unit holder, upon surrender for cancellation of its certificate for Units,
its pro rata share of the balances remaining in the Interest and Principal
Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Brown & Wood, One World
Trade Center, New York, New York 10048, as special counsel for the Sponsors as
to Series 9 through 64 and by Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022 as special counsel for the Sponsors as to Series 65 and
subsequent Series of Empire State Municipal Exempt Trust, Guaranteed Series.
Winston & Strawn, 200 Park Avenue, New York, New York 10016, acts as counsel for
the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of this
Prospectus have been audited by BDO Seidman LLP, independent certified public
accountants, as stated in their report with respect thereto, and are included
therein in reliance upon such report given upon their authority 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.
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The ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A: Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default
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upon failure of, such completion. Accordingly, the investor should
exercise its own judgment with respect to such likelihood and risk.
NO: Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard &
Poor's does not rate a particular type of obligation as a matter of policy.
SP-1: Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics will
be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's rating. A summary of the meaning of the applicable rating symbols as
published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium grade
obligations; i.e, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
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<PAGE>
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.
<TABLE>
<CAPTION>
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
This Prospectus contains information concerning the Trust and the
Sponsors, but does not contain all the information set forth in
the registration statements and exhibits relating thereto, which
the Trust has filed with the Securities and Exchange Commission, GUARANTEED SERIES
Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby made.
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INDEX
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Page
<S> <C> <C>
THE TRUST......................................................... 1 PROSPECTUS, PART II
PUBLIC OFFERING...................................................14 Sponsors:
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
TO UNIT HOLDERS...................................................16 GLICKENHAUS & CO.
6 East 43rd Street
INSURANCE ON THE BONDS............................................17 New York, New York 10017
(212) 953-7532
TAX STATUS........................................................21
RIGHTS OF UNIT HOLDERS............................................24 LEBENTHAL & CO., INC.
120 Broadway
AUTOMATIC ACCUMULATION ACCOUNT....................................32 New York, New York 10271
(212)425-6116
SPONSORS..........................................................33
TRUSTEE...........................................................36
EVALUATOR.........................................................37
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT..................37
LEGAL OPINIONS....................................................38
AUDITORS..........................................................38
DESCRIPTION OF BOND RATINGS.......................................38
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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.
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</TABLE>
