As filed with the Securities and Exchange Commission on January 29, 1996
Registration No. 33-40724*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 78
AND GUARANTEED SERIES 79
B. Name of depositors: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
C. Complete address of depositors' principal executive offices:
GLICKENHAUS & CO. LEBENTHAL & CO., INC.
6 East 43rd Street 120 Broadway
New York, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Battle Fowler LLP
New York, NY 10017 New York, NY 10271 75 East 55th Street
New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/x/ on January 31, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on ( date ) pursuant to paragraph (a) of Rule 485
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Empire
State Municipal Exempt Trust, Guaranteed Series 78 and Guaranteed Series
79 covered by prospectuses heretofore filed as part of separate
registration statements on Form S-6 (Registration Nos. 33-40724 and
33-40725, respectively) under the Act.
C/M: 10726.0053 332359.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 78 AND GUARANTEED SERIES 79
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
<S> <C>
1. (a) Name of trust................... Prospectus front cover
(b) Title of securities issued...... "
2. Name and address of each depositor.. Sponsors
3. Name and address of trustee......... Trustee
4. Name and address of principal
underwriters...................... Sponsors; Public Offering --
Distribution of Units; Back Cover
5. State of organization of trust...... The Trust
6. Execution and termination of
trust agreement................... The Trust; Amendment and Termination of
the Trust Agreement
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities..................... Rights of Unit Holders
(b) Cumulative or distributive
securities..................... "
(c) Redemption...................... "
(d) Conversion, transfer, etc....... "
(e) Periodic payment plan........... Not Applicable
(f) Voting rights................... Amendment and Termination of the Trust
Agreement
(g) Notice to certificateholders.... Rights of Unit Holders--Reports and
Records; Sponsors--Responsibility;
Trustee--Resignation; Amendment and
Termination of the Trust Agreement
(h) Consents required............... Sponsors--Responsibility; Amendment and
Termination of the Trust Agreement
(i) Other provisions................ The Trust--Tax Status
11. Type of securities
comprising units.................. Prospectus front cover; The Trust--
Portfolio
12. Certain information regarding
periodic payment certificates..... Not Applicable
13. (a) Load, fees, expenses, etc....... Prospectus front cover; Summary of
Essential Financial Information;
Rights of Unit Holders--Expenses and
Charges; Public Offering--Offering
Price; Public Offering--Market for
Units
ii
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<PAGE>
(b) Certain information regarding
periodic payment certificates... Not Applicable
(c) Certain percentages............. Public Offering--Offering Price
(d) Certain other fees, etc. payable Rights of Unit Holders--Certificates
by holders......................
(e) Certain profits receivable by
depositors, principal
underwriters, trustee or
affiliated persons.............. Public Offering--Offering Price; Rights
of Unit Holders--Redemption--Purchase by
the Sponsors of Units Tendered for
Redemption
(f) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... The Trust; Rights of Unit Holders--
Certificates
15. Receipt and handling of payments
from purchasers................... Public Offering--Offering Price;
Amendment and Termination of the Trust
Agreement
16. Acquisition and disposition of
underlying securities............. The Trust--Portfolio; Sponsors--
Responsibility
17. Withdrawal or redemption............ Public Offering--Market for Units;
Rights of Unit Holders--Redemption
18. (a) Receipt, custody and
disposition of income........... The Trust--Portfolio--General
Considerations; Insurance on the
Bonds; Public Offering--Offering
Price; Rights of Unit Holders--
Distribution of Interest and
Principal; Rights of Unit Holders--
Reports and Records; Amendment and
Termination of the Trust Agreement
(b) Reinvestment of distributions... Automatic Accumulation Account
(c) Reserves or special funds....... Rights of Unit Holders; Rights of Unit
Holders--Distribution of Interest and
Principal; Expenses and Charges--Other
Charges; Amendment and Termination of
the Trust Agreement
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and
Principal; Amendment and Termination
of the Trust Agreement
20. Certain miscellaneous provisions
of trust agreement................ Sponsors--Resignation; Trustee--
Resignation; Trustee--Limitations on
Liability; Amendment and Termination
of the Trust Agreement
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... "
(e) and (f) Depositor, removal
and successor................... "
21. Loans to security holders........... Not Applicable
iii
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<PAGE>
22. Limitations on liability............ The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
23. Bonding arrangements................ Additional Information--Item A
24. Other material provisions
of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......... Sponsors
26. Fees received by depositors........ Not Applicable
27. Business of depositors............. Sponsors
28. Certain information as to
officials and affiliated
persons of depositor.............. Contents of Registration Statement
29. Voting securities of depositors..... Not Applicable
30. Persons controlling depositors...... "
31. Payments by depositors for certain
services rendered to trust........ "
32. Payment by depositors for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositors for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states.............. Public Offering--Distribution of Units
36. Suspension of sales of trust's
securities........................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Public Offering--Distribution of Units
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation............. Prospectus front cover; Public
Offering--Offering Price; Public
Offering-- Distribution of Units
(b) Schedule as to offering price... Not Applicable
iv
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<PAGE>
(c) Variation in offering price
to certain persons.............. Public Offering--Offering Price; Public
Offering-- Distribution of Units
45. Suspension of redemption rights..... Not Applicable
46. (a) Redemption valuation............ Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption
price................ Not Applicable
47. Maintenance of position in
underlying securities............. Public Offering--Market for Units;
Rights of Unit Holders--Redemption--
Purchase by the Sponsors of Units
Tendered for Redemption; Rights of
Unit Holders--Redemption--Computation
of Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................ Trustee
49. Fees and expenses of trustee........ Rights of Unit Holders--Expenses and
Charges; Rights of Unit Holders--
Distribution of Interest and Principal
50. Trustee's lien...................... Rights of Unit Holders--Expenses and
Charges--Other Charges; Rights of Unit
Holders--Distribution of Interest and
Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................ Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Prospectus front cover;
Sponsors--Responsibility
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsors--Responsibility
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Prospectus front cover; Tax
Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Certain information regarding
periodic payment certificates..... "
56. Certain information regarding
periodic payment certificates..... "
v
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<PAGE>
57. Certain information regarding
periodic payment certificates..... "
58. Certain information regarding
periodic payment certificates..... "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Net Assets; Statements of
Operations; Statements of Changes in
Net Assets
</TABLE>
vi
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
Prospectus, Part I 13,149 Units Dated: January 31, 1996
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of
October 31, 1995 and a summary of additional specific information including
"Special Factors Concerning the Portfolio" and audited financial statements of
the Trust, including the related bond portfolio, as of September 30, 1995. The
second part of this Prospectus contains a general summary of the Trust and
"Special Factors Affecting New York."
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest income to the Trust and, with certain exceptions, to Unit
holders is exempt from all regular federal, New York State and New York City
income taxes, but may be subject to state and local taxes in other
jurisdictions. Capital gains, if any, are subject to tax. See Part II under
"Tax Status."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Corporation.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which
have been acquired by the Sponsors either by purchase from the Trustee of
Units tendered for redemption or in the secondary market. See Part II under
"Rights of Unit Holders --Redemption -- Purchase by the Sponsors of Units
Tendered for Redemption" and "Public Offering -- Market for Units." The price
at which the Units offered hereby were acquired was not less than the
redemption price determined as described herein. See Part II under "Rights of
Unit Holders -- Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units
outstanding, plus a sales charge determined on the basis of the maturities of
the Securities in the Trust. See "Public Offering -- Offering Price" in Part
II of this Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon
the aggregate bid price of the Securities in the Trust plus accrued interest
to the date of settlement, as more fully described in Part II under "Public
Offering -- Market for Units." If such a market is not maintained, a Unit
holder may be able to dispose of his Units only through redemption at prices
based upon the aggregate bid price of the underlying Securities. The purchase
price of the Securities in the Trust, if they were available for direct
purchase by investors, would not include the sales charges included in the
Public Offering Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
332745.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 78
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1995
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 13,300,000
Number of Units: 13,149
Fractional Undivided Interest in the Trust Per Unit: 1/13,149
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $14,349,541.69
==============
Sponsors' Repurchase Price Per Unit: $ 1,091.30
Plus Sales Charge(1): 44.18
Public Offering Price Per Unit(2): $ 1,135.48
==================
Redemption Price Per Unit(3): $ 1,091.30
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 44.18
Weighted Average Maturity of Bonds in the Trust: 8.214 years
Evaluation Time: 2:00 p.m., New York Time, on the next
day following receipt by a Sponsor of
an order for a Unit sale or purchase
or by the Trustee of a Unit tendered
for redemption.
Annual Insurance Premium: $50,307
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: October 4, 1991
Date of Trust Agreement: October 4, 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 or 20% of the value of the
Trust as of the date of deposit,
whichever is lower.
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 78
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1995
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $70.39 $70.39
Less Annual Premium on Portfolio Insurance 3.82 3.82
E Less Estimated Annual Expenses 1.77 1.22
-------- --------
R Estimated Net Annual Interest Income: $64.80 $65.35
====== ======
U Estimated Interest Distribution: $ 5.40 $32.68
N Estimated Current Return Based on Public
Offering Price (4): 5.71% 5.76%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 3.42% 3.47%
Estimated Daily Rate of Net Interest
Accrual: $ .18000 $ .18153
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part B of this Prospectus.
2. Plus accrued interest to November 3, 1995, the expected date of settlement,
of $13.71 monthly and $41.23 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 B 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 "The Trust -- Tax Status" and "The Trust -- Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part B 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 "The Trust --
Estimated Current Return and Estimated Long-Term Return to Unit Holders" in
Part B of this Prospectus.
<PAGE>
Portfolio Information
On September 30, 1995, the bid side valuation of 5.7% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 94.3% was at a premium over par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
On September 30, 1995, the Portfolio consisted of ten 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. 16.2% 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. 5.8% of the aggregate
principal amount of the Bonds in the Portfolio are payable from appropriations.
78.0% of the aggregate principal amount of the Bonds in the Portfolio are
payable from the income of specific projects or authorities and are not
supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: General Obligation, two (16.2%);
Appropriations, one (5.8%); Revenue: Higher Education, two (41.9%); Health Care,
one (2.2%); Water and Sewer, two (11.6%); and Other, two (22.3%). The Trust is
deemed to be concentrated in the Higher Education Bonds category.1 Six issues,
constituting 64.3% of the Bonds in the Portfolio, are original issue discount
bonds of which one is a zero coupon bond. Three issues (30.2%) were rated AAA by
Standard & Poor's Corporation; three issues (33.5%) were rated Aaa, one issue
(15.1%) was rated A1 and one issue (5.0%) was rated A by Moody's Investors
Service, Inc. Two issues are partially refunded. The partially refunded portion
of one issue (10.4%) is rated Aaa by Moody's Investors Service, Inc. The
partially refunded portion of the other issue (5.6%) is rated BBB+ by Standard &
Poor's Corporation. The remaining portions of the partially refunded issues
(.2%) are rated BBB+ by Standard & Poor's Corporation.2 Subsequent to such date,
such ratings may have changed. See "Tax-Exempt Bond Portfolio." For a more
detailed discussion, it is recommended that Unit Holders consult the official
statements for each Security in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was rendered on the
Date of Deposit. Consult your tax advisor to discuss any relevant changes
in tax laws since the Date of Deposit. See also "The Trust -- Tax Status"
in Part B of this Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part B of this Prospectus.
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or
on a sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. For tax years beginning after December
31, 1992, long-term capital gains will be taxed at a maximum federal income tax
rate of 28%, while ordinary income will be taxed at a maximum federal income tax
rate of 36% (plus a 10% surtax applicable to certain high income taxpayers).
- -------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part B of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part B
of this Prospectus.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 78:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 78, including the tax-exempt bond
portfolio, as of September 30, 1995, and the related statements of operations
and changes in net assets for the year then ended. These financial statements
are the responsibility of the Trustee. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1995, 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 78 as of September 30, 1995, and the results of its
operations and changes in net assets for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
December 29, 1995
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
==============================================================================
ASSETS:
CASH...................................................... $ 98 194
INVESTMENTS IN SECURITIES, at market value
(cost $13,519,040) (Note 1)......................... 15 081 419
ACCRUED INTEREST RECEIVABLE............................... 266 156
--------------
Total trust property................................ 15 445 769
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES............. 233 211
--------------
NET ASSETS................................................ $15 212 558
===========
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS............................... $7 840 591 $7 010 783 $14 851 374
UNDISTRIBUTED NET INVESTMENT
INCOME.................................. 136 513 224 671 361 184
------------ ------------ --------------
Total value....................... $7 977 104 $7 235 454 $15 212 558
========== ========== ===========
UNITS OUTSTANDING........................... 7 181 6 421 13 602
============== ============== ===============
VALUE PER UNIT.............................. $ 1 110.86 $ 1 126.84
=========== ============
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
STATEMENTS OF OPERATIONS
=============================================================================================================
<CAPTION>
Year ended
September 30,
---------------------------------
1995 1994 1993
----------------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST........................... $1 017 920 $ 1 093 609 $1 125 224
---------- ----------- ----------
EXPENSES:
Trustee fees....................................... 12 990 13 361 13 828
Evaluation fees.................................... 1 800 1 816 1 730
Insurance premiums................................. 52 306 56 649 59 602
Sponsors' fees..................................... 3 477 3 825 3 935
Auditors' fees..................................... 1 800 1 800 1 800
--------------------------- -------------
Total expenses..................... 72 373 77 451 80 895
------------------------- ------------
NET INVESTMENT INCOME.................................. 945 547 1 016 158 1 044 329
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Notes 1 and 3)........................ 91 517 54 775 66 070
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (Note 1)............... 268 968 (1 308 329) 1 736 929
------------ ------------ ----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $1 306 032 $ (237 396) $2 847 328
========== ============ ==========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
STATEMENTS OF CHANGES IN NET ASSETS
==============================================================================
<CAPTION>
Year ended
September 30,
-----------------------------------
1995 1994 1993
------------------------------- --------
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................. $ 945 547 $ 1 016 158 $ 1 044 329
Realized gain on securities
sold or redeemed (Notes 1 and 3).............. 91 517 54 775 66 070
Net change in unrealized market
appreciation (depreciation) (Note 1).......... 268 968 (1 308 329) 1 736 929
-------------- ------------ -------------
Net increase (decrease) in net assets resulting
from operations........................ 1 306 032 (237 396) 2 847 328
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income............................. (981 407) (1 027 916) (1 053 748)
CAPITAL SHARE TRANSACTIONS:
Redemption of 1,547, 501 and 350 units
at September 30, 1995, 1994 and 1993,
respectively................................... (1 647 262) (553 030) (385 174)
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS ............... (1 322 637) (1 818 342) 1 408 406
NET ASSETS:
Beginning of year................................. 16 535 195 18 353 537 16 945 131
------------ ------------ ------------
End of year....................................... $15 212 558 $16 535 195 $18 353 537
=========== =========== ===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.................................. $65.49 $65.51 $65.46
Semi-annual plan.............................. $66.06 $66.11 $65.96
</TABLE>
See Notes to Financial Statements
<PAGE>
===============================================================================
===============================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
NOTES TO FINANCIAL STATEMENTS
==============================================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2040. If
the value of the Trust falls below $2,000,000 or 20% of the value of the Trust
as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit Holders either
semi-annually on the first day of June and December or, if elected by the Unit
Holder, on the first day of each month, after deducting applicable expenses.
<PAGE>
<TABLE>
=================================================================================================================================
=================================================================================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
NOTES TO FINANCIAL STATEMENTS
=============================================================================================================
(Concluded)
=============================================================================================================
NOTE 3 - BONDS SOLD OR REDEEMED
Port-
folio Principal Date Realized
No. Description Amount Redeemed Net Proceeds Cost Gain
Year ended September 30, 1995:
<S> <C> <C> <C> <C> <C> <C>
4 The City of New York, General $ 70 000 10/3/94 $ 80 640 $ 71 331 $ 9 309
Obligation Bonds, Fiscal
1992 Series A
3 New York State Medical Care 165 000 11/7/94 176 550 173 068 3 482
Facilities Finance Agency, 195 000 12/2/94 209 528 204 535 4 993
Hospital and Nursing Home 295 000 1/17/95 320 075 309 425 10 650
FHA-Insured Mortgage 15 000 5/12/95 16 500 15 734 766
Revenue Bonds, 1988 15 000 6/8/95 16 290 15 734 556
Series C 10 000 6/26/95 10 840 10 489 351
7 New York City Municipal 70 000 2/21/95 79 625 73 673 5 952
Water Finance Authority,
Water and Sewer System
Revenue Bonds, Fiscal
1991 Series C
9 New York City Municipal 70 000 4/21/95 68 600 64 050 4 550
Water Finance Authority,
Water and Sewer System
Revenue Bonds, Fiscal
1992 Series A
5 The City of New York, General 130 000 3/20/95 151 060 132 473 18 587
Obligation Bonds, Fiscal 1992
Series A
8 Dormitory Authority of 165 000 7/27/95 189 337 170 780 18 557
the State of New York,
City University System
Consolidated Revenue
Bonds, Series 1990A
1 Dormitory Authority of the 155 000 9/21/95 175 150 161 386 13 764
State of New York, State
University Educational
Facilities Revenue Bonds,
Series 1989B (FGIC Insured)
$1 355 000 $1 494 195 $1 402 678 $91 517
========== ========== ========== =======
</TABLE>
<PAGE>
==============================================================================
NOTE 4 - NET ASSETS
=============================================================================
Cost of 16,000 units at Date of Deposit $16 470 979
Less gross underwriting commission 808 880
Net cost - initial offering price 15 662 099
Realized net gain on securities sold or redeemed 212 362
Redemption of 2,398 units (2 585 466)
Unrealized market appreciation of securities 1 562 379
Undistributed net investment income 361 184
--------------
Net assets $15 212 558
===========
<PAGE>
<TABLE>
=================================================================================================================================
================================================================================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- -------- ----------------------- ------- ----------------------------------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $2 895 000 Dormitory Authority 7.250% 05/15/15 05/15/09 @ 100 S.F. $3 014 274 $3 292 252 $209 888
of the State of New 05/15/00 @ 102 Opt.
York, State
University Educa-
tional Facilities
Revenue Bonds,
Series 1989B
(FGIC Insured)
2 AAA 1 000 000 New York Local 7.500 04/01/20 04/01/13 @ 100 S.F. 1 039 030 1 163 850 75 000
Government Assis- 04/01/01 @ 102 Opt.
tance Corporation
(A Public Benefit
Corporation of the
State of New York),
Series 1991B Bonds
3 AAA 305 000 New York State 7.700 02/15/22 08/15/06 @ 100 S.F. 319 915 340 057 23 485
Medical Care 08/15/98 @ 102 Opt.
Facilities Finance
Agency, Hospital
and Nursing Home
FHA-Insured
Mortgage Revenue
Bonds, 1988 Series C
4a BBB+ 785 000 The City of New York, 8.000 08/15/19 No Sinking Fund 799 931 937 314 62 800
General Obligation 08/15/01 @ 101.5 Opt.
Bonds, Fiscal 1992
Series A
</TABLE>
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
(Continued)
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- -------- ----------------------- ------ ----------------------------------- -------- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4b BBB+ $ 10 000 The City of New 8.000% 08/15/19 No Sinking Fund $ 10 190 $ 10 992 $ 800
York, General 08/15/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1992
Series A
5a Aaa* 1 450 000 The City of New 8.000 08/15/21 No Sinking Fund 1 477 579 1 731 344 116 000
York, General 08/15/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1992
Series A
5b BBB+ 15 000 The City of New 8.000 08/15/21 No Sinking Fund 15 285 16 833 1 200
York, General 08/15/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1992
Series A
6 A1* 2 100 000 Triborough Bridge and 6.875 01/01/15 01/01/11 @ 100 S.F. 2 086 875 2 255 337 144 375
Tunnel Authority, 01/01/01 @ 102 Opt.
Special Obligation
Refunding Bonds,
Series 1991B
</TABLE>
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
(Continued)
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- -------- ----------------------- ------ ----------------------------------- -------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7 Aaa* $ 930 000 New York City 7.750% 06/15/20 06/15/16 @ 100 S.F. $ 978 797 $ 1 094 675 $ 72 075
Municipal Water 06/15/01 @ 101.5 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal 1991
Series C
8 Aaa* 2 935 000 Dormitory Authority 7.625 07/01/20 07/01/06 @ 100 S.F. 3 037 814 3 392 948 223 794
of the State of New 07/01/00 @ 102 Opt.
York, City University
System Consolidated
Revenue Bonds,
Series 1990A
9 A* 690 000 New York City 6.250 06/15/21 06/15/18 @ 100 S.F. 631 350 696 817 43 125
Municipal Water 06/15/01 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal 1992
Series A
</TABLE>
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 78
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
(Concluded)
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- -------- ----------------------- --------- ----------------------------------- -------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Aaa* $ 800 000 New York State 0.000% 01/01/18 01/01/15 @ 78.463 S.F. $ 108 000 $ 149 000 -
Urban Development 01/01/98 @ 20.447 Opt.
Corporation,
Correctional
Facilities Revenue
Bonds, Series E
$13 915 000 $13 519 040 $15 081 419 $972 542
=========== =========== =========== ========
</TABLE>
<PAGE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appear under
"Description of Bond Ratings" in Part B of this Prospectus. Ratings are by
Standard & Poor's Corporation, except for those indicated by (*), 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 78:
We have audited the statement of net assets (not included) of Empire State
Municipal Exempt Trust, Guaranteed Series 78, including the bond portfolio, as
of September 30, 1994, and the related statements of operations and changes in
net assets for the years ended September 30, 1994 and 1993. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1994, by correspondence
with the Trustee. An audit includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our 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 78 as of September 30, 1994, and the results of its
operations and changes in net assets for the years ended September 30, 1994 and
1993, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
October 31, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
Prospectus, Part I 10,022 Units Dated: January 31, 1996
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a
"Summary of Essential Financial Information" on the reverse hereof as of
October 31, 1995 and a summary of additional specific information including
"Special Factors Concerning the Portfolio" and audited financial statements of
the Trust, including the related bond portfolio, as of September 30, 1995. The
second part of this Prospectus contains a general summary of the Trust and
"Special Factors Affecting New York."
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest income to the Trust and, with certain exceptions, to Unit
holders is exempt from all regular federal, New York State and New York City
income taxes, but may be subject to state and local taxes in other
jurisdictions. Capital gains, if any, are subject to tax. See Part II under
"Tax Status."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Corporation.
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which
have been acquired by the Sponsors either by purchase from the Trustee of
Units tendered for redemption or in the secondary market. See Part II under
"Rights of Unit Holders --Redemption -- Purchase by the Sponsors of Units
Tendered for Redemption" and "Public Offering -- Market for Units." The price
at which the Units offered hereby were acquired was not less than the
redemption price determined as described herein. See Part II under "Rights of
Unit Holders -- Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid
price of the Securities in the Trust divided by the number of Units
outstanding, plus a sales charge determined on the basis of the maturities of
the Securities in the Trust. See "Public Offering -- Offering Price" in Part
II of this Prospectus.
Market for Units. The Sponsors, although they are not obligated to do
so, intend to maintain a secondary market for the Units at prices based upon
the aggregate bid price of the Securities in the Trust plus accrued interest
to the date of settlement, as more fully described in Part II under "Public
Offering -- Market for Units." If such a market is not maintained, a Unit
holder may be able to dispose of his Units only through redemption at prices
based upon the aggregate bid price of the underlying Securities. The purchase
price of the Securities in the Trust, if they were available for direct
purchase by investors, would not include the sales charges included in the
Public Offering Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
332746.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 79
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1995
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 9,895,000.00
Number of Units: 10,022
Fractional Undivided Interest in the Trust Per Unit: 1/10,022
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $ 10,515,572.41
===============
Sponsors' Repurchase Price Per Unit: $ 1,049.25
Plus Sales Charge(1): 42.34
Public Offering Price Per Unit(2): $ 1,091.59
===============
Redemption Price Per Unit(3): $ 1,049.25
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 42.34
Weighted Average Maturity of Bonds in the Trust: 14.081 years
Evaluation Time: 2:00 p.m., New York Time, on the next
day following receipt by a Sponsor of
an order for a Unit sale or purchase
or by the Trustee of a Unit tendered
for redemption.
Annual Insurance Premium: $41,059
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: December 6, 1991
Date of Trust Agreement: December 6, 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 or 20% of the value of the
Trust as of the date of deposit,
whichever is lower.
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 79
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT OCTOBER 31, 1995
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $67.60 $67.60
Less Annual Premium on Portfolio Insurance 4.10 4.10
E Less Estimated Annual Expenses 1.78 1.29
-------- --------
R Estimated Net Annual Interest Income: $61.72 $62.21
====== ======
U Estimated Interest Distribution: $ 5.14 $31.11
N Estimated Current Return Based on Public
Offering Price (4): 5.65% 5.70%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 3.78% 3.83%
Estimated Daily Rate of Net Interest
Accrual: $ .17144 $ .17281
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part B of this Prospectus.
2. Plus accrued interest to November 3, 1995, the expected date of settlement,
of $13.03 monthly and $39.08 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 B 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 "The Trust -- Tax Status" and "The Trust -- Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part B 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 "The Trust --
Estimated Current Return and Estimated Long-Term Return to Unit Holders" in
Part B of this Prospectus.
<PAGE>
Portfolio Information
On September 30, 1995, the bid side valuation of 5.9% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount from
par and 94.1% 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
On September 30, 1995, the Portfolio consisted of ten 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. 14.1% 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. 16.3% of the aggregate
principal amount of the Bonds in the Portfolio are payable from appropriations.
69.6% of the aggregate principal amount of the Bonds in the Portfolio are
payable from the income of specific projects or authorities and are not
supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source,
the primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: General Obligation, two (14.1%);
Appropriations, two (16.3%); Revenue: Higher Education, two (11.4%), Health
Care, one (14.3%); Water and Sewer, one (20.8%); and Transportation, two
(23.1%). The Trust is not deemed to be concentrated in any particular category
of Bonds.1 Four issues, constituting 29.0% of the Bonds in the Portfolio, are
original issue discount bonds, of which two are zero coupon bonds. One issue
(0.3%) was rated AAA, two issues (15.7%) were rated BBB+ and one issue (2.5%)
was rated BBB by Standard & Poor's Corporation; two issues (16.3%) were rated
Aaa, one issue (22.8%) was rated A1, one issue (20.9%) was rated A and one issue
(8.9%) was rated Baa1 by Moody's Investors Service, Inc.2 One issue was
partially refunded. The partially refunded portion (11.0%) was rated Aaa by
Moody's Investors Service, Inc. The remaining portion (1.6%) was rated BBB+ by
Standard & Poor's Corporation. Subsequent to such date, such ratings may have
changed. See "Tax-Exempt Bond Portfolio." For a more detailed discussion, it is
recommended that Unit Holders consult the official statements for each Security
in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was rendered on the
Date of Deposit. Consult your tax advisor to discuss any relevant changes
in tax laws since the Date of Deposit. See also "The Trust -- Tax Status"
in Part B of this Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part B 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 B of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part B
of this Prospectus.
<PAGE>
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or
on a sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. For tax years beginning after December
31, 1992, long-term capital gains will be taxed at a maximum federal income tax
rate of 28%, while ordinary income will be taxed at a maximum federal income tax
rate of 36% (plus a 10% surtax applicable to certain high income taxpayers).
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 79:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 79, including the tax-exempt bond
portfolio, as of September 30, 1995, and the related statements of operations
and changes in net assets for the year then ended. These financial statements
are the responsibility of the Trustee. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1995, 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 79 as of September 30, 1995, and the results of its
operations and changes in net assets for the year then ended in conformity with
generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
December 29, 1995
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
STATEMENT OF NET ASSETS
SEPTEMBER 30, 1995
============================================================================
ASSETS:
CASH....................................................... $ 68 043
INVESTMENTS IN SECURITIES, at market value
(cost $9,594,480) (Note 1)............................ 10 699 807
ACCRUED INTEREST RECEIVABLE................................ 190 894
------------
Total trust property................................. 10 958 744
LESS - ACCRUED EXPENSES.................................... 2 368
------------
NET ASSETS................................................. $ 10 956 376
============
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS............................... $ 6 247 032 $ 4 461 269 $ 10 708 301
UNDISTRIBUTED NET INVESTMENT
INCOME.................................. 106 068 142 007 248 075
----------- ----------- ------------
Total value....................... $ 6 353 100 $ 4 603 276 $ 10 956 376
=========== =========== ============
UNITS OUTSTANDING........................... 5 975 4 267 10 242
=========== =========== ============
VALUE PER UNIT.............................. $ 1 063.28 $ 1 078.81
=========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
STATEMENTS OF OPERATIONS
=============================================================================================================
<CAPTION>
Year ended
September 30,
1995 1994 1993
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST........................... $ 714 607 $ 777 048 $ 823 623
--------- ---------- -----------
EXPENSES:
Trustee fees....................................... 9 621 10 105 10 611
Evaluation fees.................................... 2 123 1 838 1 712
Insurance premiums................................. 42 634 47 866 51 650
Sponsors' advisory fees............................ 2 535 2 676 2 865
Auditors' fees..................................... 1 800 1 800 1 800
--------- ---------- -----------
Total expenses..................... 58 713 64 285 68 638
--------- ---------- -----------
NET INVESTMENT INCOME.................................. 655 894 712 763 754 985
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Notes 1 and 3)........................ 63 030 123 003 57 713
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (Note 1)............... 246 787 (955 762) 1 017 091
--------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.......................... $ 965 711 $ (119 996) $ 1 829 789
========= ========== ===========
</TABLE>
See Notes to Financial Statements
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
STATEMENTS OF CHANGES IN NET ASSETS
=============================================================================================================
<CAPTION>
Year ended
September 30,
1995 1994 1993
<S> <C> <C> <C>
OPERATIONS:
Net investment income............................. $ 655 894 $ 712 763 $ 754 985
Realized gain on securities
sold or redeemed (Notes 1 and 3).............. 63 030 123 003 57 713
Net change in unrealized market
appreciation (depreciation) (Note 1).......... 246 787 (955 762) 1 017 091
------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.............. 965 711 (119 996) 1 829 789
------------ ------------ ------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income............................. (669 137) (738 547) (766 357)
Principal......................................... (141,460) (123 351) (39 974)
------------ ------------ ------------
Total distributions............... (810 597) (861 898) (806 331)
------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 525, 889 and 344 units
at September 30, 1995, 1994 and 1993,
respectively................................... (536 082) (937 091) (373 812)
------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS................. (380 968) (1 918 985) 649 646
NET ASSETS:
Beginning of year................................. 11 337 344 13 256 329 12 606 683
------------ ------------ ------------
End of year....................................... $ 10 956 376 $ 11 337 344 $ 13 256 329
============ ============ ============
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.................................. $61.85 $62.98 $63.57
Semi-annual plan.............................. $62.55 $63.78 $64.15
Principal:
Monthly plan.................................. $13.12 $10.56 $ 3.40
Semi-annual plan.............................. $13.12 $10.56 $ 3.40
</TABLE>
See Notes to Financial Statements
<PAGE>
=============================================================================
=============================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
NOTES TO FINANCIAL STATEMENTS
============================================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator. Securities transactions are recorded on the trade
date. The difference between cost and market value is reflected as unrealized
appreciation (depreciation) of investments. Realized gains (losses) from
securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2040. If
the value of the Trust falls below $2,000,000 or 20% of the value of the Trust
as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit Holders either
semi-annually on the first day of June and December or, if elected by the Unit
Holder, on the first day of each month, after deducting applicable expenses.
Principal distributions result from the sale or redemption of securities.
<PAGE>
<TABLE>
================================================================================================================================
================================================================================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
NOTES TO FINANCIAL STATEMENTS
(Concluded)
=============================================================================================================
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port-
folio Principal Date Realized
No. Description Amount Redeemed Net Proceeds Cost Gain
Year ended September 30, 1995:
<S> <C> <C> <C> <C> <C> <C>
8 New York City Municipal Water $ 15 000 10/3/94 $ 16 425 $ 14 737 $ 1 688
Finance Authority, Water and 30 000 11/7/94 31 500 29 475 2 025
Sewer System Revenue Bonds, 65 000 2/21/95 71 045 63 863 7 182
Fiscal 1992 Series A 15 000 4/21/95 16 410 14 737 1 673
40 000 5/12/95 44 560 39 300 5 260
30 000 6/8/95 33 600 29 475 4 125
3 The City of New York, General 75 000 12/2/94 85 125 77 586 7 539
Obligation Bonds, Fiscal 1991
Series F
1 New York Local Government 35 000 7/27/95 39 288 34 475 4 813
Assistance Corporation (A 150 000 9/21/95 169 575 147 750 21 825
Public Benefit Corporation of
the State of New York),
Series 1991 C Bonds
4 The City of New York, General 45 000 8/14/95 52 402 45 502 6 900
Obligation Bonds, Fiscal 1991
Series D
$500 000 $559 930 $496 900 $63 030
======== ======== ======== =======
</TABLE>
<PAGE>
NOTE 4 - NET ASSETS
Cost of 12,000 units at Date of Deposit $ 12 104 038
Less gross underwriting commission 593 040
------------
Net cost - initial offering price 11 510 998
Realized net gain on securities sold or redeemed 243 746
Principal distributions (304 785)
Redemption of 1,758 units (1 846 985)
Unrealized market appreciation of securities 1 105 327
Undistributed net investment income 248 075
------------
Net assets $ 10 956 376
============
<PAGE>
<TABLE>
==================================================================================================================================
==================================================================================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- ---------- ----------------------- ------ ----------------------------------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 AAA $ 30 000 New York Local 7.000% 04/01/21 04/01/16 @ 100 S.F. $ 29 550 $ 34 192 $ 2 100
Government Assistance 04/01/01 @ 102 Opt.
Corporation (A Public
Benefit Corporation of
the State of New
York), Series
1991 C Bonds
2 BBB 255 000 Dormitory Authority 0.000 07/01/18 07/01/09 @ 48.306 S.F. 33 150 47 361 1
of the State 07/01/98 @ 20.844 Opt.
of New York, City
University System
Consolidated Revenue
Bonds, Series 1988E
3a Aaa* 1 115 000 The City of New 8.250 11/15/17 No Sinking Fund 1 153 446 1 353 566 91 988
York, General 11/15/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1991
Series F
3b BBB+ 165 000 The City of New 8.250 11/15/17 No Sinking Fund 170 689 187 912 13 613
York, General 11/15/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1991
Series F
4 BBB+ 140 000 The City of New 8.000 08/01/17 No Sinking Fund 141 560 166 084 11 200
York, General 08/01/01 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1991
Series D
</TABLE>
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
(Continued)
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- ---------- ----------------------- ------- ----------------------------------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 A1* $2 300 000 Triborough Bridge 6.875% 01/01/15 01/01/11 @ 100 S.F. $2 299 540 $ 2 470 131 $158 125
and Tunnel Authority, 01/01/01 @ 102 Opt.
Special Obligation Re-
funding Bonds,
Series 1991 B
6 Aaa* 1 300 000 New York State 7.500 01/01/18 01/01/12 @ 100 S.F. 1 313 000 1 505 309 97 500
Urban Development 01/01/01 @ 102 Opt.
Corporation, Cor-
rectional Capital
Facilities Revenue
Bonds, Series 2
7 BBB+ 1 445 000 New York State 7.400 02/15/18 02/15/07 @ 100 S.F. 1 454 032 1 578 431 106 930
Medical Care 02/15/02 @ 102 Opt.
Facilities Fi-
nance Agency,
Mental Health
Services Facili-
ties Improvement
Revenue Bonds,
1991 Series D
8 A* 2 105 000 New York City 7.000 06/15/15 06/15/13 @ 100 S.F. 2 068 163 2 337 026 147 350
Municipal Water 06/15/01 @ 101 Opt.
Finance Author-
ity, Water and
Sewer System Rev-
enue Bonds, Fiscal
1992 Series A
</TABLE>
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 79
TAX-EXEMPT BOND PORTFOLIO
SEPTEMBER 30, 1995
(Concluded)
===============================================================================================
<CAPTION>
Redemption Features Market Value Annual
Port- Aggregate Date of S.F. - Sinking Fund Cost of as of Interest
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call Bonds September 30, Income to
No. (Note A) Amount Title of Bond Rate (Note B) (Note B) to Trust 1995 Trust
- ---- -------- ---------- ----------------------- ------- ----------------------------------- -------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9 Aaa* $ 345 000 New York State 0.000% 01/01/18 01/01/15 @ 78.463 S.F. $ 44 850 $ 64 256 -
Urban Development 01/01/98 @ 20.447 Opt.
Corporation, Cor-
rectional Facili-
ties Revenue Bonds,
Series E
10 Baa1* 900 000 Dormitory Authority 7.000 04/15/16 10/15/14 @ 100 S.F. 886 500 955 539 $ 63 000
of the State of New 04/15/01 @ 102 Opt.
York, Judicial
Facilities Lease
Revenue Bonds
(Suffolk County
Issue), Series
1991 B
$10 100 000 $9 594 480 $10 699 807 $691 806
=========== ========== =========== ========
</TABLE>
<PAGE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appear under
"Description of Bond Ratings" in Part B of this Prospectus. Ratings are by
Standard & Poor's Corporation, except for those indicated by (*), 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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 79:
We have audited the statement of net assets (not included) of Empire State
Municipal Exempt Trust, Guaranteed Series 79, including the bond portfolio, as
of September 30, 1994, and the related statements of operations and changes in
net assets for the years ended September 30, 1994 and 1993. These financial
statements are the responsibility of the Trustee. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of September 30, 1994, by correspondence
with the Trustee. An audit includes assessing the accounting principles used and
significant estimates made by the Trustee, as well as evaluating the overall
financial statement presentation. We believe that our 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 79 as of September 30, 1994, and the results of its
operations and changes in net assets for the years ended September 30, 1994 and
1993, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
October 31, 1994
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit investment
trusts. Each Trust was created under the laws of the State of New York
pursuant to a Trust Indenture and Agreement (the "Trust Agreement"), dated the
Date of Deposit as set forth in "Summary of Essential Financial Information"
in Part I of this Prospectus, among the Sponsors, the Trustee and the
Evaluator. The Bank of New York acts as successor trustee of Series 1 through
22 and as Trustee of Series 23 and subsequent Series. Muller Data Corporation
acts as successor Evaluator for all Series. Glickenhaus & Co. and Lebenthal &
Co., Inc. act as co-Sponsors for all Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the fractional
undivided interest in the Trust set forth in Part I of this Prospectus under
"Summary of Essential Financial Information." Thereafter, if any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual
interest in the Trust represented by each such Unit will remain essentially
the same. Units will remain outstanding until redeemed upon tender to the
Trustee by any Unit holder, which may include the Sponsors, or until the
termination of the Trust Agreement for the related Trust. See "Rights of Unit
Holders--Redemption."
On the Date of Deposit for each Trust, the Sponsors deposited with
the Trustee obligations or contracts for the purchase of such obligations (the
"Bonds" or "Securities"). Certain of the Bonds may have been purchased at
prices which resulted in the portfolio as a whole being purchased at a
discount due to original issue discount, market discount or the inclusion of
zero coupon bonds. Bonds selling at market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for capital gain. Any capital gain other than any
earned original issue discount will be taxable and will not be realized until
maturity, redemption or sale of the underlying Bonds or Units.
Objectives
The objective of the Trust is to obtain tax-exempt interest income
through an investment in a fixed, insured portfolio consisting primarily of
various long-term municipal bonds. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective issuers of the bonds in the Portfolio to
meet their obligations and of the Insurer to meet its obligations under the
insurance. In addition, an investment in the Trust can be affected by interest
rate fluctuations.
Series 1 through 5, Series 6 through 30 and Series 31 and subsequent
Series have obtained insurance guaranteeing the payment of principal and
interest on the Bonds in each respective Trust from National Union Fire
Insurance Company of Pittsburgh, Pa. ("National Union"), MBIA Inc. ("MBIA")
and MBIA Insurance Corporation ("MBIAC"), respectively (National Union, MBIA
and MBIAC are collectively referred to herein as the "Insurer"). Insurance
obtained by the Trust applies only while Bonds are retained in the
319624.1
<PAGE>
Trust. As to Series 18 through Series 30 and Series 31 and subsequent Series,
however, pursuant to irrevocable commitments of MBIA and MBIAC, respectively,
in the event of a sale of a Bond from the Trust the Trustee has the right to
obtain permanent insurance for such Bond upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Bond. It
is expected that the Trustee will exercise the right to obtain permanent
insurance for a Bond in such Series upon instruction from the Sponsors
whenever the value of that Bond insured to its maturity less the applicable
permanent insurance premium and the related custodial fee exceeds the value of
the Bond without such insurance. Insurance relates only to the payment of
principal and interest on the Bonds in the Trust but neither covers the
nonpayment of any redemption premium on the Bonds nor guarantees the market
value of the Units. Certain Bonds in the Trust may also be insured under
insurance obtained by the issuers of such Bonds or third parties ("Pre-insured
Bonds"). As a result of the insurance, Moody's Investors Service, Inc.
("Moody's") has assigned a rating of "Aaa" to all of the Bonds in Series 6 and
subsequent Series, as insured, and Standard & Poor's Corporation ("Standard &
Poor's") has assigned a rating of "AAA" to the Units of the Trust, and to the
Bonds in Series 17 and subsequent Series, as insured, while in the Trust. No
representation is made as to any insurer's ability to meet its commitments.
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. A
single or annual premium is paid by the issuer or any other party for its
insurance on Pre-insured Bonds, and a monthly premium is paid by the Trust for
the insurance it obtains from the Insurer on the Bonds in the Trust that are
not pre-insured by such Insurer. No premium will be paid by Series 1 through
5, Series 6 through 30 and Series 31 and subsequent Series on Bonds pre-
insured by National Union, MBIA and MBIAC, respectively. See "Insurance on the
Bonds."
Portfolio
In view of the Trust's objectives, the following factors, among
others, were considered in selecting the Bonds: (1) all the Bonds are
obligations of the State of New York and counties, municipalities, authorities
or political subdivisions thereof or issued by certain United States
territories or possessions, including Puerto Rico, and their public
authorities so that the interest on them will be exempt from Federal, New York
State and New York City income tax under existing law; (2) the Bonds are
varied as to purpose of issue; (3) in the opinion of the Sponsors, the Bonds
are fairly valued relative to other bonds of comparable quality and maturity;
and (4) availability of insurance for the payment of principal and interest on
the Bonds. Subsequent to the Date of Deposit, a Bond may cease to be rated or
its rating may be reduced. Neither event requires an elimination of such Bond
from the portfolio, but such an event may be considered in the Sponsors'
determination to direct the Trustee to dispose of the Bonds. See
"Sponsors--Responsibility."
An investment in Units of the Trust should be made with an
understanding of the risks entailed in investments in fixed-rate bonds,
including the risk that the value of such bonds (and, therefore, of the Units)
will decline with increases in interest rates. Inflation and recession, as
well as measures implemented to address these and other economic problems,
contribute to fluctuations in interest rates and the value of fixed-rate bonds
generally. The Sponsors cannot predict future economic policies or their
consequences nor, therefore, can they predict the course or extent of such
fluctuations in the future.
Special Factors Affecting New York
The information set forth below is derived from the official
statements and/or preliminary drafts of official statements prepared in
- 2 -
319624.1
<PAGE>
connection with the issuance of New York State and New York City municipal
bonds. The Sponsors have not independently verified this information.
State Economic Trends. Over the long term, the State of New York (the
"State") and the City of New York (the "City") face serious potential economic
problems. The City accounts for approximately 41% of the State's population
and personal income, and the City's financial health affects the State in
numerous ways. The State historically has been one of the wealthiest states in
the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City. In recent years the
State's economic position has improved in a manner consistent with that for
the Northeast as a whole.
The State has for many years had a very high State and local tax
burden relative to other states. The State and its localities have used these
taxes to develop and maintain their transportation networks, public schools
and colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its
localities may take to encourage economic growth and achieve balanced budgets,
reductions in Federal spending could materially and adversely affect the
financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3
million, is an international center of business and culture. Its non-
manufacturing economy is broadly based, with the banking and securities, life
insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's
total employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted primarily
in apparel and publishing.
The national economic downturn which began in July 1990 adversely
affected the local economy, which had been declining since late 1989. As a
result, the City experienced job losses in 1990 and 1991 and real Gross City
Product (GCP) fell in those two years. For the 1992 fiscal year, the City
closed a projected budget gap of $3.3 billion in order to achieve a balanced
budget as required by the laws of the State. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the
City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. The City's current four-year financial plan
assumes that, after noticeable improvements in the City's economy during
calendar year 1994, economic growth will slow in calendar years 1995 and 1996
with local employment increasing modestly. During the 1995 fiscal year, the
City experienced substantial shortfalls in payments of non-property tax
revenues from those forecasted.
For each of the 1981 through 1994 fiscal years, the City achieved
balanced operating results as reported in accordance with generally accepted
accounting principles ("GAAP"), and the City's 1995 fiscal year results are
- 3 -
319624.1
<PAGE>
projected to be balanced in accordance with GAAP. The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which
has halted the trend in recent years of substantial increases in City spending
from one year to the next. There can be no assurance that the City will
continue to maintain a balanced budget as required by State law without
additional tax or other revenue increases or reductions in City services,
which could adversely affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual
four-year financial plan, which is reviewed and revised on a quarterly basis
and which includes the City's capital, revenue and expense projections and
outlines proposed gap-closing programs for years with projected budget gaps.
The City is required to submit its financial plans to review bodies, including
the New York State Financial Control Board ("Control Board"). If the City were
to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and imminence of the occurrence of an
annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, among others, of prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City
to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets in future fiscal years will
be adopted by the April 1 statutory deadline and that such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year financial
plan, including the City's current financial plan for the 1996 through 1999
fiscal years (the "1996-1999 Financial Plan" or "Financial Plan"). The City's
projections set forth in the Financial Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes
in major assumptions could significantly affect the City's ability to balance
its budget as required by State law and to meet its annual cash flow and
financing requirements. Such assumptions and contingencies include the
condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees
consistent with those assumed in the Financial Plan, employment growth, the
results of a pending actuarial audit of the City's pension system which is
expected to significantly increase the City's annual pension costs, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, which may require in certain cases the cooperation of
the City's municipal unions, revenue generating transactions and provision of
State and Federal aid and mandate relief.
Implementation of the Financial Plan is also dependent upon the
City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1996 through 1999
contemplates the issuance of $9.7 billion of general obligation bonds
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make other capital investments. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital requirements. The success of projected public sales of City bonds and
notes will be subject to prevailing market conditions, and no assurance can be
given that such sales will be completed. If the City were unable to sell its
general obligation bonds and notes, it would be prevented from meeting its
planned capital and operating expenditures.
- 4 -
319624.1
<PAGE>
The City submitted to the Control Board on July 21, 1995 a fourth
quarter modification to the City's financial plan for the 1995 fiscal year,
which projects a balanced budget in accordance with GAAP for the 1995 fiscal
year, after taking into account a discretionary transfer of $75 million. On
July 11, 1995, the City submitted to the Control Board the Financial Plan for
the 1996 through 1999 fiscal years, which relates to the City, the Board of
Education ("BOE") and the City University of New York ("CUNY"). The Financial
Plan is based on the City's expense and capital budgets for the City's 1996
fiscal year, which were adopted on June 14, 1995, and sets forth proposed
actions by the City for the 1996 fiscal year to close substantial projected
budget gaps resulting from lower than projected tax receipts and other
revenues and greater than projected expenditures. In addition to substantial
proposed agency expenditure reductions and productivity, efficiency and labor
initiatives negotiated with the City's labor unions, the Financial Plan
reflects a strategy to substantially reduce spending for entitlements for the
1996 and subsequent fiscal years.
The 1996-1999 Financial Plan projects revenues and expenditures for
the 1996 fiscal year balanced in accordance with GAAP. The projections for the
1996 fiscal year reflect proposed actions to close a previously projected gap
of approximately $3.1 billion for the 1996 fiscal year. The proposed actions
in the Financial Plan for the 1996 fiscal year include (i) a reduction in
spending of $400 million, primarily affecting public assistance and Medicaid
payments by the City; (ii) expenditure reductions in agencies, totalling $1.2
billion; (iii) transitional labor savings, totalling $600 million; and (iv)
the phase-in of the increased annual pension funding cost due to revisions
resulting from an actuarial audit of the City pension systems, which would
reduce such costs in the 1996 fiscal year. Other proposed actions include (i)
welfare savings of $100 million from increased fraud detection; (ii) $170
million of additional expenditure reductions in agencies and HHC; (iii) a
delay in the proposed reduction in the commercial rent tax, which would
increase projected revenues by $62 million in the 1996 fiscal year; (iv) an
increase of $75 million in projected tax collections for the 1996 fiscal year;
(v) $50 million of proposed additional State aid not included in the adopted
State budget and $75 million of proposed additional Federal aid; (vi) certain
revenue initiatives, including the proposed sale of delinquent tax liens and
the U.N. Plaza Hotel for $104 million; and (vii) savings from the proposed
refunding of outstanding debt, totalling $50 million.
The proposed agency spending reductions include the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the Financial Plan may be difficult to
implement, and the Financial Plan is subject to the ability of the City to
implement proposed reductions in City personnel and other cost reduction
initiatives. In addition, certain initiatives are subject to negotiation with
the City's municipal unions, and various actions, including proposed
anticipated State aid totalling $50 million are subject to approval by the
Governor and State Legislature.
The City annually prepares a modification to its financial plan in
October or November which amends the financial plan to accommodate any
revisions to forecast revenues and expenditures and to specify any additional
gap-closing initiatives to the extent required to offset decreases in
projected revenues or increases in projected expenditures (the "First Quarter
Modification"). Subsequent to the preparation of the Financial Plan, the City
has agreed to pay for a portion of the cost of student transit passes, which
will result in a $45 million increase in expenditures for the 1996 fiscal
year. In addition, the City is in the process of identifying any additional
spending requirements or revenue losses affecting the 1996 fiscal year. In
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October or November, 1995, the Mayor is expected to publish the First Quarter
Modification for the 1996 fiscal year.
The Financial Plan also sets forth projections for the 1997 through
1999 fiscal years and outlines a proposed gap-closing program to eliminate
projected gaps of $888 million, $1.5 billion and $1.4 billion for the 1997,
1998 and 1999 fiscal years, respectively, after successful implementation of
the $3.1 billion gap-closing program for the 1996 fiscal year.
The projections for the 1996 through 1999 fiscal years assume (i)
agreement with the City's unions with respect to approximately $100 million of
savings to be derived from efficiencies in management of employee health
insurance programs and other health benefit related savings for each of the
1996 through 1999 fiscal years to be negotiated with the City's unions; (ii)
$200 million of additional anticipated State aid and $75 million of additional
anticipated Federal aid in each of the 1997 through 1999 fiscal years; (iii)
that HHC and BOE will each be able to identify actions to offset substantial
revenue shortfalls reflected in the Financial Plan, including approximately
$254 million annual reduction in revenues for HHC, which results from the
reduction in Medicaid payments proposed by the State and the City, without any
increase in City subsidy payments to HHC; (iv) the continuation of the current
assumption of no wage increases after fiscal year 1995 for City employees
unless offset by productivity increases; (v) $130 million of additional
revenues as a result of increased rent payments for the City's airports
proposed by the City, which is subject to further discussion with the Port
Authority; and (vi) savings of $45 million in each of the 1997 through 1999
fiscal years which would result from the State Legislature's enactment of
proposed tort reform legislation. In addition, the 1996-1999 Financial Plan
anticipates the receipt of substantial amounts of Federal aid. Certain Federal
legislative proposals contemplate significant reductions in Federal spending,
including proposed Federal welfare reform, which could result in caps on, or
block grants of, Federal programs.
The proposed gap-closing actions, a substantial number of which are
not specified in detail, include additional agency expenditure reductions,
primarily resulting from a partial hiring freeze, totalling between $388
million and $684 million in each of the 1997 through 1999 fiscal years;
reductions in expenditures resulting from proposed procurement initiatives
totalling between $50 million and $100 million in each of the 1997 through
1999 fiscal years; revenue initiatives totalling between $100 million and $200
million in each of the 1997 through 1999 fiscal years; the availability in
each of the 1997, 1998 and 1999 fiscal years of $100 million of the general
reserve appropriated in the prior year; and additional reduced expenditures
resulting from further revisions in entitlement programs to reduce City
expenditures by $250 million, $400 million and $400 million in the 1997, 1998
and 1999 fiscal years, respectively, which may be subject to State or Federal
approval.
On July 10, 1995, Standard & Poor's revised downward its rating on
City general obligation bonds from A- to BBB+ and removed City bonds from
CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief,
a history of cash flow difficulties caused by State budget delays and
continued high debt levels. Fitch Investors Service, Inc. continues to rate
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the City general obligation bonds A-. Moody's rating for City general
obligation bonds is Baa1.
In January 1993, the City announced a settlement with a coalition of
19 municipal unions for a 39-month period that extends into fiscal year 1995.
The settlement resulted in a total net expenditure increase of 8.25% of
covered employee payroll over a 39-month period, ending March 31, 1995, for
most of these employees. Subsequently, the City reached agreement with all of
its major bargaining units on terms which are generally consistent with the
coalition agreement.
Contracts with all of the City's municipal unions either expired in
the 1995 fiscal year or will expire in the 1996 fiscal year. The Financial
Plan provides no additional wage increases for City employees after the 1995
fiscal year. Each 1% wage increase for all union contracts commencing in the
1995 or 1996 fiscal year would cost the City an additional $141 million for
the 1996 fiscal year and $161 million each year thereafter above the amounts
provided for in the Financial Plan. The terms of wage settlements could be
determined through the impasse procedure in the New York City Collective
Bargaining Law, which can impose a binding settlement.
The projections and assumptions contained in the 1996-1999 Financial
Plan are subject to revision which may involve substantial change, and no
assurance can be given that these estimates and projections, which include
actions which the City expects will be taken but which are not within the
City's control, will be realized.
From time to time, the Control Board staff, the Municipal Assistance
Corporation for the City of New York ("MAC"), Office of the State Deputy
Comptroller ("OSDC"), the City Comptroller and others issue reports and make
public statements regarding the City's financial condition, commenting on,
among other matters, the City's financial plans, projected revenues and
expenditures and actions by the City to eliminate projected operating
deficits. Some of these reports and statements have warned that the City may
have underestimated certain expenditures and overestimated certain revenues
and have suggested that the City may not have adequately provided for future
contingencies. Certain of these reports have analyzed the City's future
economic and social conditions and have questioned whether the City has the
capacity to generate sufficient revenues in the future to meet the costs of
its expenditure increases and to provide necessary services. It is reasonable
to expect that such reports and statements will continue to be issued and to
engender public comment.
On July 24, 1995, the City Comptroller issued a report on the
Financial Plan. The report concluded that the Financial Plan includes total
risks of $749 million to $1.034 billion for the 1996 fiscal year. These risks
include (i) possible tax revenue shortfalls of $53 million; (ii) a possible
$20 million to $60 million shortfall in savings resulting from unspecified
improvements in the City's health benefits system; (iii) a potential shortfall
of up to $40 million in projected savings from an early retirement program;
(iv) the receipt of $125 million of unspecified additional Federal and State
assistance; (v) up to $203 million of projected savings from the public
assistance eligibility review and electronic signature program for public
assistance recipients; (vi) $93 million of greater than projected expenditures
for overtime; (vii) $284 million of greater than projected expenditures and
lower than projected revenues at BOE; and (viii) the receipt of $130 million
of lease payments from the Port Authority. Other potential uncertainties
identified in the report include the projected $253.6 million deficit for the
Health and Hospitals Corporation ("HHC"), $160 million of the $600 million in
labor savings for the 1996 fiscal year which are yet to be identified, and the
impact on the City of a possible reduction in Federal entitlement programs.
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Subsequently, the City Comptroller stated that an additional $129 million of
anticipated State and Federal assistance for BOE might not be received by BOE.
With respect to the 1997 through 1999 fiscal years, the report noted
that the gap-closing program in the Financial Plan does not include
information about how the City will implement the various gap-closing
programs, and that the entitlement cost containment and revenue initiates will
require approval of the State legislature. Taking into account the same
categories of risks for the 1997 through 1999 fiscal years as the report
identified for the 1996 fiscal year and the uncertainty concerning the gap-
closing program, the report estimated that the Financial Plan includes total
risks of $2.0 billion to $2.5 billion in the 1997 fiscal year, $2.8 billion to
$3.3 billion in the 1998 fiscal year and $2.9 billion to $3.4 billion in the
1999 fiscal year. The report further noted that the City Comptroller continues
to oppose the proposed sale of the water system, primarily because of the
unwillingness of the City to guarantee that $1 billion from the $2.3 billion
in proceeds of the sale will be used only to fund capital and not operating
expenses, and concerns about the jurisdiction and composition of the Water
Board once title to the Water Board has been transferred.
In early December, 1994, the City Comptroller issued a report which
noted that the City is currently seeking to develop and implement plans which
will satisfy the Federal Environmental Protection Agency that the water
supplied by the City watershed areas does not need to be filtered. The City
Comptroller noted that, if the City is ordered to build filtration plants,
they could cost as much as $4.57 billion to construct, with annual debt
service and operating costs of more than $500 million, leading to a water rate
increase of 45%.
On December 16, 1994, the City Comptroller issued a report noting
that the capacity of the City to issue general obligation debt could be
greatly reduced in future years due to the decline in value of taxable real
property. The report noted that, under the State constitution, the City is
permitted to issue debt in an amount not greater than 10% of the average full
value of taxable real estate for the current year and preceding four years,
that the latest estimates produced by the State Board of Equalization and
Assessment relating to the full value of real property, using data from a 1992
survey, indicate a 19% decline in the market value of taxable real property
from the previous survey in 1990, and that the State Board has decided to use
a projected annual growth rate of 8.84%, as compared to its previous
projection of 14% for estimating full value after 1992. The report concludes
that the City will be within the projected legal debt incurring limit in the
1996 fiscal year. However, the report concluded that, based on the most likely
forecast of full value of real property, the debt incurring power of the City
would be curtailed in the 1997 and 1998 fiscal years substantially. The City
Comptroller recommended, among other things, prioritization of capital
projects to determine which can be delayed or cancelled, and better
maintenance of the City's physical plant and infrastructure, which would
result in less capital spending for repair and replacement of capital
structures.
On July 21, 1995, the staff of the Control Board issued a report on
the Financial Plan which identified risks of $873 million, $2.1 billion, $2.8
billion and $2.8 billion for the 1996 through 1999 fiscal years, respectively.
With respect to the 1996 fiscal year, the principal risks included (i)
possible shortfalls in projected tax revenues totaling $50 million, (ii) the
possibility that revenue actions and expenditure reduction initiatives for BOE
totaling $266 million might not be successfully implemented, (iii) possible
shortfalls totaling $172 million in proposed welfare savings from increased
fraud detection, and (iv) uncertainty concerning the $50 million of proposed
additional State aid and $75 million of proposed additional Federal aid, the
proposed receipt of $130 million of
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increased rent payments for the City's airports and the $100 million of
savings to be derived from health benefit-related savings, which are subject
to negotiations with or approvals by other parties. Additional risks
identified for the 1997 through 1999 fiscal years include the possibility of
additional tax revenue shortfalls, uncertainty concerning the ability of the
City to implement the gap-closing actions for such years and uncertainty
concerning the projected receipt of additional anticipated State aid. Other
areas of concern identified in the report included the projected deficit at
HHC of approximately $400 million, reflecting the impact on HHC of the
entitlement reductions contained in the State budget and the City's reduction
in the subsidy provided to HHC, and the assumption in the Financial Plan that
the City will realize the full $400 million of projected savings in public
assistance and Medicaid payments enacted at the State level. The report noted
that substantially more information is needed concerning the proposed gap-
closing actions for the 1997-1999 fiscal years.
On June 14, 1995, the staff of the OSDC issued a report on the
Financial Plan with respect to the 1995 fiscal year. The report noted that,
during the 1995 fiscal year, the City faced adverse financial developments
totaling over $2 billion resulting from the inability to initiate
approximately 35% of the City's gap-closing program, as well as newly-
identified spending needs and revenue shortfalls resulting from the adverse
impact on the City's personal income, general corporation and other tax
revenues of the policy of the Federal Reserve of increasing short-term
interest rates and the related downturn in the bond market and profits and
bonus income on Wall Street. The report noted that the City relied heavily on
one-time actions to offset these adverse developments, using $2 billion in
one-time resources in the 1995 fiscal year, or nearly double the 1994 amount.
On July 24, 1995, the staff of the OSDC issued a report on the
Financial Plan. The report concluded that there remains a budget gap for the
1996 fiscal year of $392 million, largely because the City and its unions have
yet to reach an agreement on how to achieve $160 million in unspecified labor
savings and the remaining $100 million in recurring health insurance savings
from last year's agreement. The report also identified a number of issues that
present a net potential risk of $409 million to the City's revenue and
expenditure forecasts for the 1996 fiscal year, including risks of (i) $160
million associated with anticipated increases in Federal and State assistance,
(ii) $130 million relating to projected Port Authority airport lease payments,
and (iii) $100 million with respect to unfunded BOE mandates. The report also
identified several other concerns regarding the 1996 fiscal year, including
concerns that (i) detailed programs have not yet been fully developed to meet
the $564 million and $400 million cost-reduction targets established for BOE
and HHC, respectively, (ii) State and City initiatives to reduce public
assistance and Medicaid costs, which are expected to reduce City costs by $745
million in the 1996 fiscal year, will require close monitoring to ensure that
financial targets are met; (iii) the City has not provided sufficient
assurances that the bond proceeds from its proposed sale of the water and
sewer system would be used strictly for capital spending purposes; and (iv)
the Financial Plan makes no provision for wage increases in the collective
bargaining agreements between the City and its unions, which generally will
expire by October, 1995. The report further noted that growth in City revenues
is being constrained by the weak economy in the City, which is likely to be
compounded by the slowing national economy, and that there is a likelihood of
a national recession during the course of the Financial Plan. Moreover, the
report noted that State and Federal budgets are undergoing tumultuous changes,
and that the potential for far-reaching reductions in intergovernmental
assistance is clearly on the horizon, with greater uncertainty about the
impact on City finances and services.
A substantial portion of the capital improvements in the City are
financed by indebtedness issued by MAC. MAC was organized in 1975 to provide
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financing assistance for the City and also to exercise certain review
functions with respect to the City's finances. MAC bonds are payable out of
certain State sales and compensating use taxes imposed within the City, State
stock transfer taxes and per capita State aid to the City. Any balance from
these sources after meeting MAC debt service and reserve fund requirements and
paying MAC's operating expenses is remitted to the City or, in the case of the
stock transfer taxes, rebated to the taxpayers. The State is not, however,
obligated to continue the imposition of such taxes or to continue
appropriation of the revenues therefrom to MAC, nor is the State obligated to
continue to appropriate the State per capita aid to the City which would be
required to pay the debt service on certain MAC obligations. MAC has no taxing
power and MAC bonds do not create an enforceable obligation of either the
State or the City. As of June 30, 1995, MAC had outstanding an aggregate of
approximately $4.882 billion of its bonds.
New York State and its Authorities. The State's current fiscal year
commenced on April 1, 1995, and ends on March 31, 1996, and is referred to
herein as the State's 1995-96 fiscal year. The prior fiscal year, which ended
on March 31, 1995, is referred to herein as the State's 1994-95 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the Legislature
on June 7, 1995, more than two months after the start of the fiscal year.
Prior to adoption of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1995-96 fiscal year was formulated on June 20, 1995 and
is based on the State's budget as enacted by the Legislature and signed into
law by the Governor.
The 1995-96 budget is the first to be enacted in the administration
of the Governor, who assumed office on January 1. It is the first budget in
over half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (i.e., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in
contrast to the prior decade when such spending growth averaged more than 6.0
percent annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts, to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million
to the then projected imbalance or budget gap, bringing the total to
approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial
Plan based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care program; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, State University of New York ("SUNY") and
City University of New York ("CUNY"), mental hygiene programs, capital
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projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in
revenue measures, primarily a new Quick Draw Lottery game, changes to tax
payment schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
There are risks and uncertainties concerning the future-year impact
of tax reductions and other measures in 1995-96 budget.
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can
be very complex, may vary from fiscal year to fiscal year, and are frequently
the result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the Federal government, that
are not under the control of the State. For example, various proposals
relating to Federal tax and spending policies that are currently being
publicly discussed and debated could, if enacted, have a significant impact on
the State's financial condition in the current and future fiscal years.
Because of the uncertainty and unpredictability of the changes, their impact
cannot, as a practical matter, be included in the assumptions underlying the
State's projections at this time.
The State Financial Plan is based upon forecasts of national and
State economic activity. Economic forecasts have frequently failed to predict
accurately the timing and magnitude of changes in the national and the State
economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, Federal fiscal and monetary
policies, the level of interest rates, and the condition of the world economy,
which could have an adverse effect on the State. There can be no assurance
that the State economy will not experience results in the current fiscal year
that are worse than predicted, with corresponding material and adverse effects
on the State's projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are
based on the State tax structure in effect during the fiscal year and on
assumptions relating to basic economic factors and their historical
relationships to State tax receipts. In preparing projections of State
receipts, economic forecasts relating to personal income, wages and employment
have been particularly important. The projection of receipts from most tax or
revenue sources is generally made by estimating the change in yield of such
tax or revenue source caused by economic and other factors, rather than by
estimating the total yield of such tax or revenue source from its estimated
tax base. The forecasting methodology, however, ensures that State fiscal year
estimates for taxes that are based on a computation of annual liability, such
as the business and personal income taxes, are consistent with estimates of
total liability under such taxes.
Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations.
Factors that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the
policies of the Federal government, and changes in the demand for and use of
State services.
The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current State
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Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth below, and those projections may be changed materially
and adversely from time to time.
The national economy began the current expansion in 1991 and has
added over 7 million jobs since early 1992. However, the recession lasted
longer in the State and the State's economic recovery has lagged behind the
nation's. Although the State has added approximately 185,000 jobs since
November 1992, employment growth in the State has been hindered during recent
years by significant cutbacks in the computer and instrument manufacturing,
utility, defense, and banking industries.
The State Financial Plan is based on a projection by DOB of national
and State economic activity. DOB forecasts that national economic growth will
weaken, but not turn negative, during the course of 1995 before beginning to
rebound by the end of the year. This dynamic is often described as a "soft
landing". The overall rate of growth of the national economy during calendar
year 1995 will be slightly below the "consensus" of a widely followed survey
of national economic forecasters. Growth in the real gross domestic product
during 1995 is projected to be moderate (3.0 percent), with declines in
defense spending and net exports more than offset by increases in consumption
and investment. Continuing efforts by business and government to reduce costs
are expected to exert a drag on economic growth. Inflation, as measured by the
Consumer Price Index, is projected to remain about 3 percent due to moderate
wage growth and foreign competition. Personal income and wages are projected
to increase by about 6 percent or more.
New York's economy is expected to continue to expand modestly during
1995, but there will be a pronounced slow-down during the course of the year.
Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the
same as 1994. Both personal income and wages are expected to record moderate
gains in 1995. Bonus payments in the securities industry are expected to
increase from last year's depressed level.
As noted above, the financial condition of the State is affected by
several factors, including the strength of the State and regional economy and
actions of the Federal government, as well as State actions affecting the
level of receipts and disbursements. Owing to these and other factors, the
State may, in future years, face substantial potential budget gaps resulting
from a significant disparity between tax revenues projected from a lower
recurring receipts base and the future costs of maintaining State programs at
current levels. Any such recurring imbalance would be exacerbated if the State
were to use a significant amount of nonrecurring resources to balance the
budget in a particular fiscal year. To address a potential imbalance for a
given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution the Governor is required to propose a
balanced budget each year. To correct recurring budgetary imbalances, the
State would need to take significant actions to align recurring receipts and
disbursements in future fiscal years. There can be no assurance, however, that
the State's actions will be sufficient to preserve budgetary balance in a
given fiscal year or to align recurring receipts and disbursements in future
fiscal years.
The General Fund is the general operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1995-96 fiscal year, the General Fund is expected to
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account for approximately 49 percent of total governmental-fund receipts and
51 percent of total governmental-fund disbursements. General Fund moneys are
also transferred to other funds, primarily to support certain capital projects
and debt service payments in other fund types.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors have created
structural budget gaps for the State. These gaps resulted from a significant
disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. The 1995-96 enacted budget
combines significant tax and program reductions which will, in the current and
future years, lower both the recurring receipts base (before the effect of any
economic stimulus from such tax reductions) and the historical annual growth
in State program spending. The three-year plan to reduce State personal income
taxes will decrease State tax receipts by an estimated $1.7 billion in State
fiscal year 1996-97 in addition to the amount of reduction in State fiscal
year 1995-96. Further significant reductions in the personal income tax are
scheduled for the 1997-98 State fiscal year. Other tax reductions enacted in
1994 and 1995 are estimated to cause an additional reduction in receipts of
over $500 million in 1996-97, as compared to the level of receipts in 1995-96.
Similarly, many actions taken to reduce disbursements in the State's 1995-96
fiscal year are expected to provide greater reductions in State fiscal year
1996-97. These include actions to reduce the State workforce, reduce Medicaid
and welfare expenditures and slow community mental hygiene program
development. The net impact of these and other factors is expected to produce
a potential imbalance in receipts and disbursements in State fiscal year
1996-97. The Governor has indicated that in the 1996-97 Executive Budget he
will propose to close this potential imbalance primarily through General Fund
expenditure reductions and without increases in taxes or deferrals of
scheduled tax reductions. On October 2, 1995, the State Comptroller released a
report in which he reaffirmed his estimate that the State will face a budget
gap of at least $2.7 billion for the 1996-97 fiscal year and a projected gap
of at least $3.9 billion for the 1997-98 fiscal year.
On January 13, 1992, Standard & Poor's reduced its ratings on the
State's general obligation bonds from A to A-and, in addition, reduced its
ratings on the State's moral obligation, lease purchase, guaranteed and
contractual obligation debt. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on July 13,
1995, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On July 3, 1995, Moody's reconfirmed its A rating
on the State's general obligation long-term indebtedness.
The fiscal stability of the State is related to the fiscal stability
of its authorities, which generally have responsibility for financing,
constructing and operating revenue-producing public benefit facilities. The
authorities are not subject to the constitutional restrictions on the
incurrence of debt which apply to the State itself and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1994, there were 18 authorities that had
outstanding debt of $100 million or more, and the aggregate outstanding debt,
including refunding bonds, of these 18 authorities was $70.3 billion. As of
March 31, 1995, aggregate public authority debt outstanding as State-supported
debt was $27.9 billion and as State-related debt was $36.1 billion.
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There are statutory arrangements providing for State local assistance
payments, otherwise payable to localities, to be made under certain
circumstances to public authorities. Although the State has no obligation to
provide additional assistance to localities whose local assistance payments
have been paid to public authorities under these arrangements if local
assistance payments are so diverted, the affected localities could seek
additional State assistance.
The Metropolitan Transit Authority ("MTA"), a State agency, oversees
the operation of the City's subway and bus system by its affiliates, the New
York City Transit Authority and Bronx Surface Transit Operating Authority (the
"Transit Authority" or "TA") and commuter rail and bus lines serving the New
York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and the MTA depends heavily upon a system
of State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the
extent available, Federal support. Over the past several years, the State has
enacted several taxes, including a surcharge on the profits of banks,
insurance corporations and general business corporations doing business in the
12 county region served by the MTA and a special one-quarter of 1% regional
sales and use tax, that provide additional revenues for mass transit purposes
including assistance to the MTA. For the 1995-96 State fiscal year, total
State assistance to the MTA is estimated at approximately $1.1 billion.
In 1993, State legislation authorized the funding of a five-year
$9.56 billion MTA capital plan for the five-year period, 1992 through 1996
(the "1992-96 Capital Program"). The MTA has received approval of the 1992-96
Capital Program based on this legislation from the MTA Capital Program Review
Board, as State law requires. This is the third five-year plan since the
Legislature authorized procedures for the adoption, approval and amendment of
a five-year plan for 1981 for a capital program designed to upgrade the
performance of the MTA's transportation systems and to supplement, replace and
rehabilitate facilities and equipment. The MTA, the TBTA and the TA are
collectively authorized to issue an aggregate of $3.1 billion of bonds (net of
certain statutory exclusions) to finance a portion of the 1992-96 Capital
Program. the 1992-96 Capital Program was expected to be financed in
significant part through dedication of the State petroleum business tax
receipts. However, in December 1994 the proposed bond resolution based on such
tax receipts was not approved by the MTA Capital Program Review Board. Further
consideration of the resolution was deferred until 1995.
There can be no assurance that all the necessary governmental actions
for the MTA 1992-96 Capital Program or future capital programs will be taken,
that funding sources currently identified will not be decreased or eliminated,
or that the MTA 1992-96 Capital Program, or parts thereof, will not be delayed
or reduced. If the MTA Capital Program is delayed or reduced, ridership and
far revenues may decline, which could, among other things, impair the MTA's
ability to meet its operating expenses without additional assistance.
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. Adverse developments in these proceedings or the initiation of new
proceedings could affect the ability of the State to maintain a balanced 1995-
96 State Financial Plan. The State believes that the 1995-96 State Financial
Plan includes sufficient reserves for the payment of judgments that may be
required during the 1995-96 fiscal year. There can be no assurance, however,
that an adverse decision in any of these proceedings would not exceed the
amount of the 1995-96 State Financial Plan reserves for the payment of
judgments and, therefore, could affect the ability of the State to maintain a
balanced 1995-96 State Financial Plan.
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<PAGE>
General Considerations
Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will mature in accordance with their
terms and the proceeds from such events will be distributed to Unit holders
and will not be reinvested, no assurance can be given that the Trust will
retain for any length of time its present size and composition. The inclusion
of unrated Bonds in certain Series of the Trust may result in less flexibility
in their disposal and a loss to the Trust upon their disposition. Except as
described in footnotes to "Summary of Essential Financial Information" in Part
I of this Prospectus, interest accrues to the benefit of Unitholders
commencing with the expected date of settlement for purchase of the Units.
Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security.
The following paragraphs discuss the characteristics of the Bonds in
the Trust and of certain types of issuers of the Bonds in the Trust. See
"Special Factors Concerning the Portfolio" in Part I of this Prospectus. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments of principal of
and interest on Bonds held in the portfolio of the Trust or which may
adversely affect the ratings of such Bonds. Because of the insurance obtained
by the Sponsors or by the issuers, however, such changes should not adversely
affect the Trust's ultimate receipt of principal and interest, the Standard &
Poor's or Moody's ratings of the Bonds in the portfolio, or the Standard &
Poor's rating of the Units of the Trust. An investment in Units of the Trust
should be made with an understanding of the risks that such an investment may
entail, certain of which are described below. Unit holders may obtain
additional information concerning a particular Bond by requesting an official
statement from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its
faith, credit and taxing power for the payment of principal and interest. The
taxing power of any governmental entity may be limited, however, by provisions
of state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries; economic limits on the ability to tax
without eroding the tax base; state legislative proposals or voter initiatives
to limit ad valorem real property taxes; and the extent to which the entity
relies on Federal or state aid, access to capital markets or other factors
beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital 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
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<PAGE>
unconditional without setoff or counterclaim, regardless of contingencies,
whether or not a given project is completed or used by the governmental entity
and notwithstanding any circumstances or occurrences which might arise. In the
event of non-appropriation, certificate holders' or bondowners' sole remedy
(absent credit enhancement) generally is limited to repossession of the
collateral for resale or releasing, and the obligation of the governmental
lessee is not backed by a pledge of the general credit of the governmental
lessee. In the event of non-appropriation, the Sponsors may instruct the
Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may contain Bonds
in the portfolio that are secured by pledged revenues and additionally by the
so-called "moral obligation" of the State or a local governmental body. Should
the pledged revenues prove insufficient, the payment of such Bonds is not a
legal obligation of the State or local government, and is subject to its
willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds". Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied
residences under programs which meet numerous statutory requirements relating
to residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions, and certain
information reporting, certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not be introduced
or that existing legislation will not be further amended, revised, or enacted
after delivery of these Bonds or that certain required future actions will be
taken by the issuing governmental authorities, which action or failure to act
could cause interest on the Bonds to be subject to federal income tax. If any
portion of the Bond proceeds is not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Original Issue Discount and Zero
Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds may
consist of obligations of state and local housing authorities whose revenues
are primarily derived from mortgage loans to housing projects for low to
moderate income families. Since such obligations are not general obligations
of a particular state or municipality and are generally payable primarily or
solely from rents and other fees, adverse economic developments including
failure or inability to increase rentals, fluctuations of interest rates and
increasing construction and operating costs may reduce revenues available to
pay existing obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the
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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<PAGE>
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,
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.
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<PAGE>
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.
Private Activity Bonds. The portfolio of the Trust may contain other
Bonds that are "private activity bonds" (often called industrial revenue bonds
("IRBs") if issued prior to 1987), which would be primarily of two types: (1)
Bonds for a publicly owned facility that a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system and (2) Bonds for facilities deemed owned or beneficially owned by a
private entity but which were financed with tax-exempt bonds of a public
issuer, such as a manufacturing facility or a pollution control facility. In
the case of the first type, bonds are generally payable from a designated
source of revenues derived from the facility and may further receive the
benefit of the legal or moral obligation of one or more political subdivisions
or taxing jurisdictions. In most cases of project financing of the first type,
receipts or revenues of the Issuer are derived from the
- ----------------
* 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.
- 18 -
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<PAGE>
project or the operator or from the unexpended proceeds of the bonds. Such
revenues include user fees, service charges, rental and lease payments, and
mortgage and other loan payments.
The second type of issue will generally finance projects which are
owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of
the project or corporate guarantor.
The private activity bonds in the Trust have generally been issued
under bond resolutions, agreements or trust indentures pursuant to which the
revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and
pledged to the holders of the private activity bonds. In certain cases a
mortgage on the underlying project has been assigned to the holders of the
private activity bonds or a trustee as additional security. In addition,
private activity bonds are frequently directly guaranteed by the corporate
operator of the project or by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including
sales and use taxes or excise taxes. Consequently, such bonds may be subject
to fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also contain
revenue bonds which are payable from and secured primarily or solely by
revenues from the ownership and operation of particular facilities, such as
correctional facilities, parking facilities, convention centers, arenas,
museums and other facilities owned or used by a charitable entity. Payment on
bonds related to such facilities is, therefore, primarily or solely dependent
on revenues from such projects, including user fees, charges and rents. Such
revenues may be affected adversely by increased construction and maintenance
costs or taxes, decreased use, competition from alternative facilities,
reduction or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are secured
by direct obligations of the U.S. Government or, in some cases, obligations
guaranteed by the U.S. Government, placed in an escrow account maintained by
an independent trustee until maturity or a predetermined redemption date. In a
few isolated instances to date, bonds which were thought to be escrowed to
maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations and/or
revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1994, approximately 87% of Puerto Rico's exports were to the United States
mainland, which was also the source of 69% of Puerto Rico's imports. In fiscal
1994, Puerto Rico experienced a $4.3 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the
years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real
estate, also plays a major role in the economy. It ranks second only to
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manufacturing in contribution to the gross domestic product and leads all
sectors in providing employment. In recent years, the service sector has
experienced significant growth in response to and paralleling the expansion of
the manufacturing sector. Since fiscal 1985, personal income, both aggregate
and per capita, has increased consistently in each fiscal year. In fiscal
1994, aggregate personal income was $25.7 billion ($21.6 billion in 1987
prices) and personal income per capita was $7,047 ($5,902 in 1987 prices).
Personal income includes transfer payments to individuals in Puerto Rico under
various social programs. Total federal payments to Puerto Rico, which include
many types in addition to federal transfer payments, are lower on a per capita
basis in Puerto Rico than in any state. Transfer payments to individuals in
fiscal 1994 were $5.7 billion, of which $3.9 billion, or 68.9%, represent
entitlement to individuals who had previously performed services or made
contributions under programs such as Social Security, veterans benefits and
Medicare. The number of persons employed in Puerto Rico during fiscal 1994
averaged 1,011,000. Unemployment, although at a low level compared to the late
1970s, remains above the average for the United States. At fiscal year end
June 30, 1994, the unemployment rate in Puerto Rico was 16.0%. Puerto Rico's
decade-long economic expansion continued throughout the five-year period from
fiscal 1990 through fiscal 1994. Almost every sector of its economy was
affected and record levels of employment were achieved. Factors behind this
expansion include Commonwealth sponsored economic development programs, the
relatively stable prices of oil imports, the continued growth of the United
States economy, periodic declines in exchange value of the United States
dollar and the relatively low cost of borrowing during the period. The Puerto
Rico Planning Board's most recent Gross Product forecast for fiscal 1995 and
fiscal 1996, made in February 1995, shows increases of 2.9% and 2.7%,
respectively. The Planning Board's economic activity index, a composite index
for thirteen economic indicators, increased 2.7% for the first seven months of
fiscal 1995 compared to the same period of fiscal 1994, which period showed an
increase of 1.3% over the same period of fiscal 1993. Growth in the Puerto
Rico economy in fiscal 1996 depends on several factors, including the state of
the United States economy and the relative stability in the price of oil
imports, the exchange value of the U.S. dollar and the cost of borrowing.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain Series of the Trust may contain original issue discount bonds
and/or zero coupon bonds. Original issue discount bonds are bonds that were
originally issued at less than the market interest rate. Zero coupon bonds are
original issue discount bonds that do not provide for the payment of current
interest. For Federal income tax purposes, original issue discount on such
bonds must be amortized over the term of such bonds. On sale or redemption,
the excess of (1) the amount realized (other than amounts treated as
tax-exempt income as described below), over (2) the tax basis of such bonds
(properly adjusted, in the circumstances described below, for amortization of
original issue discount) will be treated as taxable income or loss. See "The
Trust--Tax Status." The Code requires holders of tax-exempt obligations issued
with original issue discount, such as the Trust, to accrue tax-exempt original
issue discount by using the constant interest method provided for the holders
of taxable obligations. In addition, the Code provides that the basis of a
tax-exempt obligation is increased by the amount of accrued tax-exempt
original issue discount. These provisions are applicable to obligations issued
after September 3, 1982 and acquired after March 1, 1984. The Trust's tax
basis in a Bond is increased by any accrued original issue discount as is a
Unit holder's tax basis in his Units. For Bonds issued after June 9, 1980 that
are redeemed prior to maturity, the difference between the Trust's basis, as
adjusted, and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any such gain may be taxable as ordinary income.
There can be no assurance that additional Federal legislation will
not be enacted or that existing legislation will not be amended hereafter with
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the effect that interest on bonds becomes subject to Federal income taxation.
If the interest on the Bonds should ultimately be deemed to be taxable, the
Sponsors may instruct the Trustee to sell them, and, since they would be sold
as taxable securities, it is expected that they would have to be sold at a
substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to
their stated maturity date pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund accumulated over a period of time for
retirement of debt. Sinking fund provisions are designed to redeem a
significant portion of an issue gradually over the life of the issue.
Obligations to be redeemed are generally chosen by lot. A callable debt
obligation is one which is subject to redemption prior to maturity at the
option of the issuer. To the extent that obligations in the Trust have a bid
site valuation higher than their par value, redemption of such obligations at
par would result in a loss of capital to a purchaser of Units at the public
offering price. The estimated current return of the Units might also be
adversely affected if the return on the retired Bonds is greater than the
average return on the Bonds in the Trust. In general, call provisions are more
likely to be exercised when the offering side valuation is at a premium over
par than when it is at a discount from par. See "Special Factors Concerning
the Portfolio" in Part I of this Prospectus for information for the number of
bonds in the Portfolio that are original issue discount and zero coupon bonds
and "Portfolio Information" in Part I of this Prospectus for a breakdown of
the percentage of Bonds in the Trust with offering side valuations at a
premium, discount or at par. See also "Estimated Current Return and Estimated
Long Term Return". The portfolio and "Summary of Essential Financial
Information" in Part I of this Prospectus contain a listing of the sinking
fund and call provisions, if any, with respect to each of the Bonds therein.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the adjustment
of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or
otherwise alter the terms of its obligations, including those of the type
comprising the Trust's portfolio. The Sponsors are unable to predict what
effect, if any, this legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation pending
as of the date hereof in respect of any Securities which might reasonably be
expected to have a material adverse effect on the Trust, unless otherwise
stated in Part I of this Prospectus. At any time, however, litigation may be
initiated on a variety of grounds with respect to Securities in the Trust.
Such litigation as, for example, suits challenging the issuance 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.
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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:
<TABLE>
<CAPTION>
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
- -------------------------- --------------------- ---------------
<S> <C> <C>
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%
</TABLE>
A minimum sales charge of 1.0% of the Public Offering Price is
applied to all secondary market unit purchases. There is no reduction of the
sales charge for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on the
Securities at the date of delivery of the Units to the purchaser is also added
to the Public Offering Price.
Unless Securities are in default in payment of principal or interest
or in significant risk of such default, the Evaluator will not attribute any
value to the Units due to the insurance obtained by the Trust. See also
"Rights of Unit Holders--Certificates" and "Rights of Unit
Holders--Redemption" for information relating to redemption of Units. The
Evaluator will consider in its evaluation of Defaulted Bonds which are covered
by insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments as well as the market value of the Securities
and the market value of similar securities of issuers whose securities, if
identifiable, carry identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or risk of
default. If such other securities are not identifiable, the Evaluator will
compare prices of securities with substantially identical interest rates and
maturities and of a creditworthiness of minimum investment grade. As to Series
18 and subsequent Series, the value of the insurance will be equal to the
difference between (i) the market value of Defaulted Bonds assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance and the related
custodial fee) and (ii) the market value of such Defaulted Bonds not covered
by Permanent Insurance. In any case the Evaluator will consider the ability of
the Insurer to meet its commitments under the Trust's insurance policy and,
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<PAGE>
in the case of Series 18 and subsequent Series, MBIA's or MBIAC's commitment
to issue Permanent Insurance. For a description of the circumstances under
which a full or partial suspension of the right of Unit holders to redeem
their Units may occur, see "Rights of Unit Holders--Redemption."
It is the present intention of the Trustee (and, in the case of
Series 18 and subsequent Series, assuming the Trustee does not exercise the
right to obtain Permanent Insurance on any Defaulted Bonds), so long as the
Trust contains either some Bonds not in default or any Pre-insured Bonds, not
to sell Defaulted Bonds to effect redemptions or for any other reason but
rather to retain them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE
INSURANCE OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance
obtained by the issuer of a Pre-insured Bond, or by some other party, is
effective so long as such Pre-insured Bond is outstanding and the insurer of
such Bond continues to fulfill its obligations. Therefore, any such insurance
may be considered to represent an element of market value in regard to the
Pre-insured Bond, but the exact effect, if any, of this insurance on such
market value cannot be predicted. Regardless of whether the insurer of a Pre-
insured Bond continues to fulfill its obligations, however, such Bond will in
any case continue to be insured under the policy obtained by the Trust from
the Insurer as long as the Bond is held in the Trust.
Certain commercial banks are making Units of the Trust available to
their customers on an agency basis. A portion of the sales charge discussed
above is retained by or remitted to the banks. Under the Glass- Steagall Act,
banks are prohibited from underwriting Trust Units; however, the
Glass-Steagall Act does permit certain agency transactions, and banking
regulators have not indicated that these particular agency transactions are
not permitted under such Act.
Market for Units
Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the Units and to
continuously offer to purchase Units at prices based on the aggregate bid
price of the Securities. The Sponsors' Repurchase Price shall be not less than
the Redemption Price plus accrued interest through the expected date of
settlement. See "Rights of Unit Holders--Redemption--Computation of Redemption
Price per Unit." There is no sales charge incurred when a Unit holder sells
Units back to the Sponsors. Any Units repurchased by the Sponsors may be
reoffered to the public by the Sponsors at the Public Offering Price at the
time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some
other business reason, the Sponsors may discontinue purchases of Units of such
Series at prices based on the aggregate bid price of the Securities. The
Sponsors do not in any way guarantee the enforceability, marketability or
price of any Security in the portfolio or of the Units of the Trust. In the
event that a market is not maintained for the Units, a Unit holder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities. The aggregate bid price of
the Securities in the Trust may be expected to be less than the aggregate
offering price. If a Unit holder wishes to dispose of his Units, he should
inquire of the Sponsors as to current market prices prior to making a tender
for redemption to the Trustee. See "Rights of Unit Holders--Redemption" and
"Sponsors."
Employees (and their immediate families) of the Sponsors may,
pursuant to employee benefit arrangements, purchase Units of the Trust at a
price equal to the bid side evaluation of the underlying securities in the
Trust, divided by the number of Units outstanding. Such arrangements result
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in less selling effort and selling expenses than sales to employee groups of
other companies. Resales or transfers of Units purchased under the employee
benefit arrangements may only be made through the Sponsors' secondary market,
so long as it is being maintained.
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is the
Sponsors' intention to effect a public distribution of the Units solely
through their own organizations. Units may, however, be sold to dealers who
are members of the National Association of Securities Dealers, Inc. at a
discount. Such discount is subject to change from time to time by the Agent
for the Sponsors. Sales will be made only with respect to whole Units, and the
Sponsors reserve the right to reject, in whole or in part, any order for the
purchase of Units. It is the Sponsors' intention to continue to qualify Units
of the Trust for sale where such qualification is necessary. In maintaining a
market for the Units (see "Public Offering--Market for Units"), the Sponsors
will realize profits or sustain losses in the amount of any difference between
the price at which they buy Units and the price at which they resell such
Units (the Public Offering Price described in the currently effective
Prospectus which includes the sales charge set forth in Part I of this
Prospectus under "Summary of Essential Financial Information") or the price at
which they may redeem such Units (based upon the aggregate bid side evaluation
of the Securities), as the case may be, and to the extent that they earn sales
charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In
contrast, tax-exempt bonds customarily are offered on a "yield price" basis.
Therefore, the rate of return on each Unit is measured in terms of both
Estimated Current Return and Estimated Long-Term Return. Estimated Current
Return based on the Public Offering Price per Unit and Estimated Long-Term
Return per Unit and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes
into account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds purchased at a
premium are generally higher than current interest rates on newly issued bonds
of a similar type with comparable ratings, the Estimated Current Return per
Unit may be affected adversely if such Bonds are redeemed prior to their
maturity. Therefore, there is no assurance that the Estimated Current Return
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
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for each optional call date and the maturity date of a callable security). If
the Bond is retired on any optional call or maturity date other than the
pricing life date, the yield to the holder of that Bond will be greater than
the initial quoted yield. Since the market values and estimated retirements of
the Bonds, the expenses of the Trust and the Net Annual Interest Income and
Public Offering Price per Unit may change, there is no assurance that the
Estimated Long-Term Return as set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal
and interest on the Bonds in the Trust has been obtained from the Insurer by
the Trust. The Insurer has issued a policy of insurance covering each of the
Bonds in the Trust, including Pre-insured Bonds. As to each Trust, the Insurer
shall not have any liability under the policy with respect to any Bonds which
do not constitute part of the Trust. In determining to insure the Bonds, the
Insurer has applied its own respective standards which generally correspond to
the standards it has established for determining the insurability of new
issues of municipal bonds.
By the terms of its policy, the Insurer unconditionally guarantees to
the Trust the payment, when due, required of the issuer of the Bonds of an
amount equal to the principal of (either at the stated maturity or by any
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. Except
as provided below with respect to small issue industrial development Bonds and
pollution control revenue Bonds, in the event of any acceleration of the due
date of principal by reason of mandatory or optional redemption (other than
mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been
due had there not been an acceleration. The Insurer will be responsible for
such payments less any amounts received by the Trust from any trustee for the
Bond issuers or from any other source. The policy issued by the Insurer does
not guarantee payment on an accelerated basis, the payment of any redemption
premium or the value of the Units. The MBIA and MBIAC policies also do not
insure against nonpayment of principal of or interest on the Bonds resulting
from the insolvency, negligence or any other act or omission of the trustee or
other paying agent for the Bonds. With respect to small issue industrial
development Bonds and pollution control revenue Bonds in Series 9 through
Series 30 and Series 31 and subsequent Series, however, MBIA and MBIAC,
respectively, guarantee the full and complete payments required to be made by
or on behalf of an issuer of such Bonds if there occurs pursuant to the terms
of the Bonds an event which results in the loss of the tax-exempt status of
interest on such Bonds, including principal, interest or premium payments
payable thereon, if any, as and when required to be made by or on behalf of
the issuer pursuant to the terms of such Bonds. No assurance can be given that
the policy issued by the Insurer would insure the payment of principal or
interest on Bonds which is not required to be paid by the issuer thereof
because the Bonds were not validly issued. At the respective times of issuance
of the Bonds, opinions relating to the validity thereof were rendered by bond
counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancellable and
will continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the policy obtained by the Trust will not result in the
cancellation of insurance but will force the Insurer to take action against
the Trustee to recover premium payments due it. The Trustee in turn will be
entitled to recover such payments from the Trust.
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The policy issued by the Insurer shall terminate as to any Bond which
has been redeemed from or sold by the Trustee on the date of such redemption
or on the settlement date of such sale, and the Insurer shall not have any
liability under the policy as to any such Bond thereafter. If the date of such
redemption or the settlement date of such sale occurs between a record date
and a date of payment of any such Bonds, any MBIA or MBIAC policy will
terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA or MBIAC policy as to any Bond shall not
affect MBIA's or MBIAC's obligations regarding any other Bond in such Trust or
any other Trust which has obtained a MBIA or MBIAC insurance policy. The
policy issued by the Insurer will terminate as to all Bonds on the date on
which the last of the Bonds matures, is redeemed or is sold by the Trust.
In the case of Series 18 through 30 and Series 31 and subsequent
Series, pursuant to irrevocable commitments of MBIA and MBIAC, respectively,
the Trustee upon the sale of a Bond in the Trust has the right to obtain
permanent insurance with respect to such Bond (i.e., insurance to maturity of
the Bonds) (the "Permanent Insurance") upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Bond.
Accordingly, any Bond in such Series of the Trust is eligible to be sold on an
insured basis. It is expected that the Trustee will exercise the right to
obtain Permanent Insurance for a Bond in the Trust upon instruction from the
Sponsors only if upon such exercise the Trust would receive net proceeds (sale
of Bond proceeds less the insurance premium attributable to the Permanent
Insurance and the related custodial fee) from such sale in excess of the sale
proceeds if such Bond was sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness
of such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to
an increase predetermined at the Date of Deposit and payable from the proceeds
of the sale of such Bond.
Except as indicated below, insurance obtained by the Trust has no
effect on the price or redemption value of Units thereof. It is the present
intention of the Evaluator to attribute a value to the insurance obtained by
the Trust (including, as to Series 18 and subsequent Series, the right to
obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units thereof only if the Bonds covered by such insurance
are in default in payment of principal or interest or, in the Sponsors'
opinion, in significant risk of such default ("Defaulted Bonds"). The value of
the insurance will be equal to the difference between (1) the market value of
a Defaulted Bond insured by the Trust (as to Series 18 and subsequent Series,
the market value of a Defaulted Bond assuming the exercise of the right to
obtain Permanent Insurance less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of similar securities not in default or significant risk thereof
(as to Series 18 and subsequent Series, the market value of such Defaulted
Bonds not covered by Permanent Insurance). Insurance obtained by the issuer of
a Bond or by parties other than the Trust is effective so long as such Pre-
insured Bond is outstanding and the insurer of such Pre-insured Bond continues
to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from MBIA or MBIAC as long as the Bond is
held in the Trust. Insurance obtained by the issuer of a Bond or by other
parties may be considered to represent an element of market value in regard to
the Bonds thus insured, but the exact effect, if any, of this insurance on
such market value cannot be predicted.
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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.
Each insurance company constituting MBIA will be severally and not
jointly obligated under any MBIA policy obtained by the Trust in the following
respective percentages: The Aetna Casualty and Surety Company, 33%; Fireman's
Fund Insurance Company, 30%; The Travelers Indemnity Company, 15%; Aetna
Insurance Company*, 12%; and The Continental Insurance Company, 10%. As a
several obligor, each such insurance company will be obligated only to the
extent of its percentage of any claim under the MBIA policy and will not be
obligated to pay any unpaid obligations of any other member of MBIA. Each
insurance company's participation is backed by all of its assets. Each
insurance company is, however, a multiline insurer involved in several lines
of insurance other than municipal bond insurance, and the assets of each
insurance company will also secure all of its other insurance policy and
surety bond obligations.
MBIAC is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. MBIAC is a separate and distinct entity from
MBIA Inc. MBIAC has no liability to the bondholders for the obligations of
MBIA under any policy of insurance. Neither MBIA Inc. nor its shareholders are
obligated to pay the debts of or claims against MBIAC. MBIAC is a limited
liability corporation rather than a several liability association. MBIAC is
domiciled in the State of New York and licensed to do business in all 50
states, the District of Columbia, the Commonwealth of Puerto Rico. the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has one European branch in the
Republic of France.
As of September 30, 1995, MBIAC had admitted assets of $3.7 billion
(unaudited), total liabilities of $2.5 billion (unaudited), and total capital
and surplus of $1.2 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1994, MBIAC had admitted assets of $3.4
billion (audited), total liabilities of $2.3 billion (audited), and total
capital and surplus of $1.1 billion (audited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. All information regarding the Insurer, a wholly owned subsidiary
of MBIA Inc., including the financial statements of the Insurer for the year
ended December 31, 1994, prepared in accordance with generally accepted
accounting principles, included in the Annual Report on Form 10-K of MBIA Inc.
for the year ended December 31, 1994 is hereby incorporated by reference into
this Official Statement and shall be deemed to be a part hereof. Any statement
contained in a document incorporated by reference herein shall be modified or
superseded for purposes of this Official Statement to the extent that a
statement contained herein or in any other subsequent filed document
- --------------
* Now known as Cigna Property and Casualty Company.
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<PAGE>
which also is incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Official Statement.
No representation is made herein as to the accuracy or adequacy of
such information or as to the absence of material adverse changes in such
information subsequent to the date thereof. The Sponsors are not aware that
the information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the negotiations
in respect thereof (and, in the case of Series 18 and subsequent Series,
certain agreements relating to Permanent Insurance) represent the only
significant relationship between the Insurer and the Trust. Otherwise, neither
the Insurer nor any associate thereof has any material business relationship,
direct or indirect, with the Trust or the Sponsors, except that the Sponsors
may from time to time in the normal course of their business participate as
underwriters or as managers or as members of underwriting syndicates in the
distribution of new issues of municipal bonds for which a policy of insurance
guaranteeing the payment of interest and principal has been obtained from the
Insurer, and except that James A. Lebenthal, Chairman of the Board of
Directors of Lebenthal & Co., Inc., is a director of MBIA Inc. Although all
issues contained in the portfolio of the Trust are individually insured,
neither the Trust, the Units nor the portfolio is insured directly or
indirectly by the Insurer.
A purpose of the insurance on the Bonds in the portfolio obtained by
the Trust is to obtain a higher yield on the Trust portfolio than would be
available if all the Securities in such portfolio had Standard & Poor's "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, Standard & Poor's Rating group, a division of
McGraw Hill ("Standard & Poor's"), has assigned its "AAA" investment rating to
the Units of the Trust and, in the case of Series 17 and subsequent Series, to
all the Bonds, as insured, and, in the case of Series 6 and subsequent Series,
Moody's has assigned a rating of "Aaa" to all of the Bonds in the Trust, as
insured. See "Tax Exempt Bond Portfolio" in Part I of this Prospectus. The
obtaining of these ratings by the Trust should not be construed as an approval
of the offering of the Units by Standard & Poor's or Moody's or as a guarantee
of the market value of the Trust or of the Units. These ratings are not a
recommendation to buy, hold or sell and do not take into account the extent to
which Trust expenses or portfolio asset sales for less than the Trust's
acquisition price will reduce payment to the Unit holders of the interest or
principal.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust portfolio is, in
the opinion of bond counsel to the issuing governmental authorities, which
opinion was rendered at the time of original issuance of the Bonds, excludible
from gross income under the Internal Revenue Code of 1954, as amended (the
"1954 Code"), or the Internal Revenue Code of 1986, as amended (the "Code"),
depending upon the date of issuance of the Bonds in any particular Series. See
"The Trust--Portfolio."
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Gain (or loss) realized on a sale, maturity or redemption of the
Bonds or on a sale or redemption of a Unit is, however, includible in gross
income as capital gain (or loss) for Federal, state and local income tax
purposes, assuming that the Unit is held as a capital asset. Such gain (or
loss) does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term, depending on the
holding period of the Units. Bonds selling at a market discount tend to
increase in market value as they approach maturity when the principal amount
is payable, thus increasing the potential for taxable gain (or reducing the
potential for loss) on their redemption, maturity or sale. Gain on the
disposition of a Bond purchased at a market discount generally will be treated
as ordinary income, rather than capital gain, to the extent of accrued market
discount. The deductibility of capital losses is limited to the amount of
capital gain; in addition, up to $3,000 of capital losses of non-corporate
Unit holders may be deducted against ordinary income. Since the proceeds from
sales of Bonds, under certain circumstances, may not be distributed pro-rata,
a Unit holder's taxable income for any year may exceed the actual cash
distributions to the Unit holder in that year.
In the opinion of Battle Fowler LLP, special counsel for the Sponsors
as to Series 65 and subsequent Series of Empire State Municipal Exempt Trust,
Guaranteed Series, under existing law:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and interest on the Bonds which is
excludible from regular Federal gross income under the Code, when
received by the Trust, will be excludible from the regular Federal
gross income of the Unit holders of the Trust. Any proceeds paid
under the insurance policy described above issued to the Trust with
respect to the Bonds and any proceeds paid under individual policies
obtained by issuers of Bonds or other parties which represent
maturing interest on defaulted obligations held by the Trust will be
excludible from Federal gross income if, and to the same extent as,
such interest would have been so excludible if paid in the normal
course by the issuer of the defaulted obligations.
Each Unit holder will be considered the owner of a pro rata
portion of the Bonds and any other assets held in the Trust under
the grantor trust rules of Code Sections 671-679. Each Unit holder
will be considered to have received his pro rata share of income
from Bonds held by the Trust on receipt (or earlier accrual,
depending on the Unit holder's method of accounting and depending on
the existence of any original issue discount) by the Trust, and each
Unit holder will have a taxable event when an underlying Bond is
disposed of (whether by sale, redemption, or payment at maturity) or
when the Unit holder redeems or sells his Units. Gain from a sale
will be treated as short term or long term capital gain depending on
how long the Bond was held by the Trust. The total tax basis (i.e.,
cost) of each Unit to a Unit holder is allocated among each of the
Bonds held in the Trust (in accordance with the proportion of the
Trust comprised by each such Bond) in order to determine his per
Unit tax basis for each Bond, and the tax basis reduction
requirements of the Code relating to amortization of bond premium
will apply separately to the per Unit cost of each such Bond.
Therefore, under some circumstances, a Unit holder may realize
taxable gain when his Units are sold or redeemed for an amount equal
to his original cost. No deduction is allowed for the amortization
of bond premium on tax-exempt bonds such as the Bonds. None of the
interest received from the portfolio is subject to the alternative
minimum tax for individuals; however, some or all of the interest
received from
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<PAGE>
the portfolio may be includible in the calculation of
a corporation's alternative minimum tax.
For Federal income tax purposes, when a Bond is sold, a Unit
holder may exclude from his share of the amount received any amount
that represents accrued interest but may not exclude amounts
attributable to market discount. Thus, when a Bond is sold by the
Trust, taxable gain or loss will equal the difference between (i) the
amount received (excluding the portion representing accrued interest)
and (ii) the adjusted basis (including any accrued original issue
discount, limited in the case of Bonds issued after June 8, 1980 to
the portion earned from the date of acquisition, as discussed below).
In the case of Bonds acquired at a market discount, gain will be
treated as ordinary income to the extent of accrued market discount.
A Unit holder may also realize taxable gain or loss when a Unit
is sold or redeemed. Taxable gain will result if a Unit is sold or
redeemed for an amount greater than its adjusted basis to the Unit
holder. The amount received when a Unit is sold or redeemed is
allocated among all the Bonds in the Trust in the same manner as
when the Trust disposes of Bonds, and the Unit holder may exclude
accrued interest, including the earned portion of any original issue
discount, but not amounts attributable to market discount. In the
case of Bonds acquired at a market discount gain will be treated as
ordinary income to the extent of accrued market discount. The return
of a Unit holder's tax basis is otherwise a tax-free return of
capital.
If the Trust purchases any units of a previously issued series
then, based on the opinion of counsel with respect to such series,
the Trust's pro rata ownership interest in the bonds of such series
(or any previously issued series) will be treated as though it were
owned directly by the Trust.
Under the income tax laws of the State and City of New York,
the Trust is not an association taxable as a corporation and the
income of the Trust will be treated as the income of the Unit
holders.
A Unit holder who is a non-resident of New York will not be
subject to New York State or City income tax on any interest or gain
derived from his interest in the Trust's assets or upon any gain
from the sale of his Units except to the extent that such interest
or gain is from property employed in a business, trade, profession
or occupation carried on by him in the State of New York. An
individual Unit holder who resides in New York State or City will
not be subject to State or City tax on interest income derived from
the Bonds held in the Trust (except in certain limited
circumstances), although he will be subject to New York State and,
depending upon his place of residence, City tax with respect to any
gains realized when Bonds are sold, redeemed or paid at maturity or
when any such Units are sold or redeemed. In addition, an individual
Unit holder residing in New York State or City will not be subject
to State or City income tax on any proceeds paid under the insurance
policy or policies described above with respect to the Trust which
represent maturing interest on defaulted obligations held by the
Trustee if, and to the same extent as, such interest would have been
so excludible if paid by the issuer of the defaulted obligations. A
New York State or City resident should determine his basis and
holding period for his
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<PAGE>
Units for New York State and City tax purposes in the same manner
as for Federal tax purposes.
The above opinion of Battle Fowler LLP as to the tax status of the
Trust is not affected by the provision of the Trust Agreement that authorizes
the acquisition of Replacement Bonds or by the implementation of the option
automatically to reinvest principal and interest distributions from the Trust
pursuant to the Automatic Accumulation Plan, described under "Automatic
Accumulation Account" in this Part B.
Among other things, the Code provides for the following: (1) interest
on certain private activity bonds issued after August 7, 1986 is included in
the calculation of the individual's alternative minimum tax (currently taxed
at a rate of up to 28%); none of the Bonds in the Trust is a private activity
bond, the interest on which is subject to the alternative minimum tax; (2)
interest on certain private activity bonds issued after August 7, 1986 is
included in the calculation of the corporate alternative minimum tax and 75%
of the amount by which adjusted current earnings (including interest on all
tax-exempt bonds, such as the Bonds) exceed alternative minimum taxable
income, as modified for this calculation, will be included in alternative
minimum taxable income. Interest on the Bonds is includible in the adjusted
current earnings of a corporation for purposes of such alternative minimum
tax. The Code does not otherwise require corporations, and does not require
taxpayers other than corporations, including individuals, to treat interest on
the Bonds as an item of tax preference in computing an alternative minimum
tax; (3) subject to certain exceptions, no financial institution is allowed a
deduction for that portion of the institutions's interest expense allocable to
tax-exempt interest on tax-exempt bonds acquired after August 7, 1986; (4) the
amount of the deduction allowed to property and casualty insurance companies
for underwriting loss is decreased by an amount determined with regard to
tax-exempt interest income and the deductible portion of dividends received by
such companies; (5) all taxpayers are required to report for informational
purposes on their Federal income tax returns the amount of tax-exempt interest
they receive; (6) an issuer must meet certain requirements on a continuing
basis in order for interest on a tax-exempt bond to be tax-exempt, with
failure to meet such requirements resulting in the loss of tax exemption; and
(7) a branch profits tax on U.S. branches of foreign corporations is
implemented which, because of the manner in which the branch profits tax is
calculated, may have the effect of subjecting the U.S. branch of a foreign
corporation to Federal income tax on the interest on bonds otherwise exempt
from such tax.
The Superfund Revenue Act of 1986 (the "Superfund Act") imposed a
deductible, broad-based tax on a corporation's alternative minimum taxable
income (before net operating losses and any deduction for the tax) at a rate
of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess of
$2,000,000. For purposes of the Superfund Act, alternative minimum taxable
income includes interest on all tax-exempt bonds to the same extent and in the
same manner as the Code. The Superfund Act does not impose a tax on taxpayers
other than corporations.
Section 86 of the Code provides that a portion of social security
benefits is includible in taxable income for taxpayers whose "modified
adjusted gross income," combined with a portion of their social security
benefits, exceeds a base amount. The base amount is $25,000 for an individual,
$32,000 for a married couple filing a joint return and zero for married
persons filing separate returns. Interest on tax-exempt bonds is added to
adjusted gross income for purposes of determining whether an individual's
income exceeds the base amount described above.
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In addition, certain "S Corporations" may be subject to minimum tax
on certain passive income, including tax-exempt interest, such as interest on
the Bonds.
At the time of the original issuance of the Bonds held by the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from regular Federal income tax were or (with respect to "when, as and
if issued" Bonds) were to be rendered by bond counsel to the issuing
governmental authorities. Neither the Sponsors nor their special counsel have
made any review of proceedings relating to the issuance of such Bonds or the
basis for bond counsel's opinions.
Under Section 265 of the Code, if borrowed funds are used by a Unit
holder to purchase or carry Units of the Trust, interest on such indebtedness
will not be deductible for Federal income tax purposes. Under rules used by
the Internal Revenue Service, the purchase of Units may be considered to have
been made with borrowed funds even though the borrowed funds are not directly
traceable to the purchase of Units. Similar rules are applicable for purposes
of state and local taxation. Also, under Section 291 of the Code, certain
financial institutions that acquired Units on or before August 7, 1986 may be
subject to a reduction in the amount of interest expense that would otherwise
be allowable as a deduction for Federal income tax purposes. Subject to
certain exceptions under Section 265 of the Code, no deduction is allowed to a
financial institution for that portion of the institution's interest expense
allocable to tax-exempt interest on Units acquired after August 7, 1986.
Investors with questions regarding this issue should consult their tax
advisors.
The Trust may contain Bonds issued with original issue discount. The
Code requires holders of tax-exempt obligations issued with original issue
discount, such as the Trust, to accrue tax-exempt original issue discount by
using the constant interest method provided for the holders of taxable
obligations and to increase the basis of a tax-exempt obligation by the amount
of accrued tax-exempt original issue discount. These provisions are applicable
to obligations issued after September 3, 1982 and acquired after March 1,
1984. The Trust's tax basis in a Bond is increased by any accrued original
issue discount as is a Unit holder's tax basis in his Units. For Bonds issued
on or after June 9, 1980 that are redeemed prior to maturity, the difference
between the Trust's basis, as adjusted, and the amount received will be
taxable gain or loss to the Unit holders.
Unit holders should consult their tax advisors with respect to the
state and local tax consequences of owning original issue discount bonds. It
is possible that, under applicable provisions governing determination of such
state and local taxes, interest on tax-exempt bonds such as any Bonds issued
with original issue discount may be deemed to be received in the year of
accrual even though there is no corresponding cash payment.
If a Unit holder's tax cost for his pro rata interest in a Bond
exceeds his pro rata interest in the Bond's face amount, the Unit holder will
be considered to have purchased his pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating
to his pro rata interest in a Bond prior to the maturity of the Bond.
Amortization of premium on a Bond will reduce a Unit holder's tax basis for
this pro rata interest in the Bond, but will not result in any deduction from
the Unit holder's income. Thus, for example, a Unit holder who purchases a pro
rata interest in a Bond at a premium and resells it at the same price will
recognize taxable gain equal to the portion of the premium that was amortized
during the period the Unit holder is considered to have held such interest.
Bond premium must be amortized under the method the Unit holder
regularly employs for amortizing bond premium (assuming such method is
reasonable). With respect to a callable bond, the premium must be computed
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with respect to the call price and be amortized to the first call date (and
successively to later call dates based on the call prices for those dates).
In the case of Bonds that are private activity bonds, the opinions of
bond counsel to the respective issuing authorities indicate that interest on
such Bonds is exempt from regular federal income tax. However, interest on
such Bonds will not be exempt from regular 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 by a "related person" thereof within
the meaning of the Code. Therefore, interest on any such Bonds allocable to a
Unit holder who is such a "substantial user" or "related person" thereof will
not be tax-exempt. Furthermore, in the case of Bonds that qualify for the
"small issue" exemption, the "small issue" exemption will not be available or
will be lost if, at any time during the three-year period beginning on the
later of the date the facilities are placed in service or the date of issue,
all outstanding tax-exempt IRBs, together with a proportionate share of any
present issue, of an owner or principal user (or related person) of the
facilities was determined to have exceeded $40,000,000 on the date of issue.
In the case of Bonds issued under the $10,000,000 "small issue" exemption,
interest on such Bonds will become taxable if the face amount of the Bonds
plus certain capital expenditures exceeds $10,000,000 within 3 years of the
date of issue of such Bonds.
In addition, a Bond can lose its tax-exempt status as a result of
other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current
or future owners or users of the facilities financed by the Bonds, the amount
of such persons' outstanding tax-exempt private activity 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.
The exemption of interest on municipal obligations for Federal income
tax purposes does not necessarily result in exemption under the income tax
laws of any state or local government. Interest income derived from the Bonds
is not excluded from net income in determining New York State or New York City
franchise taxes on corporations or financial institutions. The laws of such
states and local governments vary with respect to the taxation of such
obligations.
From time to time proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals may be introduced in the future. The
Sponsors cannot predict whether additional legislation, if any, in respect of
the Federal income tax status of interest on debt obligations may be enacted
and what the effect of such legislation would be on Bonds in the Trust. In
addition, the enactment of a "flat tax" or other legislation that
significantly alters the federal income tax system may have a material adverse
effect on the value of Units. If the interest on any Bonds in the Trust should
ultimately be deemed to be taxable, the Sponsors may instruct the Trustee to
sell such Bonds, and, since they would be sold as taxable securities, it is
expected that they would be sold at a substantial discount from current market
prices.
In South Carolina v. Baker, the U.S. Supreme Court held that the
federal government may constitutionally require states to register bonds they
issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the
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federal government's taxing the interest earned on state or other municipal
bonds. The Supreme Court decision affirms the authority of the federal
government to regulate and control bonds such as the Bonds in the Trust and to
tax interest on such bonds in the future. The decision does not, however,
affect the current exemption from taxation of the interest earned on the Bonds
in the Trust in accordance with Section 103 of the Code.
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,
distribute the Unit holder's pro rata share of the balance of the Principal
Account. Interest (semi-annually or monthly) and principal, including capital
gains, if any (semi-annually), received by the Trust will be distributed on
each Distribution Date to Unit holders of record of the Trust as of the
preceding Record Date who are entitled to such distributions at that time
under the plan of distribution chosen. All distributions will be net of
applicable expenses and funds required for the redemption of Units. See
"Summary of Essential Financial Information" in Part I of this Prospectus,
"The Trust--Expenses and Charges" and "Rights of Unit Holders--Redemption."
The Trustee will credit to the Interest Account for the Trust all
interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro
rata share of the Interest Account of the Trust and the pro rata share of cash
in the Principal Account of the Trust represented by each Unit thereof will be
computed by the Trustee each month as of the Record Date. See "Summary of
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Essential Financial Information" in Part I of this Prospectus. Proceeds
received from the disposition of any of the Securities subsequent to a Record
Date and prior to the next succeeding Distribution Date will be held in the
Principal Account for the Trust and will not be distributed until the second
succeeding Distribution Date. Because interest on the Securities is not
received by the Trust at a constant rate throughout the year, any particular
interest distribution may be more or less than the amount credited to the
Interest Account of the Trust as of the Record Date. Persons who purchase
Units between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units
under the applicable plan of distribution. No distribution need be made from
the Principal Account if the balance therein is less than an amount sufficient
to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to the
first Record Date and to the related Distribution Date is an asset of the
respective Unit holder and will be realized in subsequent distributions or
upon the earlier of the sale of such Units or the maturity, redemption or sale
of Securities in the Trust.
The plan of distribution selected by a Unit holder will remain in
effect until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. Each April, the Trustee will furnish each Unit holder a card to
be returned together with the Certificate by May 15 of such year if the Unit
holder desires to change his plan of distribution, and the change will become
effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units."
As of the fifteenth day of each month the Trustee will deduct from
the Interest Account and, to the extent funds are not sufficient therein, from
the Principal Account, amounts necessary to pay the expenses of the Trust as
of the first day of such month. See "The Trust--Expenses and Charges." The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of
the Trust. Amounts so withdrawn shall not be considered a part of the Trust's
assets until such time as the Trustee shall return all or any part of such
amounts to the appropriate account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account such amounts as may be
necessary to cover redemption of Units by the Trustee. See "Rights of Unit
Holders--Redemption." Funds which are available for future distributions,
payments of expenses and redemptions are in accounts which are non-interest
bearing to the Unit holders and are available for use by the Trustee pursuant
to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the
monthly payment plan. Therefore, on each monthly Distribution Date, the amount
of interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest
distribution made. In addition, because of the varying interest payment dates
of the Securities constituting the Trust portfolio, accrued interest at any
point in time will be greater than the amount of interest actually received by
the Trust and distributed to Unit holders. Therefore, there will usually
remain an item of accrued interest that is added to the value of the Units. If
a Unit holder sells all or a portion of his Units, he will be entitled to
receive his proportionate share of the accrued interest from the purchaser of
his Units. Similarly, if a Unit holder redeems all or a portion of his Units,
the Redemption Price per Unit which he is entitled to receive from the Trustee
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will also include accrued interest on the Securities. Thus, the accrued
interest attributable to a Unit will not be entirely recovered until the Unit
holder either redeems or sells such Unit or until the Trust is terminated. See
"Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit."
Expenses and Charges
Initial Expenses
At no cost to the Trust, the Sponsors have borne all the expenses of
creating and establishing the Trust, including the cost of the initial
preparation, printing and execution of the Trust Agreement and the
certificates for Units, legal expenses, advertising and selling expenses,
expenses of the Trustee and other out-of-pocket expenses.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus. The
Sponsors' fee, if any, which is earned for portfolio supervisory services, is
based on the face amount of Securities in the Trust at December 1 of each
year. The Sponsors' fee, which is not to exceed the maximum amount set forth
in the "Summary of Essential Financial Information" in Part I of this
Prospectus, may exceed the actual costs of providing portfolio supervisory
services for a particular Series, but at no time will the total amount
received by the Sponsors for portfolio supervisory services rendered to all
Series of Empire State Municipal Exempt Trust in any calendar year exceed the
aggregate cost to them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the
Trust an annual fee in the amount set forth in the "Summary of Essential
Financial Information" in Part I of this Prospectus. There is no minimum fee
and, except as hereinafter set forth, no maximum fee. For a discussion of
certain benefits derived by the Trustee from the Trust's funds, see "Rights of
Unit Holders--Distribution of Interest and Principal." For a discussion of the
services performed by the Trustee pursuant to its obligations under the Trust
Agreement, reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee's and Evaluator's fees are payable monthly on or before
each Distribution Date and the Sponsors' annual fee is payable annually on
December 1, each from the Interest Account to the extent funds are available
and then from the Principal Account. These fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate increases
in consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent." If the
balances in the Principal and Interest Accounts are insufficient to provide
for amounts payable by the Trust, or amounts payable to the Trustee which are
secured by its prior lien on the Trust, the Trustee is permitted to sell Bonds
to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus is
based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
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
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incur any premium expense for any insurance which has been obtained by an
issuer of a Pre-insured Bond, since the premium or premiums for such insurance
have been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on
Bonds which are also MBIAC Pre-insured Bonds or MBIA Pre-insured Bonds. The
premium payable for Permanent Insurance and the related custodial fee will be
paid solely from the proceeds of the sale of a Bond from the Trust in the
event that the Trustee exercises the right to obtain Permanent Insurance on
such Bond.
Other Charges
The following additional charges are or may be incurred by the Trust:
all expenses (including audit and counsel fees) of the Trustee incurred in
connection with its activities under the Trust Agreement, including annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any extraordinary
services performed under the Trust Agreement; indemnification of the Trustee
for any loss or liability accruing to it without willful misconduct, bad faith
or gross negligence on its part, arising out of or in connection with its
acceptance or administration of the Trust; and all taxes and other
governmental charges imposed upon the Securities or any part of the Trust (no
such taxes or charges are being levied or made or, to the knowledge of the
Sponsors, contemplated). The above expenses, including the Trustee's fee, when
paid by or owing to the Trustee, are secured by a lien on the Trust. In
addition, the Trustee is empowered to sell Securities in order to make funds
available to pay all expenses.
Reports and Records
The Trustee shall furnish Unit holders of the Trust in connection
with each distribution a statement of the amount of interest, if any, and the
amount of other receipts, if any, which are being distributed, expressed in
each case as a dollar amount per Unit. Within a reasonable time after the end
of each calendar year, the Trustee will furnish to each person who at any time
during the calendar year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (2) as to the Principal Account: the
dates of disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest, with respect to the Trust the premium attributable to
the Trustee's exercise of the right to obtain Permanent Insurance and any
related custodial fee), deductions for payments of applicable taxes and for
fees and expenses of the Trust, redemptions of Units, the amount of any "when
issued" interest treated as a return of capital and the balance remaining
after such distributions and deductions, expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (3) a list of the
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
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distributed during such calendar year from the Interest Account and from the
Principal Account, separately stated, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each Unit
outstanding.
The Trustee shall keep available for inspection by Unit holders, at
all reasonable times during usual business hours, books of record and account
of its transactions as Trustee including records of the names and addresses of
Unit holders, certificates issued or held, a current list of Securities in the
portfolio of the Trust and a copy of the Trust Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the secondary
market, Units may also be tendered to the Trustee for redemption at its
corporate trust office at 101 Barclay Street, New York, New York 10286, upon
payment of any applicable tax. At the present time there are no specific taxes
related to the redemption of the Units. No redemption fee will be charged by
the Sponsors or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the
Trustee and must be properly endorsed and accompanied by a written instrument
of transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption.
See "Rights of Unit Holders--Certificates." Unit holders must sign exactly as
their names appear on the face of the certificate with signature(s) guaranteed
by an officer of a national bank or trust company, a member firm of either the
New York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or
certificates of corporate authority.
Within seven calendar days following such tender or, if the seventh
calendar day is not a business day, on the first business day prior thereto,
the Unit holder will be entitled to receive in cash an amount for each Unit
tendered equal to the Redemption Price per Unit computed as of the Evaluation
Time set forth in Part I of this Prospectus under "Summary of Essential
Financial Information" as of the next subsequent Evaluation Time. See
"Redemption--Computation of Redemption Price per Unit." The "date of tender"
is deemed to be the date on which Units are received by the Trustee, except
that as regards Units received after the Evaluation Time on the New York Stock
Exchange, the date of tender is the next day on which such Exchange is open
for trading or the next day on which there is a sufficient degree of trading
in Units of the Trust, and such Units will be deemed to have been tendered to
the Trustee on such day for redemption at the Redemption Price computed on
that day. For information relating to the purchase by the Sponsors of Units
tendered to the Trustee for redemption at prices in excess of the Redemption
Price, see "Redemption--Purchase by the Sponsors of Units Tendered for
Redemption."
Accrued interest paid on redemption shall be withdrawn from the
Interest Account or, if the balance therein is insufficient, from the
Principal Account. All other amounts paid on redemption shall be withdrawn
from the Principal Account. The Trustee is empowered to sell Securities in
order to make funds available for redemption. Such sales, if required, could
result in a sale of Securities by the Trustee at a loss. To the extent
Securities are sold, the size and diversity of the Trust will be reduced.
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As to Series 18 and subsequent Series, if the Trustee exercises the
right to obtain Permanent Insurance on a Bond, such Bond will be sold from the
Trust on an insured basis. In the event that the Trustee does not exercise the
right to obtain Permanent Insurance on a Bond, such Bond will be sold from the
Trust on an uninsured basis since the insurance obtained by the
Trust covers the timely payment of principal and interest when due on the
Bonds only while the Bonds are held in and owned by the Trust. If the Trustee
does not obtain Permanent Insurance on a Defaulted Bond, to the extent that
(and, in the case of Series 18 and subsequent Series, assuming that the
Trustee does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond) Bonds which are current in payment of interest are sold from
the Trust portfolio in order to meet redemption requests and Defaulted Bonds
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Bonds, the overall value of the Bonds remaining
in the Trust will tend to diminish. See "Sponsors--Responsibility" for the
effect of selling Defaulted Bonds to meet redemption requests.
The Trustee reserves the right to suspend the right of redemption and
to postpone the date of payment of the Redemption Price per Unit for any
period during which the New York Stock Exchange is closed, other than weekend
and holiday closings, or during which trading on that Exchange is restricted
or during which (as determined by the Securities and Exchange Commission by
rule or regulation) an emergency exists as a result of which disposal or
evaluation of the underlying Bonds is not reasonably practicable, or for such
other periods as the Securities and Exchange Commission has by order
permitted.
Because insurance obtained by the Trust terminates as to Bonds which
are sold by the Trustee, and because the insurance obtained by the Trust does
not have a realizable cash value which can be used by the Trustee to meet
redemptions of Units (assuming, in the case of Series 18 and subsequent
Series, that the Trustee does not exercise the right to obtain Permanent
Insurance on Defaulted Bonds), under certain circumstances the Sponsors may
apply to the Securities and Exchange Commission for an order permitting a full
or partial suspension of the right of Unit holders to redeem their Units if a
significant portion of the Bonds in the portfolio is in default in payment of
principal or interest or in significant risk of such default. No assurances
can be given that the Securities and Exchange Commission will permit the
Sponsors to suspend the rights of Unit holders to redeem their Units, and,
without the suspension of such redemption rights when faced with excessive
redemptions, the Sponsors may not be able to preserve the benefits of the
Trust's insurance on Defaulted Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on the
basis of the bid prices of the Securities in the Trust, as of the Evaluation
Time stated under "Summary of Essential Financial Information" in Part I of
this Prospectus on the day any such determination is made. The Redemption
Price per Unit is each Unit's pro rata share, determined by the Trustee, of
(1) the aggregate value of the Securities in the Trust (determined by the
Evaluator as set forth below), except for those cases in which the value of
insurance has been included, (2) cash on hand in the Trust, and (3) accrued
and unpaid interest on the Securities as of the date of computation, less (a)
amounts representing taxes or governmental charges payable out of the Trust,
(b) the accrued expenses of the Trust, and (c) cash held for distribution to
Unit holders of record as of a date prior to the evaluation. The Evaluator may
determine the value of the Securities in the Trust (i) on the basis of current
bid prices for the Securities, (ii) if bid prices are not 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
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portfolio insurance obtained by the Trust on the Bonds in the Trust unless such
Bonds are in default in payment of principal or interest or in significant risk
of such default. On the other hand, Pre-insured Bonds in the Trust are entitled
at all times to the benefits of insurance obtained by their respective issuers
so long as the Pre-insured Bonds are outstanding and the insurer continues to
fulfill its obligations, and such benefits are reflected and included in the
market value of Pre-insured Bonds. For a description of the situations in which
the Evaluator may value the insurance obtained by the Trust, see "Public
Offering--Market for Units."
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsors of
any tender of Units for redemption. So long as the Sponsors are maintaining a
bid in the secondary market, the Sponsors, prior to the close of business on
the second succeeding business day, will purchase any Units tendered to the
Trustee for redemption at the price so bid by making payment therefor to the
Unit holder in an amount not less than the Redemption Price on the date of
tender not later than the day on which the Units would otherwise have been
redeemed by the Trustee. See "Public Offering--Market for Units." Units held
by the Sponsors may be tendered to the Trustee for redemption as any other
Units, provided that the Sponsors shall not receive for Units purchased as set
forth above a higher price than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the
Public Offering Price determined in the manner provided in this Prospectus.
See "Public Offering-- Offering Price." Any profit resulting from the resale
of such Units will belong to the Sponsors which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units.
Exchange Option
The Sponsors of the Series of Empire State Municipal Exempt Trust
(including the Series of Municipal Exempt Trust, the predecessor trust to
Empire State Municipal Exempt Trust) (the "Trust") are offering Unit holders
of those Series of the Trust for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any Series of the Trust for a
Unit of a different Series of the Trust being offered by the Sponsors (other
than in the initial offering period) at a Public Offering Price generally
based on the bid prices of the underlying Securities divided by the number of
Units outstanding (see "Public Offering--Market for Units") plus a fixed sales
charge of $15 per Unit (in lieu of the normal sales charge). However, a Unit
holder must have held his Unit for a period of at least six months in order to
exercise the exchange option or agree to pay a sales charge based on the
greater of $15 per Unit or an amount which together with the initial sales
charge paid in connection with the acquisition of Units being exchanged equals
the normal sales charge of the Series into which the investment is being
converted, determined as of the date of the exchange. Such exchanges will be
effected in whole Units only. Any excess proceeds from the Units being
surrendered will be returned, and the Unit holder will not be permitted to
advance any new money in order to complete an exchange. The Sponsors reserve
the right to modify, suspend or terminate this plan at any time without
further notice to the Unit holders. In the event that the exchange option is
not available to a Unit holder at the time he wishes to exercise it, the Unit
holder will be immediately notified and no action will be taken with respect
to his Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with
Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit
holders of the Trust to elect to have distributions from Units in the Trust
automatically reinvested in shares of the Empire Builder. The Empire Builder
is an open-end, non-diversified investment company whose investment objective
is to seek as high a level of current income exempt from Federal income tax,
New York State and New York City income taxes as is believed to be consistent
with preservation of capital. It is the policy of the Empire Builder to invest
primarily in debt securities the interest income from which is exempt from
such taxes.
The Empire Builder has an investment objective which differs in
certain respects from that of the Trust. The bonds purchased by the Empire
Builder will be of "investment grade" quality - that is, at the time of
purchase by the Empire Builder, such bonds either will be rated not lower than
the four highest ratings of either Moody's (Aaa, Aa, A or Baa) or Standard &
Poor's (AAA, AA, A, or BBB) or will be unrated bonds which at the time of
purchase are judged by the Empire Builder's investment advisor to be of
comparable quality to bonds rated within such four highest grades. It is a
fundamental policy of the Empire Builder that under normal market conditions
at least 90% of the income distributed to its shareholders will be exempt from
Federal income tax, New York State and New York City personal income taxes.
However, during times of adverse market conditions when the Empire Builder is
investing for temporary defensive purposes in obligations other than New York
tax-exempt bonds, more than 10% of the Empire Builder's income distributions
could be subject to Federal income tax, New York State income tax and/or New
York City income tax, as described in the current prospectus relating to the
Empire Builder (the "Empire Builder Prospectus"). Glickenhaus & Co.
("Glickenhaus"), a sponsor of the Trust, acts as the investment advisor and
distributor for the Empire Builder.
Each Unit holder may request from The Bank of New York (the "Plan
Agent") a copy of the Empire Builder Prospectus describing the Empire Builder
and a form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable Distribution
Date, automatically be applied as of that date by the Trustee to purchase
shares (or fractions thereof) of the Empire Builder at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such
date, as described in the Empire Builder Prospectus. Unless otherwise
indicated, new Participants in the Empire Builder Plan will be deemed to have
elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each such Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the Empire Builder
purchased on his behalf. A Participant may at any time prior to ten days
preceding the next succeeding distribution date, by so notifying the Plan
Agent in writing, elect to terminate his participation in the Plan and receive
future distributions on his Units in cash. There will be no charge or other
penalty for such termination. The Sponsors, the Trustee, the Empire Builder
and Glickenhaus, as investment advisor for Empire Builder each will have the
right to terminate this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the Empire Builder through the Plan, including charges and expenses, request a
copy of the Empire Builder Prospectus from The Bank of New York, Unit
Investment Trust Division, P.O. Box 988, Wall Street Station, New York, New
York 10268. Read it carefully before you decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co.,
Inc., the Sponsors have entered into an arrangement (the "Plan") with
Lebenthal New York Municipal Bond Fund (the "Bond Fund") which permits Unit
holders of the Trust to elect to have distributions from Units in the Trust
automatically reinvested in shares of the Bond Fund. The Bond Fund is an
open-end, non-diversified investment company whose investment objective is to
maximize current income exempt from regular Federal income tax, and from New
York State and New York City income taxes, consistent with preservation of
capital and with consideration given to opportunities for capital gain. It is
the policy of the Bond Fund to invest primarily in long term investment grade
tax-exempt securities the interest income from which is exempt from such
taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund will be
of "investment grade" quality -- that is, at the time of purchase by the Bond
Fund, such bonds either will be rated not lower than the four highest ratings
of either Moodys' (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, A or BBB)
or will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Bond Fund that
under normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of
adverse market conditions, more than 20% of the Bond Fund's income
distributions could be subject to Federal income tax, New York State and/or
New York City income taxes, as described in the current prospectus relating to
the Bond Fund (the "Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor
of the Trust, acts as the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan
Agent") a copy of the Bond Fund Prospectus describing the Bond Fund and a form
by which such Unit holder may elect to become a participant ("Participant") in
the Plan. Thereafter, as directed by such person, distributions on the
Participant's Unit will, on the applicable Distribution Date, automatically be
applied as of that date by the Trustee to purchase shares (or fractions
thereof) of the Bond Fund at a net asset value as computed as of the close of
trading on the New York Stock Exchange on such date, as described in the Bond
Fund Prospectus. Unless otherwise indicated, new Participants in the Bond Fund
Plan will be deemed to have elected the monthly distribution plan with respect
to their Units. Confirmations of all transactions undertaken for each
Participant in the Plan will be mailed to each Participant by the Plan Agent
indicating distributions and shares (or fractions thereof) of the Bond Fund
purchased on his behalf. A Participant may at any time prior to ten days
preceding the next succeeding distribution date, by so notifying the Plan
Agent in writing, elect to terminate his participation in the Plan and receive
future distributions on his Units in cash. There will be no charge or other
penalty for such termination. The Sponsors, the Trustee, the Bond Fund and
Lebenthal & Co. Inc., as manager for the Bond Fund, each will have the right
to terminate this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the Bond Fund through the Plan, including charges and expenses, request a copy
of the Bond Fund Prospectus from The Bank of New York, Unit Investment Trust
Division, P.O. Box 988, Wall Street Station, New York, New York 10268. Read it
carefully before you decide to participate.
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SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State Municipal
Exempt Trust, Series 10 and all subsequent Series, including all Guaranteed
Series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series
of The Municipal Insured National Trusts and for the prior Series of Empire
State Municipal Exempt Trust (including those sold under the name of Municipal
Exempt Trust, New York Exempt Series 1, New York Series 2 and New York Series
3). Glickenhaus, in addition to participating as a member of various selling
groups of other investment companies, executes orders on behalf of investment
companies for the purchase and sale of securities of such companies and sells
securities to such companies in its capacity as a broker or dealer in
securities. The principal offices of Glickenhaus are located at 6 East 43rd
Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 67 years; Lebenthal also buys and sells
securities as an agent and participates as an underwriter in public offerings
of municipal bonds. It acted as a sponsor for Empire State Tax Exempt Bond
Trust, Series 8 and successive Series of The Municipal Insured National Trust
through Series 28. Lebenthal is registered as a broker/dealer with the
Securities and Exchange Commission and various state securities regulatory
agencies and is a member of the National Association of Securities Dealers,
Inc. and Securities Investors Protection Corp. The principal offices of
Lebenthal are located at 120 Broadway, New York, New York 10271.
Limitations on Liability
The Sponsors are jointly and severally liable for the performance of
their obligations arising from their responsibilities under the Trust
Agreement, but will be under no liability to the Unit holders for taking any
action or refraining from any action in good faith or for errors in judgment;
nor will they be responsible in any way for depreciation or loss incurred by
reason of the sale of any Bonds, except in cases of their willful misconduct,
bad faith or gross negligence. See "The Trust--Portfolio" and
"Sponsors--Responsibility."
Responsibility
The Trustee shall sell, for the purpose of redeeming Units tendered
by any Unit holder, and for the payment of expenses for which funds may not be
available, such of the Bonds in a list furnished by the Sponsors as the
Trustee in its sole discretion may deem necessary. In the event that the
Trustee does not exercise the right to obtain Permanent Insurance on a
Defaulted Bond or Bonds, to the extent that Bonds are sold which are current
in payment of principal and interest in order to meet redemption requests and
Defaulted Bonds are retained in the portfolio in order to preserve the related
insurance protection applicable to said Bonds, the overall value of the Bonds
remaining in the Trust's portfolio will tend to diminish. As to Series 18 and
subsequent Series, in the event that the Trustee does not exercise the right
to obtain Permanent Insurance on a Defaulted Bond or Bonds, except as
described below and in certain other unusual circumstances for which it is
determined by the Trustee to be in the best interests of the Unit holders or
if there is no alternative, the Trustee is not empowered to sell Defaulted
Bonds for which value has been attributed for the insurance obtained by the
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Trust. Because of such restrictions on the Trustee, under certain
circumstances the Sponsors may seek a full or partial suspension of the right
of Unit holders to redeem their Units. See "Rights of Unit
Holders--Redemption." The Sponsors are empowered, but not obligated, to direct
the Trustee to dispose of Bonds in the event of advance refunding. It is the
responsibility of the Sponsors to instruct the Trustee to reject any offer
made by an issuer of any of the Securities to issue new obligations in
exchange and substitution for any Securities pursuant to a refunding or
refinancing plan, except that the Sponsors may instruct the Trustee to accept
such an offer or to take any other action with respect thereto as the Sponsors
may deem proper if the issuer is in default with respect to such Securities or
in the judgment of the Sponsors the issuer will probably default with respect
to such Securities in the foreseeable future.
Any obligations so received in exchange or substitution will be held
by the Trustee subject to the terms and conditions of the Trust Agreement to
the same extent as Securities originally deposited thereunder. Within five
days after the deposit of obligations in exchange or substitution for
underlying Securities, the Trustee is required to give notice thereof to each
Unit holder, identifying the obligations eliminated and the Securities
substituted therefor. Except as stated in this and the preceding paragraph,
the acquisition by the Trust of any securities other than the Securities
initially deposited is prohibited.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance with respect to the Trust or otherwise within 30 days, the
Trustee is required to notify the Sponsors thereof. If the Sponsors fail to
instruct the Trustee to sell or to hold such Bond within 30 days after
notification by the Trustee to the Sponsors of such default, the Trustee may
in its discretion sell the Defaulted Bond and not be liable for any
depreciation or loss thereby incurred. See "The Trust--Insurance on the
Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon default
in the payment of principal or interest, institution of certain legal
proceedings or the existence of certain other impediments to the payment of
Bonds, default under other documents which may adversely affect debt service,
default in the payment of principal or interest on other obligations of the
same issuer, decline in projected income pledged for debt service on revenue
Bonds, or decline in price or the occurrence of other market factors,
including advance refunding, so that in the opinion of the Sponsors the
retention of such Bonds in a Trust would be detrimental to the interest of the
Unit holders. The proceeds from any such sales will be credited to the
Principal Account of the affected Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions
to Unit holders (if, as to Series 18 and subsequent Series, the Trustee does
not exercise the right to obtain Permanent Insurance on any Defaulted Bond),
because the portfolio insurance obtained by the Trust is applicable only while
Bonds so insured are held by the Trust, the price to be received by the Trust
upon the disposition of any such Defaulted Bond will not reflect any value
based on such insurance. Therefore, in connection with any liquidation with
respect to a Trust, it shall not be necessary for the Trustee to, and the
Trustee does not currently intend to, dispose of any Bonds if retention of
such Bonds, until due, shall be deemed to be in the best interest of Unit
holders, including, but not limited to, situations in which Bonds so insured
are in default and situations in which Bonds so insured have a deteriorated
market price resulting from a significant risk of default. Since the
Pre-insured Bonds will reflect the value of the insurance obtained by the Bond
issuer, it is the present intention of the Sponsors not to direct the Trustee
to hold any Pre-insured Bonds after the date of termination. All
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proceeds received, less applicable expenses, from insurance on Defaulted Bonds
not disposed of at the date of termination will ultimately be distributed to
Unit holders of record as of such date of termination as soon as practicable
after the date such Defaulted Bonds become due and applicable insurance
proceeds have been received by the Trustee. See "Summary of Essential
Financial Information" in Part I of this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of Essential
Information" in Part I of this Prospectus has been appointed by the other
Sponsor as agent for purposes of taking action under the Trust Agreement. In
those Trusts for which there is a sole Sponsor, references herein to the Agent
for Sponsors shall be deemed to refer to such sole Sponsor. If the Sponsors
are unable to agree with respect to action to be taken jointly by them under
the Trust Agreement and they cannot agree as to which Sponsor shall act as
sole Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of
the Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, that Sponsor is automatically discharged under the Trust
Agreement and the other Sponsor acts as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation, a new Sponsor may be appointed by the
remaining Sponsors and the Trustee to assume the duties of the resigning
Sponsor. If, at any time, only one Sponsor is acting under the Trust Agreement
and that Sponsor shall resign or fail to perform any of its duties thereunder
or becomes incapable of acting or becomes bankrupt or its affairs are taken
over by public authorities, then the Trustee may appoint a successor sponsor
or terminate the Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 1995, the total partners' capital of Glickenhaus was
$146,106,000 (audited); and at March 31, 1995, the total stockholders' equity
of Lebenthal was $3,561,506 (audited).
The foregoing information with regard to the Sponsors relates to the
Sponsors only, and not to any series of Empire State Municipal Exempt Trust.
Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and
their ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company organized under
the laws of New York, having its offices at 101 Barclay Street, New York, New
York 10286, (212) 495-1784. 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
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an aggregate capital, surplus and undivided profits of not less than
$5,000,000 and its principal office and place of business in the Borough of
Manhattan, New York City. The duties of the Trustee are primarily ministerial
in nature. The Trustee did not participate in the selection of Securities for
the portfolio of any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for
depreciation or loss incurred by reason of the disposition of any moneys,
Securities or certificates or in respect of any evaluation or for any action
taken in good faith reliance on prima facie properly executed documents except
in cases of its willful misconduct, bad faith, gross negligence or reckless
disregard for its obligations and duties. In addition, the Trustee shall not
be personally liable for any taxes or other governmental charges imposed upon
or in respect of the Trust which the Trustee may be required to pay under
current or future law of the United States or any other taxing authority
having jurisdiction. See "The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the Trustee under
the Trust Agreement, reference is made to the material set forth under "Rights
of Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation."
Resignation
By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the Unit
holders, the Sponsors may remove the Trustee and appoint a successor as
provided in the Trust Agreement. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor trustee. If,
upon resignation or removal of a trustee, no successor has been appointed and
has accepted the appointment within thirty days after notification, the
retiring trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The resignation or removal of a trustee becomes
effective only when the successor trustee accepts its appointment as such or
when a court of competent jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York corporation,
with main offices at 395 Hudson Street, New York, New York 10014. Muller Data
Corporation is a wholly owned subsidiary of Thomson Publishing Corporation, a
Delaware corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in
good faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsors or the Unit holders for errors in judgement. This provision shall not
protect the Evaluator in cases of its willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations and duties.
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Responsibility
The Trust Agreement requires the Evaluator to evaluate the Securities
on the basis of their bid prices on each business day after the initial
offering period, when any Unit is tendered for redemption and on any other day
such evaluation is desired by the Trustee or is requested by the Sponsors. For
information relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public
Offering--Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If
upon resignation of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust
Agreement without the consent of any of the Unit holders when such an
amendment is (1) to cure any ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein, or (2) to make such other provisions as
shall not adversely affect the interest of the Unit holders; and the Sponsors
and the Trustee may amend the Trust Agreement with the consent of the holders
of certificates evidencing 66-2/3% of the Units then outstanding, provided
that no such amendment will reduce the interest in a Trust of any Unit holder
without the consent of such Unit holder or reduce the percentage of Units
required to consent to any such amendment without the consent of all the Unit
holders. In no event shall the Trust Agreement be amended to increase the
number of Units issuable thereunder or to permit the deposit or acquisition of
securities either in addition to or in substitution for any of the Bonds
initially deposited in the Trust, except in accordance with the provisions of
the Trust Agreement. In the event of any amendment, the Trustee is obligated
to notify promptly all Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or
other disposition, as the case may be, of the last of the Securities. The
Trustee shall notify all Unit holders when the value of the Trust as shown by
any evaluation is less than $2,000,000 or less than 20% of the value of the
Trust as of the Date of Deposit, whichever is lower, at which time the Trust
may be terminated (i) by the consent of the holders of 66-2/3% of the Units or
(ii) by the Trustee; provided, however, that the holders of at least 33-1/3%
of the Units may instruct the Trustee not to terminate the Trust. In no event,
however, may the Trust continue beyond the Mandatory Termination Date set
forth in Part I of this Prospectus under "Summary of Essential Financial
Information"; provided, however, as to Series 9 and subsequent Series, that
prior to the Mandatory Termination Date the Trustee shall not dispose of any
Bonds if the retention of such Bonds, until due, shall be deemed to be in the
best interest of the Unit holders of the affected Trust. In the event of
termination, written notice thereof will be sent by the Trustee to all Unit
holders. Within a reasonable period after termination, the Trustee will sell
any remaining Securities and, after paying all expenses and charges incurred
by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
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LEGAL OPINIONS
Certain legal matters have been passed upon by Hall, McNicol,
Hamilton & Clark, The News Building, 220 East 42nd Street, New York, New York
10017, as counsel for the Sponsors as to Series 1 through 8, by Brown & Wood,
One World Trade Center, New York, New York 10048, as special counsel for the
Sponsors as to Series 9 through 64 and by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022 as special counsel for the Sponsors as to
Series 65 and subsequent Series of Empire State Municipal Exempt Trust,
Guaranteed Series. Tanner, Propp, Fersko & Sterner, 99 Park Avenue, New York,
New York 10016, acts as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of this
Prospectus for the period ended October 31, 1995 have been audited by
Goldstein Golub Kessler & Company, P.C., independent certified public
accountants, and for the periods ended July 31, 1994 and July 31, 1993 have
been audited by BDO Seidman, LLP, independent certified public accountants, as
stated in their reports with respect thereto, and are included therein in
reliance upon such reports given upon the authority of these firms as experts
in accounting and auditing.
DESCRIPTION OF BOND RATINGS
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees. The bond rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as
to the timely payment of interest and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditors' rights.
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.
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A: Bonds rated "A" have a strong capacity to pay interest
and repay principal, although they are somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures
to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications
of credit quality, the ratings from "AA" to "B" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
Provisional Ratings: The letter "p" indicates that the
rating is provisional. A provisional rating assumes the successful
completion of the project being financed by the bonds being rated and
indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of the
project. This rating, however, while addressing credit quality
subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such
completion. Accordingly, the investor should exercise his own
judgment with respect to such likelihood and risk.
NR: Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that
Standard & Poor's does not rate a particular type of obligation as a
matter of policy.
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's Investors Service, Inc. ("Moody's") rating. A summary of the meaning
of the applicable rating symbols as published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes 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
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generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in
"Aaa" securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium
grade obligations; i.e, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have
speculative elements; their future cannot be considered as well
assured. Often the protection of interest and principal payments may
be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B: Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any long
period of time may be small.
Con.(...): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers "1," "2" and "3" in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier "1" indicates that the security ranks in the higher end of its
generic rating category; the modifier "2" indicates a mid-range ranking; and
the modifier "3" indicates that the security ranks in the lower end of its
generic rating category.
- 50 -
319624.1
<PAGE>
<TABLE>
<S> <C>
This Prospectus contains information concerning the Trust
and the Sponsors, but does not contain all the information
set forth in the registration statements statements and EMPIRE STATE
exhibits relating thereto, which the trust has filed with MUNICIPAL EXEMPT TRUST
the Securities and Exchange Commission, Washington, D.C.
under the Securities Act of 1933 and the Investment
Company Act of 1940, and to which reference is hereby
GUARANTEED SERIES made.
- ----------------------------------------------------------
PROSPECTUS, PART II
INDEX
- ----------------------------------------------------------
Page Sponsors:
THE TRUST.............................................. 1
GLICKENHAUS & CO.
PUBLIC OFFERING........................................ 22 6 East 43rd Street
New York, New York 10017
ESTIMATED CURRENT RETURN AND ESTIMATED (212) 953-7532
LONG-TERM RETURN TO UNIT HOLDERS................... 24
INSURANCE ON THE BONDS................................. 25 LEBENTHAL & CO., INC.
120 Broadway
TAX STATUS............................................. 28 New York, New York 10271
(212)425-6116
RIGHTS OF UNIT HOLDERS................................. 35
AUTOMATIC ACCUMULATION ACCOUNT......................... 42
SPONSORS............................................... 43
TRUSTEE................................................ 45
EVALUATOR.............................................. 46
AMENDMENT AND TERMINATION OF THE TRUST
AGREEMENT.......................................... 47
LEGAL OPINIONS......................................... 48
AUDITORS............................................... 48
DESCRIPTION OF BOND RATINGS............................ 48
- ----------------------------------------------------------
No person is authorized to give any information or to make
any representations not contained in this Prospectus and
any information or representation not contained herein
must not be relied upon as having been authorized by the
Trust or the Sponsors. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy,
securities in any state to any person to whom it is not
lawful to make such offer in such state.
- ----------------------------------------------------------
</TABLE>
319624.1
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus.
Signatures.
Written Consent of the following persons:
Consents of Independent Auditors.
Consent of Counsel (previously filed)
Consent of the Evaluator including Confirmation of Ratings (included in
Exhibit 99.5.1).
The following exhibits:
*99.5.1 -- Consent of the Evaluator including Confirmation of Ratings.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 33-64155 of Glickenhaus Value
Portfolios, The 1996 Equity Collection on November 13, 1995,
and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 6.2 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-55385 of Empire State Municipal Exempt Trust, Guaranteed
Series 109 on November 2, 1994, and incorporated herein by
reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-1
C/M: 10726.0053 332359.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 78 and
Guaranteed Series 79 certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 22nd day of January, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 78
AND GUARANTEED SERIES 79
(Registrants)
GLICKENHAUS & CO.
(Depositor)
By: Brian C. Laux
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
Name Title Date
ROBERT SANTORO* General Partner )
)
ALFRED FEINMAN* General Partner ) January 22, 1996
)
)
SETH M. GLICKENHAUS* General Partner )
) By:Brian C. Laux
STEVEN B. GREEN* General Partner, )Attorney-in-Fact*
Chief Financial Officer )
)
ARTHUR WINSTON* General Partner )
)
JEFFREY L. LEDERER* General Partner )
)
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to Form
S-6 Registration Statement No. 33-64155 of Glickenhaus Value Portfolios,
The 1996 Equity Collection on November 13, 1995.
II-2
C/M: 10726.0053 332359.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 78 and
Guaranteed Series 79 certify that they have met all of the requirements for
effectiveness of this Post-Effective Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933. The registrants have
duly caused this Post-Effective Amendment to the Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 22nd day of January, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 78
AND GUARANTEED SERIES 79
(Registrants)
LEBENTHAL & CO., INC.
(Depositor)
By: D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below
by the following persons, in the capacities and on the dates indicated.
Name Title Date
H. GERARD BISSINGER, II* Director )
) January 22, 1996
JEFFREY M. JAMES* Director )
)
D. WARREN KAUFMAN* Director )
) By: D. Warren Kaufman
ALEXANDRA LEBENTHAL* Director, President ) Attorney-in-Fact*
)
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
II-3
C/M: 10726.0053 332359.1
<PAGE>
CONSENT OF COUNSEL
The consent of Battle Fowler LLP to the use of their name in the
Prospectus included in the Registration Statement is contained in their
opinion filed previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 78 AND GUARANTEED SERIES 79
We hereby consent to the use in Post-Effective Amendment No. 5 to
Registration Statement No. 33-40724 of our report dated December 29, 1995
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 78 and Guaranteed Series 79 and to the reference to our firm
under the heading "Auditors" in the Prospectus which is a part of such
Registration Statement.
GOLDSTEIN GOLUB KESSLER
& COMPANY, P.C.
New York, New York
January 31, 1996
II-4
C/M: 10726.0053 332359.1
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Sponsors, Trustee and Unit Holders Of Empire State Municipal Exempt
Trust, Guaranteed Series 78 and Guaranteed Series 79
We hereby consent to incorporation by reference in the Prospectus constituting
a part of this Registration Statement No. 33-40724 of our report dated October
31, 1994, relating to the statement of net assets of Empire State Municipal
Exempt Trust, Guaranteed Series 78 and Guaranteed Series 79, appearing in
Amendment No. 5 to Form S-6 dated January 29, 1996.
BDO Seidman, LLP
New York, New York
January 29, 1996
II-5
C/M: 10726.0053 332359.1
<PAGE>
Exhibit Description Page No.
*99.5.1 -- Consent of the Evaluator including
Confirmation of Ratings.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Amendment
No. 1 to Form S-6 Registration Statement No. 33-
58492 of Empire State Municipal Exempt Trust,
Guaranteed Series 95 on May 12, 1993, and as Exhibit
5.2(a) to Amendment No. 1 to Form S-6 Registration
Statement No. 33-78036 of MINT Group 11 on May 3,
1994, and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and
certain officers of Lebenthal & Co., Inc. (filed as
Exhibit 6.2 to Amendment No. 1 to Form S-6
Registration Statement No. 33-55385 of Empire State
Municipal Exempt Trust, Guaranteed Series 109 on
November 2, 1994, and incorporated herein by
reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
C/M: 10726.0053 332359.1
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000877599
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 78
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<INVESTMENTS-AT-COST> 13519040
<INVESTMENTS-AT-VALUE> 15081419
<RECEIVABLES> 266156
<ASSETS-OTHER> 98194
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15445769
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233211
<TOTAL-LIABILITIES> 233211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 13602
<SHARES-COMMON-PRIOR> 15149
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 361184
<ACCUM-APPREC-OR-DEPREC> 1562379
<NET-ASSETS> 15212558
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1017920
<OTHER-INCOME> 0
<EXPENSES-NET> 72373
<NET-INVESTMENT-INCOME> 945547
<REALIZED-GAINS-CURRENT> 91517
<APPREC-INCREASE-CURRENT> 268968
<NET-CHANGE-FROM-OPS> 1306032
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 981407
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1547
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1322637)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1091.50
<PER-SHARE-NII> 66.07
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 65.49
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1118.41
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000877598
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 79
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<INVESTMENTS-AT-COST> 9594480
<INVESTMENTS-AT-VALUE> 10699807
<RECEIVABLES> 190894
<ASSETS-OTHER> 68034
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10958744
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2368
<TOTAL-LIABILITIES> 2368
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 10242
<SHARES-COMMON-PRIOR> 10767
<ACCUMULATED-NII-CURRENT> 248075
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1105327
<NET-ASSETS> 10956376
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 714607
<OTHER-INCOME> 0
<EXPENSES-NET> 58713
<NET-INVESTMENT-INCOME> 655894
<REALIZED-GAINS-CURRENT> 63030
<APPREC-INCREASE-CURRENT> 246787
<NET-CHANGE-FROM-OPS> 965711
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 699137
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 141460
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 525
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (380968)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 1052.97
<PER-SHARE-NII> 61.78
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 61.85
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1069.75
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
MULLER DATA CORPORATION
A Thomson Financial Services Company
395 Hudson Street
New York, NY 10014-3622
(212) 807-3800
January 31, 1996
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series No. 78 - Post -effective Amendment No. 5
Guaranteed Series No. 79 - Post -effective Amendment No. 5
Gentlemen :
We have examined the post-effective Amendment to the Registration Statement File
No. 33-40724 for the above captioned trust(s). We hereby acknowledge that Muller
Data Corporation is currently acting as the evaluator for the trust (s) . We
hereby consent to the uses in the Amendment of the reference to Muller Data
Corporation as evaluator .
In addition , we hereby confirm that the ratings indicated in the reference
Amendment to the Registration Statement for the respective bonds comprising the
trust (s) portfolios are the ratings currently indicated in our Muniview data
base
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
- ---------------
Mario S. Buscemi
Chief Operating Officer
MSB:tg
