As filed with the Securities and Exchange Commission on September 27, 1995
Registration No. 33-45509*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
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 85 AND
GUARANTEED SERIES 86
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
Glickenhaus & Co. Lebenthal & Co., Inc.
6 East 43rd Street 120 Broadway
New York, NY 10017 New York, NY 10271
Copy of comments to:
MICHAEL R. ROSELLA, ESQ.
Battle Fowler LLP
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 September 29, 1995 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 85 and Guaranteed Series 86
covered by prospectuses heretofore filed as part of separate registration
statements on Form S-6 (Registration Nos. 33-45509 and 33-48319,
respectively) under the Act.
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 85
AND GUARANTEED SERIES 86
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> <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 85
Prospectus, Part I 11,541 Units Dated: September 29, 1995
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of June 30, 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 May 31, 1995. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of 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.
C/M 10726.0053 300050.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 85
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 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: $11,525,000
Number of Units: 11,541
Fractional Undivided Interest in the Trust Per Unit: 1/11,541
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $11,498,419.00
==============
Sponsors' Repurchase Price Per Unit: $996.31
Plus Sales Charge(1): 41.55
Public Offering Price Per Unit(2): $1,037.86
Redemption Price Per Unit(3): $996.31
Excess of Public Offering Price Over Redemption
Price Per Unit: $41.55
Weighted Average Maturity of Bonds in the Trust: 23.886 years
Evaluation Time: 2:00 p.m., New York Time, on the
day next following receipt by a
Sponsor of an order for a Unit
sale or purchase or by the
Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $35,753
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: June 23, 1992
Date of Trust Agreement: June 23, 1992
Mandatory Termination Date: December 31, 2041
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
-2-
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 85
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1995
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $ 65.00 $ 65.00
Less Annual Premium on Portfolio Insurance 3.09 3.09
E Less Estimated Annual Expenses 1.68 1.18
----- -----
R Estimated Net Annual Interest Income: $ 60.23 $ 60.73
======= =======
U Estimated Interest Distribution: $5.01 $ 30.36
N Estimated Current Return Based on Public
Offering Price (4): 5.80% 5.85%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.45% 5.49%
Estimated Daily Rate of Net Interest
Accrual: $.16730 $.16869
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- ----------------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in Part
II of this Prospectus.
2. Plus accrued interest to July 6, 1995, the expected date of settlement, of
$13.32 monthly and $18.38 semi- annually.
3. Based solely upon the bid side evaluations of the portfolio securities. Upon
tender for redemption, the price to be paid will include accrued interest as
described in Part II under "Rights of Unit Holders -- Redemption --
Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net annual
interest income received in cash per Unit by the Public Offering Price.
Interest income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual
only, does not include discount accretion on original issue discount bonds
or on zero coupon bonds or premium amortization on bonds purchased at a
premium. See "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes into
account the yields (including accretion of discounts and amortization of
premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part II of this
Prospectus.
-3-
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<PAGE>
Portfolio Information
On May 31, 1995, the bid side valuation of 14.0% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
86.0% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
The Portfolio consists of 8 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. 25.6% 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. 74.4% of the aggregate principal amount of the
Bonds in the Portfolio are payable from the income of specific projects or
authorities and are not supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one source, the
primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: General Obligation, 2 (25.6%); Revenue:
Housing, 1 (20.6%); Health Care, 2 (11.0%); Water and Sewer, 1 (17.1%);
Transportation, 1 (8.3%); and Other, 1 (17.4%). The Trust is deemed to be
concentrated in the General Obligation Bonds category.1 Three issues,
constituting 33.9% of the Bonds in the Portfolio, are original issue discount
bonds, of which one is a zero coupon bond. On May 31, 1995, 3 issues (27.8%)
were rated AAA, 1 issue (20.6%) was rated AA and 2 issues (25.6%) were rated A-
by Standard & Poor's Corporation; 1 issue (17.3%) was rated A1 by Moody's
Investors Service, Inc.2 One issue was partially refunded. The partially
refunded portion (4.5%) is rated AAA and the remaining portion (4.2%) is 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 "Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part II of this Prospectus.
- ----------------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
-4-
C/M 10726.0053 300050.1
<PAGE>
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on a
sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. In the case of Bonds acquired at a market
discount, gain will be treated as ordinary income to the extent of accrued
market discount. For tax years beginning after December 31, 1992, long-term
capital gains will be taxed at a maximum federal income tax rate of 28%, while
ordinary income will be taxed at a maximum federal income tax rate of 36% (plus
a 10% surtax applicable to certain high income taxpayers).
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<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------------------------
----------------------------------------------
The Sponsors, Trustee and Unit Holders of Empire State Municipal
Exempt Trust, Guaranteed Series 85:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 85, including the bond portfolio, as
of May 31, 1995, and the related statements of operations and changes in net
assets for the years ended May 31, 1995 and May 31, 1994. These financial
statements are the responsibility of the Sponsors. 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 May 31, 1995, by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Sponsors, as well as evaluating the overall
financial statement presentation. We believe that our 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 85 as of May 31, 1995, and the results of its
operations and changes in net assets for the year ended May 31, 1995 and May 31,
1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
June 30, 1995
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 85
STATEMENT OF NET ASSETS
MAY 31, 1995
---------------------------------------------------------
---------------------------------------------------------
CASH ...................................... $85 646
INVESTMENTS IN SECURITIES, at market value
(cost $11,087,387)......................... 11 625 769
ACCRUED INTEREST RECEIVABLE..................... 271 233
--------
Total trust property.................. 11 982 648
LESS - ACCRUED EXPENSES......................... 1 708
------
NET ASSETS...................................... $11 980 940
===========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS................... $5 795 531 $5 836 804 $11 632 335
UNDISTRIBUTED NET INVESTMENT
INCOME...................... 100 308 248 297 348 605
-------- -------- --------
Total value.......... $5 895 839 $6 085 101 $11 980 940
========== ========== ===========
UNITS OUTSTANDING............... 5 757 5 798 11 555
====== ====== =======
VALUE PER UNIT.................. $1 024.11 $1 049.51
========= =========
See accompanying notes to financial statements.
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 85
STATEMENTS OF OPERATIONS
---------------------------------------------------------
---------------------------------------------------------
Year ended
May 31,
------------------------------
1995 1994
--------- ---------
INVESTMENT INCOME - INTEREST.............. $756 736 $769 779
-------- --------
EXPENSES:
Trustee fees ........................... 10 046 9 853
Evaluation fees.......................... 1 490 1 147
Sponsors' advisory fees.................. 2 910 2 883
Insurance premiums....................... 35 777 35 886
Auditors' fees........................... 1 800 1 800
------ ------
Total expenses....................... 52 023 51 569
------- -------
NET INVESTMENT INCOME..................... 704 713 718 210
REALIZED GAIN ON SECURITIES SOLD
OR REDEEMED (Note 4)..................... 4 436 21 090
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION).............. 79 214 (405 760)
------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS............................... $788 363 $333 540
======== ========
See accompanying notes to financial statements.
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 85
STATEMENTS OF CHANGES IN NET ASSETS
----------------------------------------------------------
----------------------------------------------------------
Year ended
May 31,
----------------------------
1995 1994
------------ ---------
OPERATIONS:
Net investment income........................... $704 713 $718 210
Realized gain on securities sold or redeemed.... 4 436 21 090
Net change in unrealized market appreciation
(depreciation)................................ 79 214 (405 760)
------- ---------
Net increase in net assets resulting
from operations................... 788 363 333 540
-------- --------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income........................... (706 775) (722 616)
Principal....................................... (18 821) -
-------- --------
Total distributions......................... (725 596) (722 616)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Redemption of 135 and 310 units................. (132 799) (325 428)
--------- ---------
NET DECREASE IN NET ASSETS....................... (70 032) (714 504)
NET ASSETS:
Beginning of year............................... 12 050 972 12 765 476
----------- -----------
End of year ............................... $11 980 940 $12 050 972
=========== ===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan ............................... $60.33 $60.36
Semi-annual plan.............................. $60.89 $60.92
Principal:
Monthly plan ............................... $ 1.61 -
Semi-annual plan.............................. $ 1.61 -
See accompanying notes to financial statements.
-9-
C/M 10726.0053 300050.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 85
NOTES TO FINANCIAL STATEMENTS
---------------------------------------------------------
---------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
General
The Trust is registered under the Investment Company Act of 1940.
Securities
Securities transactions are recorded on a settlement date basis which
does not differ materially from the trade date. Securities are stated at bid
side market value as determined by an independent outside evaluator.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit holders either
semi-annually on the first day of June and December or, if elected by the Unit
holder, on the first day of each month, after deducting applicable expenses. No
principal distributions, resulting from the sale or redemption of securities,
were made for the year ended May 31, 1995.
<TABLE>
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port-
folio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Gain
- ---- --------- -------- ---------------------------------------- ------------ ------------ ------
Year ended May 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
2 $20 000 6/20/94 New York City Municipal Water $20 940 $19 980 $960
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 15 000 8/29/94 New York City Municipal Water 15 450 14 985 465
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 $10 000 12/9/94 New York City Municipal Water $10 056 $9 990 $66
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 15 000 1/24/95 New York City Municipal Water 15 225 14 985 240
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 25 000 2/28/95 New York City Municipal Water 25 795 24 975 820
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 10 000 4/28/95 New York City Municipal Water 10 235 9 990 245
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
2 40 000 5/19/95 New York City Municipal Water 41 600 39,960 1 640
Finance Authority, Water and
Sewer System Revenue Bonds,
Fiscal 1993 Series C (AMBAC
Insured)
$135 000 $139 301 $134 865 $4 436
======== ======== ======== ======
</TABLE>
NOTE 4 - NET ASSETS
Cost of 12,000 units at Date of Deposit $12 140 395
Less gross underwriting commission 594 720
--------
Net cost - initial offering price 11 545 675
Realized net loss on securities sold or redeemed 25 326
Principal distributions (18 821)
Redemption of 445 units (458 227)
Unrealized market appreciation of securities 538 382
Undistributed net investment income 348 605
--------
Net assets $11 980 940
===========
C/M 10726.0053 300050.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 85
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1995
----------------------------------------------------
----------------------------------------------------
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ----- -------- -------- ------------------ ------ -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $960 000 Metropolitan 5.500% 07/01/22 07/01/19 @ 100 S.F.
Transportation 07/01/02 @ 100 Opt.
Authority,
Transit
Facilities
Revenue Bonds,
Series J
(FGIC Insured)
2 AAA 1 975 000 New York City 6.500 06/15/21 No Sinking Fund
Municipal Water 06/15/97 @ 101.5 Opt.
Finance
Authority, Water
and Sewer System
Revenue Bonds,
Fiscal 1993
Series C (AMBAC
Insured)
3 AAA 275 000 Dormitory 7.400 08/01/30 02/01/08 @ 100 S.F.
Authority of the 08/01/01 @ 102 Opt.
State of New York,
St. Vincent's
Hospital and
Medical Center of
New York, FHA-
Insured Mortgage
Revenue Bonds,
Series 1991
4 AA 2 380 000 New York State 7.000 08/15/22 02/15/13 @ 100 S.F.
Housing Finance 08/15/02 @ 102 Opt.
Agency, Insured
Multi-Family
Mortgage Housing
Revenue Bonds,
1993 Series A
5 A1* $2 000 000 Triborough 6.875% 01/01/15 01/01/11 @ 100 S.F
Bridge and Tunnel 01/01/01 @ 102 Opt.
Authority, Special
Obligation
Refunding Bonds,
Series 1991B
6 A- 2 300 000 The City of New 7.500 08/01/20 No Sinking Fund
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series C
7 A- 650 000 The City of New 0.000 06/01/20 No Sinking Fund
York, General No Optional Call
Obligation Bonds,
Principal New York
CitySavers,
Fiscal 1991
Series B
8a BBB+ 480 000 New York State 7.300 02/15/21 02/15/12 @ 100 S.F.
Medical Care 08/15/01 @ 102 Opt.
Facilities
Finance Agency,
Mental Health
Services
Facilities
Improvement
Revenue Bonds,
1991 Series C
8b AAA $520 000 New York State 7.300% 02/15/21 02/15/12 @ 100 S.F.
Medical Care 08/15/01 @ 102 Opt.
Facilities
Finance Agency,
Mental Health
Services
Facilities
Improvement
Revenue Bonds,
1991 Series C
$11 540 000
===========
</TABLE>
<PAGE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds May 31, Income to
No. to Trust 1995 Trust
- ----- -------- ------------- -------
1 $852 000 $909 590 $52 800
2 1 973 025 2 036 970 128 375
3 291 225 299 239 20 350
4 2 427 600 2 504 736 166 600
5 $2 036 000 $2 168 820 $137 500
6 2 380 500 2 465 738 172 500
7 89 537 129 272 -
8a 498 000 509 650 35 040
8b $539 500 $601 754 $37 960
$11 087 387 $11 625 769 $751 125
=========== =========== ========
<PAGE>
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings
are by Standard & Poor's Corporation, except for those indicated by
an asterisk (*), which are by Moody's Investors Service. Certain bond
ratings have changed since the Date of Deposit, at which time all
such bonds were rated A or better by either Standard & Poor's
Corporation or Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund
(mandatory partial redemption) (S.F.) or at the stated optional call
(at the option of the issuer) (Opt.) or by refunding. Certain bonds
in the portfolio may be redeemed earlier than dates shown in whole or
in part under certain unusual or extraordinary circumstances as
specified in the terms and provisions of such bonds. Single-family
mortgage revenue bonds and housing authority bonds are most likely to
be called subject to such provisions, but other bonds may have
similar call features.
C/M 10726.0053 300050.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
Prospectus, Part I 11,957 Units Dated: September 29, 1995
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of June 30, 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 May 31, 1995. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of 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.
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 86
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 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: $11,930,000
Number of Units: 11,957
Fractional Undivided Interest in the Trust Per Unit: 1/11,957
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $11,637,780.16
==============
Sponsors' Repurchase Price Per Unit: $973.30
Plus Sales Charge(1): 49.04
Public Offering Price Per Unit(2): $1,022.34
Redemption Price Per Unit(3): $973.30
Excess of Public Offering Price Over Redemption
Price Per Unit: $49.04
Weighted Average Maturity of Bonds in the Trust: 25.142 years
Evaluation Time: 2:00 p.m., New York Time, on the
day next following receipt by a
Sponsor of an order for a Unit
sale or purchase or by the
Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $7,258
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: July 15, 1992
Date of Trust Agreement: July 15, 1992
Mandatory Termination Date: December 31, 2041
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000
-2-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 86
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1995
(Continued)
Monthly Semi-annual
P Estimated Annual Interest Income: $60.97 $60.97
Less Annual Premium on Portfolio Insurance .61 .61
E Less Estimated Annual Expenses 1.68 1.18
----- -----
R Estimated Net Annual Interest Income: $58.68 $59.18
====== ======
U Estimated Interest Distribution: $4.89 $29.59
N Estimated Current Return Based on Public
Offering Price (4): 5.74% 5.79%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.57% 5.62%
Estimated Daily Rate of Net Interest
Accrual: $.16300 $.16438
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- ----------------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in Part
II of this Prospectus.
2. Plus accrued interest to July 6, 1995, the expected date of settlement, of
$11.23 monthly and $16.15 semi- annually.
3. Based solely upon the bid side evaluations of the portfolio securities. Upon
tender for redemption, the price to be paid will include accrued interest as
described in Part II under "Rights of Unit Holders -- Redemption --
Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net annual
interest income received in cash per Unit by the Public Offering Price.
Interest income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator, and with the redemption, maturity, exchange or
sale of Securities. This calculation, which includes cash income accrual
only, does not include discount accretion on original issue discount bonds
or on zero coupon bonds or premium amortization on bonds purchased at a
premium. See "Tax Status" and "Estimated Current Return and Estimated
Long-Term Return to Unit Holders" in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes into
account the yields (including accretion of discounts and amortization of
premiums) of the individual Bonds in the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated Current
Return and Estimated Long-Term Return to Unit Holders" in Part II of this
Prospectus.
-3-
C/M 10726.0053 300055.1
<PAGE>
Portfolio Information
On May 31, 1995, the bid side valuation of 18.6% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par and
81.4% was at a premium over par. See Note (B) to "Tax-Exempt Bond Portfolio" for
information concerning call and redemption features of the Bonds.
Special Factors Concerning the Portfolio
The Portfolio consists of 10 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. 5.0% of the aggregate principal amount of the Bonds in the Portfolio
are general obligations of the governmental entities issuing them and are backed
by the taxing power thereof. .5% of the aggregate principal amount of the Bonds
in the Portfolio are payable from appropriations. 94.5% of the aggregate
principal amount of the Bonds in the Portfolio are payable from the income of
specific projects or authorities and are not supported by the issuers' power to
levy taxes.
Although income to pay such Bonds may be derived from more than one source, the
primary sources of such income, the number of issues (and the related dollar
weighted percentage of such issues) deriving income from such sources and the
purpose of issue are as follows: General Obligation, 1 (5.0%); Appropriations, 1
(.5%); Revenue: Housing, 2 (22.3%); Higher Education, 1 (4.2%); Health Care, 1
(20.1%); Water and Sewer, 1 (10.5%); Transportation, 2 (17.3%); and Special Tax,
1 (20.1%). The Trust is not deemed to be concentrated in any particular category
of Bonds.1 Seven issues, constituting 57.6% of the Bonds in the Portfolio, are
original issue discount bonds, of which two are zero coupon bonds. On May 31,
1995, 7 issues (80.0%) were rated AAA, 1 issue (10.8%) was rated AA, 1 issue
(5.0%) was rated A-, and 1 issue (4.2%) was 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 "Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable from
gross income under the Internal Revenue Code of 1986, as amended. See "The Trust
- -- Portfolio" in Part II of this Prospectus.
- ----------------------------
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust -- General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part II
of this Prospectus.
-4-
C/M 10726.0053 300055.1
<PAGE>
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on a
sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in market
value as they approach maturity when the principal amount is payable, thus
increasing the potential for taxable gain (or reducing the potential for loss)
on their redemption, maturity or sale. In the case of Bonds acquired at a market
discount, gain will be treated as ordinary income to the extent of accrued
market discount. For tax years beginning after December 31, 1992, long-term
capital gains will be taxed at a maximum federal income tax rate of 28%, while
ordinary income will be taxed at a maximum federal income tax rate of 36% (plus
a 10% surtax applicable to certain high income taxpayers).
-5-
C/M 10726.0053 300055.1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------------------------
----------------------------------------------
The Sponsors, Trustee and Unit Holders of Empire State Municipal
Exempt Trust, Guaranteed Series 86:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 86, including the bond portfolio, as
of May 31, 1995, and the related statements of operations and changes in net
assets for the years ended May 31, 1995 and 1994. These financial statements are
the responsibility of the Sponsors. Our responsibility is to express an opinion
on these financial statements based on our 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 May 31, 1995, by correspondence with the
Trustee. An audit also includes assessing the accounting principles used and
significant estimates made by the Sponsors, as well as evaluating the overall
financial statement presentation. We believe that our 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 86 as of May 31, 1995, and the results of its
operations and changes in net assets for the years ended May 31, 1995 and 1994,
in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
June 30, 1995
-6-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
STATEMENT OF NET ASSETS
MAY 31, 1995
---------------------------------------------------------
---------------------------------------------------------
CASH................................................. $56 323
INVESTMENTS IN SECURITIES, at market value
(cost $11,538,888)......................... 11 747 914
ACCRUED INTEREST RECEIVABLE.......................... 263 425
--------
Total trust property....................... 12 067 662
LESS - ACCRUED EXPENSES.............................. 1 918
------
NET ASSETS........................................... $12 065 744
===========
NET ASSETS REPRESENTED BY:
Monthly Semi-annual
distribution distribution
plan plan Total
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS...................... $6 756 642 $5 000 878 $11 757 520
UNDISTRIBUTED NET INVESTMENT
INCOME......................... 104 829 203 395 308 224
-------- -------- --------
Total value............. $6 861 471 $5 204 273 $12 065 744
========== ========== ===========
UNITS OUTSTANDING.................. 6 873 5 087 11 960
====== ====== =======
VALUE PER UNIT..................... $998.32 $1 023.05
======= =========
See accompanying notes to financial statements.
-7-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
STATEMENTS OF OPERATIONS
---------------------------------------------------------
---------------------------------------------------------
Year ended
May 31,
-----------------------------
1995 1994
----------- -----
INVESTMENT INCOME - INTEREST..................... $729 955 $732 259
-------- --------
EXPENSES:
Trustee fees .................................. 11 021 10 532
Evaluation fees................................. 1 661 1 548
Insurance premiums.............................. 7 258 7 265
Sponsors' advisory fees......................... 2 990 2 993
Auditor's fees.................................. 1 800 1 800
------ ------
Total expenses.............................. 24 730 24 138
------- -------
NET INVESTMENT INCOME............................ 705 225 708 121
REALIZED LOSS ON SECURITIES SOLD
OR REDEEMED (Note 4)............................ (1 050) (1 350)
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION)..................... 338 164 (564 618)
-------- ---------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS......................................$1 042 339 $142 153
========== ========
See accompanying notes to financial statements.
-8-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
STATEMENTS OF CHANGES IN NET ASSETS
---------------------------------------------------------
---------------------------------------------------------
Year ended
May 31,
---------------------------
1995 1994
------------ ---------
OPERATIONS:
Net investment income........................... $705 225 $708 121
Realized loss on securities
sold or redeemed.............................. (1 050) (1 350)
Net change in unrealized market
appreciation (depreciation)................... 338 164 (564 618)
-------- ---------
Net increase in net assets resulting
from operations........................ 1 042 339 142 153
---------- --------
DISTRIBUTIONS TO UNIT HOLDERS:
Net investment income........................... (705 916) (708 554)
Principal....................................... - (15 000)
--------- --------
Total distributions.................... (705 916) (723 554)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Redemption of 37 and 3 units.................... (34 757) (3 057)
-------- -------
NET INCREASE (DECREASE) IN NET ASSETS.............. 301 666 (584 458)
NET ASSETS:
Beginning of period............................. 11 764 078 12 348 536
----------- -----------
End of period................................... $12 065 744 $11 764 078
=========== ===========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan.................................. $58.70 $58.76
Semi-annual plan.............................. $59.25 $59.34
Principal:
Monthly plan.................................. $- $1.25
Semi-monthly plan............................. $- $1.25
See accompanying notes to financial statements.
-9-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
NOTES TO FINANCIAL STATEMENTS
---------------------------------------------------------
---------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
General
The Trust is registered under the Investment Company Act of 1940.
Securities
Securities transactions are recorded on a settlement date basis which
does not differ materially from the trade date. Securities are stated at bid
side market value as determined by an independent outside evaluator.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit holders either
semi-annually on the first day of June and December or, if elected by the Unit
holder, on the first day of each month, after deducting applicable expenses. No
principal distributions, resulting from the sale or redemption of securities,
were made in the year ended May 31, 1995.
<TABLE>
NOTE 3 - BONDS SOLD OR REDEEMED
<CAPTION>
Port-
folio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Loss
- ---- --------- -------- ---------------------------------------- ------------ ------------ -------
Year ended May 31, 1995:
<S> <C> <C> <C> <C> <C> <C>
5 $30 000 6/20/94 Metropolitan Transportation Authority, $27 420 $27 720 $(300)
Commuter Facilities Revenue Bonds,
Series 1992A (MBIA Insured)
1 10 000 1/1/95 Lillian Cooper Housing Development 10 000 10 750 (750)
Corporation, Mortgage Revenue
Refunding Bonds, Series 1992B, FHA
Insured Mortgage Loan - Macartovin
Apartments Section 8 Assisted Project
(MBIA Insured)
$40 000 $37 420 $38 470 $(1 050)
======= ======= ======= =======
</TABLE>
-10-
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
NOTES TO FINANCIAL STATEMENTS
(Concluded)
---------------------------------------------------------
---------------------------------------------------------
NOTE 4 - NET ASSETS
Cost of 12,000 units at Date of Deposit $12 201 653
Less gross underwriting commission (597 720)
---------
Net cost - initial offering price 11 603 933
Realized net loss on securities sold or redeemed (2 625)
Principal distribution (15 000)
Redemption of 40 units (37 814)
Unrealized market appreciation of securities 209 026
Undistributed net investment income 308 224
--------
Net assets $12 065 744
===========
-11-
C/M 10726.0053 300055.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1995
----------------------------------------------------
----------------------------------------------------
<CAPTION>
Redemption Features
Ant. - Anticipated
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ----- -------- -------- ------------------ ------ -------- --------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $1 375 000 Lillian Cooper 7.375% 01/01/24 No Sinking Fund
Housing Develop- 07/01/02 @ 100 Opt.
ment Corporation,
Mortgage Revenue
Refunding Bonds,
Series 1992B,
FHA Insured
Mortgage Loan-
Macartovin
Apartments
Section 8
Assisted Project
(MBIA Insured)
2 AAA 1 250 000 New York City 6.500 06/15/21 06/15/19 @ 100 S.F.
Municipal 06/15/97 @ 101.5 Opt.
Water Finance
Authority, Water
and Sewer System
Revenue Bonds,
Fiscal 1992
Series C (AMBAC
Insured)
3 AAA 1 000 000 Metropolitan 6.250 07/01/17 07/01/13 @ 100 S.F.
Transportation 07/01/02 @ 102 Opt.
Authority,
Commuter
Facilities
Revenue Bonds,
Series 1992B
(MBIA Insured)
4 AAA $2 395 000 Triborough Bridge 6.000% 01/01/19 01/01/17 @ 100 S.F.
and Tunnel 01/01/01 @ 100 Opt.
Authority,
Special
Obligation
Refunding Bonds,
Series 1991A
(MBIA Insured)
5 AAA 1 070 000 Metropolitan 5.500 07/01/17 01/01/13 @ 100 S.F.
Transportation 07/01/02 @ 100 Opt.
Authority,
Commuter
Facilities
Revenue Bonds,
Series 1992A
(MBIA Insured)
6 AAA 55 000 New York State 0.000 01/01/18 01/01/14 @ 73.069 S.F.
Urban Develop- 01/01/98 @ 21.453 Opt.
ment Corporation,
Correctional
Facilities
Revenue Bonds,
Series D
(AMBAC Insured)
7 AA 1 290 000 New York State 7.000 08/15/22 02/15/13 @ 100 S.F.
Housing Finance 08/15/02 @ 102 Opt.
Agency, Insured
Multi-Family
Mortgage Housing
Revenue Bonds,
1992 Series A
(MBIA Insured)
8 AAA $2 400 000 New York State 6.700% 08/15/23 02/15/02 @ 100 Ant.
Medical Care 08/15/02 @ 102 Opt.
Facilities Finance
Agency, Hospital
and Nursing Home
FHA-Insured Mortgage
Revenue Bonds, 1992
Series A
(MBIA Insured)
9 A- 600 000 The City of 0.000 06/01/20 No Sinking Fund
New York, No Optional Call
General
Obligation
Bonds,
Principal
New York
City Savers,
Fiscal 1991
Series B
10 BBB+ 500 000 Dormitory 6.125 05/15/20 05/01/19 @ 100 S.F.
Authority of 05/15/00 @ 100 Opt.
the State of
New York,
State University
Educational
Facilities
Revenue Bonds,
Series 1990C
$11 935 000
===========
</TABLE>
<PAGE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds May 31, Income to
No. to Trust 1995 Trust
- ----- ---------- --------------- -------
1 $1 478 125 $1 488 259 $101 406
2 1 268 750 1 289 811 81 250
3 1 005 000 1 028 490 62 500
4 $2 353 088 $2 410 591 $143 700
5 988 680 1 025 146 58 850
6 8 525 10 528 -
7 1 348 050 1 357 609 90 300
8 $2 508 000 $2 525 712 $160 800
9 97 170 119 328 -
10 483 500 492 440 30 625
$11 538 888 $11 747 914 $729 431
=========== =========== ========
C/M 10726.0053 300055.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 86
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1995
(Continued)
----------------------------------------------------
----------------------------------------------------
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings
are by Standard & Poor's Corporation, except for those indicated by an
asterisk (*), which are by Moody's Investors Service. Certain bond
ratings have changed since the Date of Deposit, at which time all such
bonds were rated A or better by either Standard & Poor's Corporation or
Moody's Investors Service.
(B) Bonds may be redeemable prior to maturity from a sinking fund
(mandatory partial redemption) (S.F.) or at the stated optional call
(at the option of the issuer) (Opt.) or by refunding. Certain bonds in
the portfolio may be redeemed earlier than dates shown in whole or in
part under certain unusual or extraordinary circumstances as specified
in the terms and provisions of such bonds. Single-family mortgage
revenue bonds and housing authority bonds are most likely to be called
subject to such provisions, but other bonds may have similar call
features.
C/M 10726.0053 300055.1
<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
C/M: 10726.0053 279831.2
<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 -
C/M: 10726.0053 279831.2
<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.
(1) New York City. The City, with a population of
approximately 7.3 million, is an international center of business and culture.
Its non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's total
employment earnings. Additionally, the City is the nation's leading tourist
destination. The City's manufacturing activity is conducted primarily in apparel
and publishing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, the City experienced job losses in 1990 and 1991 and real Gross
City Product (GCP) fell in those two years. In order to achieve a balanced
budget as required by the laws of the State for the 1992 fiscal year, the City
increased taxes and reduced services during the 1991 fiscal year to close a then
projected gap of $3.3 billion in the 1992 fiscal year which resulted from, among
other things, lower-than-projected tax revenue of approximately $1.4 billion,
reduced State aid for the City and greater-than-projected increases in legally
mandated expenditures, including public assistance and Medicaid expenditures.
Beginning in calendar year 1992, the improvement in the national economy helped
stabilize conditions in the City. Employment losses moderated toward year-end
and real GCP increased, boosted by strong wage gains. The City's current
four-year financial plan assumes that, after noticeable improvements in the
City's economy during calendar year 1994, economic growth will slow in calendar
years 1995 and 1996 with local employment increasing modestly. In December 1994,
the City experienced substantial shortfalls in payments of non-property tax
revenues from those
- 3 -
C/M: 10726.0053 279831.2
<PAGE>
forecasted. Through December 1994, collections of non-property taxes were
approximately $200 million lower than projected.
For each of the 1981 through 1994 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"), and the City's 1995 fiscal year results
are projected to be balanced in accordance with GAAP. The City was required to
close substantial budget gaps in recent years in order to maintain balanced
operating results. For fiscal year 1995, the City has adopted a budget which has
halted the trend in recent years of substantial increases in City spending from
one year to the next. There can be no assurance that the City will continue to
maintain a balanced budget as required by State law without additional tax or
other revenue increases or reductions in City services, which could adversely
affect the City's economic base.
Pursuant to the laws of the State, the City prepares an annual
four-year financial plan, which is reviewed and revised on a quarterly basis and
which includes the City's capital, revenue and expense projections and outlines
proposed gap-closing programs for years with projected budget gaps. The City is
required to submit its financial plans to review bodies, including the New York
State Financial Control Board ("Control Board"). If the City were to experience
certain adverse financial circumstances, including the occurrence or the
substantial likelihood and imminence of the occurrence of an annual operating
deficit of more than $100 million or the loss of access to the public credit
markets to satisfy the City's capital and seasonal financing requirements, the
Control Board would be required by State law to exercise powers, among others,
of prior approval of City financial plans, proposed borrowings and certain
contracts.
The City depends on the State for State aid both to enable the
City to balance its budget and to meet its cash requirements. There can be no
assurance that there will not be reductions in State aid to the City from
amounts currently projected or that State budgets in future fiscal years will be
adopted by the April 1 statutory deadline and that such reductions or delays
will not have adverse effects on the City's cash flow or expenditures.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 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 $9.3 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
City expects to issue $1.5 billion of revenue and
- 4 -
C/M: 10726.0053 279831.2
<PAGE>
tax anticipation notes on or about August 2, 1995 to finance a portion of its
seasonal working capital requirements for the 1996 fiscal year and expects to
issue approximately $900 million of additional revenue anticipation notes in
October, 1995 to finance the remainder of its seasonal working capital
requirements for the 1996 fiscal year. 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.
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 1906
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.S.
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 ar subject to approval by the Governor and State
Legislature.
- 5 -
C/M: 10726.0053 279831.2
<PAGE>
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
millon 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
would 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 obligations 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. ("Fitch") continues to rate the
City general obligation bonds A-. Moody's rating for City general obligation
bonds is Baa1.
- 6 -
C/M: 10726.0053 279831.2
<PAGE>
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. Subsequently, the city
reached agreement with all of its major bargaining units on terms which are
generally consistent with the coalition agreement. These agreements generally
are retroactive to the 1991 and 1992 fiscal years, and extend into the 1995
calendar year.
Contracts with all of the city's municipal unions either
expired in the 1955 fiscal year or will expire in the 1966 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 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 Financial Plan includes $600 million in the 1996 fiscal
year, $400 million in the 1997 fiscal year and $200 million in the 1998 fiscal
year for transitional savings initiatives developed in conjunction with the
municipal labor unions. On June 30, 1995, the city and union leadership
announced agreement of $440 million in such savings in the 1996 fiscal year,
$400 million in the 1997 fiscal year and $200 million in savings in the 1998
fiscal year. Most of the remaining savings for the 1996 fiscal year have been
committed to and are to be identified by October 1, 1995. Of the $440 million
that has been identified, $200 million will result from health program savings,
$150 million from reduced pension contributions, $50 million form a one-time
reduction of welfare fund contributions which will be paid by the City in fiscal
year 2000 and $40 million from payroll and fringe benefit savings associated
with early retirement.
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;
- 7 -
C/M: 10726.0053 279831.2
<PAGE>
(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.
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 initiatives 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 form 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,
indicated 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,
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$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 expenditures 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 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 development
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
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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
financing assistance to the City and also to exercise certain review functions
with respect to the City's finances. MAC bonds are payable out of certain State
sales and compensating use taxes imposed within the City, State stock transfer
taxes and per capita State aid to the City. Any balance from these sources after
meeting MAC debt service and reserve fund requirements and paying MAC's
operating expenses is remitted to the City or, in the case of the stock transfer
taxes, rebated to the taxpayers. The State is not, however, obligated to
continue the imposition of such taxes or to continue appropriation of the
revenues therefrom to MAC, nor is the State obligated to continue to appropriate
the State per capita aid to the City which would be required to pay the debt
service on certain MAC obligations. MAC has no taxing power and MAC bonds do not
create an enforceable obligation of either the State or the City. As of June 30,
1995, MAC had outstanding an aggregate of approximately $4.882 billion of its
bonds.
(2) New York State and its Authorities. The State's current
fiscal year commenced on April 1, 1995, and ends on March 31, 1996, and is
referred to herein as the State's 1995-96 fiscal year. The prior fiscal year,
which ended on March 31, 1995, is referred to herein as the State's 1994-95
fiscal year. The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1994-95 fiscal year was formulated on June 16, 1994 and
is based on the State's budget as enacted by the Legislature and signed into law
by then Governor Cuomo. On February 1, Governor Pataki presented his 1995-96
Executive Budget, containing his recommendations for the upcoming fiscal year.
The Governor's budget is balanced on a cash basis in the General Fund (described
below). However, there can be no assurance that the Legislature will enact the
proposed Executive Budget into law, that the budget will be adopted in a more
timely manner than the prior year's budget, or that actual results will not
differ materially and adversely from the projections set forth below.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State.
The State Financial Plan is based upon forecasts of national
and State economic activity. Economic forecasts have frequently failed to
predict accurately the timing and magnitude of changes in the national and the
State economies. Many uncertainties exist in forecasts of both the national and
State economies, including consumer attitudes toward spending, Federal financial
and monetary policies, the availability of credit, and the condition of the
world economy, which could have an adverse effect on the State. There can be no
assurance that the State economy will not experience results in the current
fiscal year that are worse than predicted, with corresponding material and
adverse effects on the State's projections of receipts and disbursements.
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The State Division of the Budget ("DOB") believes that its
projections of receipts and disbursements relating to the current Financial
Plan, and the assumptions on which they are based, are reasonable. Actual
results, however, could differ materially and adversely from the projections set
forth below, and those projections may be changed materially and adversely from
time to time.
As noted above, the financial condition of the State is
affected by several factors, including the strength of the State and regional
economy and actions of the Federal government, as well as State actions
affecting the level of receipts and disbursements. Owing to these and other
factors, the State may, in future years, face substantial potential budget gaps
resulting from a significant disparity between tax revenues projected from a
lower recurring receipts base and the future costs of maintaining State programs
at current levels. Any such recurring imbalance would be exacerbated if the
State were to use a significant amount of nonrecurring resources to balance the
budget in a particular fiscal year. To address a potential imbalance for a given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under the
State Constitution the Governor is required to propose a balanced budget each
year. To correct recurring budgetary imbalances, the State would need to take
significant actions to align recurring receipts and disbursements in future
fiscal years. There can be no assurance, however, that the State's actions will
be sufficient to preserve budgetary balance in a given fiscal year or to align
recurring receipts and disbursements in future fiscal years.
The General Fund is the general operating fund of the State
and is used to account for all financial transactions, except those required to
be accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1994-95 fiscal year, the General Fund is expected to account for
approximately 52 percent of total governmental-fund receipts and 51 percent of
total governmental-fund disbursements. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
As a result of the national and regional economic recession,
the State's tax receipts for its 1991 and 1992 fiscal years were substantially
lower than projected, which resulted in reductions in State aid to localities
for the State's 1992 and 1993 fiscal years from amounts previously projected.
The State completed its 1993 fiscal year with a positive margin of $671 million
in the General Fund, which was deposited into a tax refund reserve account. The
State's economy, as measured by employment, started to recover near the start of
the 1993 calendar year, continued into mid-1994 and then virtually ceased. The
state completed its 1994 fiscal year with a cash-basis balanced budget in the
State's General Fund (the major operating fund of the State), after depositing
$1.5 billion in various reserve funds.
The State's 1994-95 Financial Plan, which is based upon the
enacted State budget, projected a balanced General Fund. The State's 1994-95
Financial Plan provided the City with savings through various actions, which
include increased State education aid and State assumption of certain costs
previously paid by the City and restoration of certain prior year revenue
sharing reductions. However, the State Legislature failed to enact a substantial
portion of the proposed State assumption of local Medicaid costs, other
significant mandate relief items, and the proposed tort reform legislation,
which would have provided the City with additional savings. On February 1, 1995,
as part of his Executive Budget for the 1995-96 fiscal year, the Governor
submitted the third quarterly update to the State Financial Plan for the 1994-95
fiscal year. This update reflects changes to receipts and disbursements. The
update revises the projected General Fund receipts and
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disbursements contained in the 1994-95 State Financial Plan as revised by the
first and second quarterly updates issued on July 29, 1994 and October 28, 1994,
respectively. The update reflected that estimates of General Fund receipts for
the 1994-95 fiscal year have been reduced by $585 million, from the mid-year
update, and are down $1.058 billion from the budget enacted in June 1994 (of
which $227 million results from a post mid-year accounting restatement of the
State Financial Plan). Offsetting this projected loss in receipts, however, are
projected reductions of $312 million in disbursements from the mid-year update,
attributable to lower spending through the first nine months of the fiscal year,
and to the use of greater than anticipated receipts from the State lottery. The
net result of the projected reductions in receipts and disbursements is a
negative margin of $273 million against the mid-year update's projection of a
$14 million surplus, producing a potential deficit of $259 million for the
1994-95 fiscal year.
On June 7, 1995, the State adopted its budget for the State's
1996 fiscal year, commencing April 1, 1995. Prior to adoption of the budget the
State had projected a potential budget gap of approximately $5 billion for its
1996 fiscal year. This gap 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 programs, (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, State University of New York ("SUNY") and CUNY,
mental hygiene programs, capital projects, the prison system and fringe
benefits; (iii) $300 million in savings from local assistance reforms, including
actions affecting school aid and revenue sharing while proposing program
legislation to provide relief from certain mandates that increase local
spending; (iv) over $400 million in revenue measures, primarily a new Quick Draw
Lottery game, changes to tax payment schedules, and the sale of assets; and (v)
$300 million from reestimates in receipts.
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 1996 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
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 the 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. The State
Comptroller has stated that the State
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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.
In the State's 1996 fiscal year and in certain recent fiscal
years, the State has failed to enact a budget prior to the beginning of the
State's fiscal year. A delay in the adoption of the State's budget beyond the
statutory April 1 deadline could delay the projected receipt by the City of
State aid, and there can be no assurance that State budgets in future fiscal
years will be adopted by the April 1 statutory deadline.
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. Stand & 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, 1992, there were 18 authorities that had outstanding debt of
$100 million or more. The aggregate outstanding debt, including refunding bonds,
of these 18 authorities was $63.5 billion as of September 30, 1993. As of March
31, 1994, aggregate public authority debt outstanding as State-supported debt
was $21.1 billion and as State-related debt was $29.4 billion.
The authorities are generally supported by revenues generated
by the projects financed or operated, such as fares, user fees on bridges,
highway tolls and rentals for dormitory rooms and housing. In recent years,
however, the State has provided financial assistance through appropriations, in
some cases of a recurring nature, to certain of the 18 authorities for operating
and other expenses and in fulfillment of its commitments on moral obligation
indebtedness or otherwise for debt service. This assistance is expected to
continue to be required in future years.
The Metropolitan Transit Authority ("MTA"), a State agency,
oversees the operation of the City's subway and bus system by its affiliates,
the New York City Transit Authority and Bronx Surface Transit Operating
Authority (collectively, the "TA") and commuter rail and bus lines serving the
New York metropolitan area. Fare revenues from such operations have been
insufficient to meet expenditures, and MTA depends heavily upon a system of
State, local, Triborough Bridge and Tunnel Authority ("TBTA") and, to the extent
available, Federal support. Over the past several years, the State has enacted
several taxes, including a surcharge on the profits of banks, insurance
corporations and general business corporations doing business in the 12-county
region served by the MTA and a special one-quarter of 1% regional sales and use
tax, that provide additional revenues for mass transit purposes including
assistance to the MTA. The surcharge, which expires in November 1995, yielded
$507 million in calendar year 1992, of which the MTA was entitled to receive
approximately 90% or approximately $456 million. For the 1994-95 State fiscal
year, total State assistance to the MTA is estimated at approximately $1.3
billion.
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On April 5, 1993, the State Legislature, approved, and the
Governor subsequently signed into law, legislation authorizing a five-year $9.56
billion capital plan for the MTA for 1992 through 1996, including approximately
$7.4 billion in projects for New York City Transit ("NYCT"), with the additional
resources to be provided by additional Federal, State and City capital funds,
MTA bonds and other MTA resources. The MTA submitted a 1992-1996 Capital Program
based on this legislation for approval of the MTA Capital Program Review Board,
as State law requires. The plan was approved on December 11, 1993. The State has
assumed a City capital contribution $500 million greater than the amount funded
in the City's Ten-Year Capital Plan. In addition, approximately $245 million in
funds for NYCT capital purposes have been deferred from the City's capital
commitment plan for its 1995 fiscal year to the City's capital commitment plan
for its 1997 fiscal year. This action requires approval of the Governor, MAC and
the Mayor. Unless the MTA identifies additional resources, parts of the
1992-1996 Capital Program may be deferred or reduced.
The approved MTA 1992-1996 Capital Program incorporates a
one-year $1.635 billion program adopted in 1992. The MTA 1992-1996 Capital
Program succeeds two previous five-year capital programs for the periods
covering 1982-1986 and 1987-1991. The MTA 1987-1991 Capital Program totaled
approximately $8.0 billion, including $6.2 billion for NYCT capital projects.
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 fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional assistance.
The State's experience has been that if an Authority suffers
serious financial difficulties, both the ability of the State and the
Authorities to obtain financing in the public credit markets and the market
price of the State's outstanding bonds and notes may be adversely affected. The
Housing Finance Agency ("HFA") and the Urban Development Corporation ("UDC")
have in the past required substantial amounts of assistance from the State to
meet debt service costs or to pay operating expenses. Further assistance,
possibly in increasing amounts, may be required for these, or other, Authorities
in the future. In addition, certain statutory arrangements provide for State
local assistance payments otherwise payable to localities to be made under
certain circumstances to certain Authorities. The State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to Authorities under these arrangements. However, in the event that
such local assistance payments are so diverted, the affected localities could
seek additional State funds.
(3) Litigation. A number of court actions have been brought
involving State finances. The court actions in which the State is a defendant
generally involve state programs and miscellaneous tort, real property, and
contract claims and the monetary damages sought are substantial. Adverse
development in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced State Financial Plan in
the current fiscal year or thereafter.
In addition to the proceedings noted below, the State is party
to other claims and litigation which its legal counsel has advised are not
probable of adverse court decisions. Although the amounts of potential losses,
if any, are not presently determinable, it is the State's opinion that its
ultimate liability in these cases is not expected to have a material
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adverse effect on the State's financial position in the current fiscal year or
thereafter.
On May 31, 1988 the United States Supreme Court took
jurisdiction of a claim of the State of Delaware that certain unclaimed
dividends, interest and other distributions made by issuers of securities and
held by New York-based brokers incorporated in Delaware for beneficial owners
who cannot be identified or located, had been, and were being, wrongfully taken
by the State of New York pursuant to New York's Abandoned Property Law (State of
Delaware v. State of New York, United States Supreme Court). All 50 states and
the District of Columbia moved to intervene, claiming a portion of such
distributions and similar property taken by the State of New York from New
York-based banks and depositories incorporated in Delaware. In a decision dated
March 30, 1993, the Court granted all pending motions of the states and the
District of Columbia to intervene and remanded the case to a Special Master for
further proceedings consistent with the Court's decision. The Court determined
that the abandoned property should be remitted first to the state of the
beneficial owner's last known address, if ascertainable, and, if not, then to
the state of incorporation of the intermediary bank, broker or depository. New
York and Delaware have executed a settlement agreement which provides for
payments by New York to Delaware of $35 million in the State's 1993-94 fiscal
year and five annual payments thereafter of $33 million. New York and
Massachusetts have executed a settlement agreement which provides for aggregate
payments by New York of $23 million, payable over five consecutive years. The
claims of the other states and the District of Columbia remain.
Among the more significant of these claims still pending
against the State at various procedural stages, are those that challenge: (1)
the validity of agreements and treaties by which various Indian tribes
transferred title to the State of certain land in central New York; (2) certain
aspects of the State's Medicaid rates and regulations, including reimbursements
to providers of mandatory and optional Medicaid services; (3) contamination in
the Love Canal area of Niagara Falls; (4) an action against State and New York
City officials alleging that the present level of shelter allowance for public
assistance recipients is inadequate under statutory standards to maintain proper
housing; (5) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (6) a
challenge to the methods by which the State reimburses localities for the
administrative costs of food stamp programs; (7) alleged responsibility of State
officials to assist in remedying racial segregation in the City of Yonkers; (8)
an action in which the State is a third party defendant, for injunctive or other
appropriate relief, concerning liability for the maintenance of stone groins
constructed along certain areas of Long Island's shoreline; (9) an action
challenging legislation enacted in 1990 which had the effect of deferring
certain employer contributions to the State Teachers' Retirement System and
reducing State aid to school districts by a like amount; (10) a challenge to the
constitutionality of financing programs of the Thruway Authority authorized by
Chapters 166 and 410 of the Laws of 1991; (11) a challenge to the
constitutionality of financing programs of the MTA and the Thruway Authority
authorized by Chapter 56 of the Laws of 1993; (12) challenges to the delay by
the State Department of Social Services in making two one-week Medicaid payments
to the service providers; (13) challenges to provisions of Section 2807-C of the
Public Health Law, which impose a 13% surcharge on inpatient hospital bills paid
by commercial insurers and employee welfare benefit plans and portions of
Chapter 55 of The Laws of 1992 which require hospitals to impose and remit to
the State an 11% surcharge on hospital bills paid by commercial insurers; (14)
challenges to the promulgation of the State's proposed procedure to determine
the eligibility for and nature of home care services for Medicaid recipients;
(15) a challenge to State implementation of a program which reduces Medicaid
benefits to certain home-relief recipients; (16) challenges to the rationality
and retroactive application of State regulations recalibrating nursing home
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Medicaid rates; and (17) a challenge by AT&T to New York Tax Law ss. 186-a(2-a)
as violative of the commerce clause of the U.S. Constitution.
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
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incurred by the governmental entity beyond the monies so appropriated. Subject
to the foregoing, once an annual appropriation is made, the governmental
entity's obligation to make lease rental payments is absolute and unconditional
without setoff or counterclaim, regardless of contingencies, whether or not a
given project is completed or used by the governmental entity and
notwithstanding any circumstances or occurrences which might arise. In the event
of non-appropriation, certificate holders' or bondowners' sole remedy (absent
credit enhancement) generally is limited to repossession of the collateral for
resale or releasing, and the obligation of the governmental lessee is not backed
by a pledge of the general credit of the governmental lessee. In the event of
non-appropriation, the Sponsors may instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain Series of the Trust may
contain Bonds in the portfolio that are secured by pledged revenues and
additionally by the so-called "moral obligation" of the State or a local
governmental body. Should the pledged revenues prove insufficient, the payment
of such Bonds is not a legal obligation of the State or local government, and is
subject to its willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue
bonds". Under the Internal Revenue Code of 1986, as amended (the "Code") (and
under similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to residency,
ownership, purchase price and target area requirements, ceiling amounts for
state and local issuers, arbitrage restrictions, and certain information
reporting, certification, and public hearing requirements. There can be no
assurance that additional federal legislation will not be introduced or that
existing legislation will not be further amended, revised, or enacted after
delivery of these Bonds or that certain required future actions will be taken by
the issuing governmental authorities, which action or failure to act could cause
interest on the Bonds to be subject to federal income tax. If any portion of the
Bond proceeds is not committed for the purpose of the issue, Bonds in such
amount could be subject to earlier mandatory redemption at par, including issues
of Zero Coupon Bonds (see "Original Issue Discount and Zero Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds
may consist of obligations of state and local housing authorities whose revenues
are primarily derived from mortgage loans to housing projects for low to
moderate income families. Since such obligations are not general obligations of
a particular state or municipality and are generally payable primarily or solely
from rents and other fees, adverse economic developments including failure or
inability to increase rentals, fluctuations of interest rates and increasing
construction and operating costs may reduce revenues available to pay existing
obligations.
The housing bonds in the Trust, despite their optional
redemption provisions which generally do not take effect until ten years after
the 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
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possible that such prepayments could be sufficient to cause a housing bond to be
redeemed substantially prior to its stated maturity date, earliest call date or
sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric
utility industry include difficulty in financing large construction programs
during an inflationary period; restrictions on operations and increased costs
and delays attributable to environmental considerations; the difficulty of the
capital markets in absorbing utility debt and equity securities; the
availability of fuel for electric generation at reasonable prices, including
among other considerations the potential rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal; technical
cost factors and other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including among other considerations the problems associated with the use of
radioactive materials and the disposal of radioactive waste; and the effects of
energy conservation. Certain Bonds may have been issued in connection with the
financing of nuclear generating facilities. In view of recent developments in
connection with such facilities, legislative and administrative actions have
been taken and proposed relating to the development and operation of nuclear
generating facilities. The Sponsors are unable to predict whether any such
actions or whether any such proposals or litigation, if enacted or instituted,
will have an adverse impact on the revenues available to pay the debt service on
the Bonds in the portfolio issued to finance such nuclear projects.
Each of the problems referred to above could adversely affect
the ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary considerably
from such projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other things, demand
for hospital services and the ability of the hospital to provide them,
physicians' confidence in hospital management capability, economic developments
in the service area, competition, actions by insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
federal or state programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at the
state and federal level.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in 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
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addition, their ability may be affected by declines in Federal, state and alumni
financial support, fluctuations in interest rates and construction costs,
increased maintenance and energy costs, failure or inability to raise tuition or
room charges and adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the
pollution control facilities category include securities issued on behalf of a
private corporation,* including utilities, to provide facilities for the
treatment of air, water and solid waste pollution. Repayment of these bonds is
dependent upon income from the specific pollution control facility and/or the
financial condition of the project corporation. See also "Private Activity
Bonds."
Other Utility Revenue Bonds. Bonds in this category include
securities issued to finance natural gas supply, distribution and transmission
facilities, public water supply, treatment and distribution facilities, and
sewage collection, treatment and disposal facilities. Repayment of these bonds
is dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in this
category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and revenues
derived from the collection of charges for disposal of solid waste. Repayment of
resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be subject
to mandatory redemption in the event of project non-completion, if the project
is rendered uneconomical or if it is considered an environmental hazard.
Transportation Revenue Bonds. Bonds in this category include
bonds issued for airport facilities, bridges, turnpikes, port authorities,
railroad systems or mass transit systems. Generally, airport facility revenue
bonds are payable from and secured by the revenues derived from the ownership
and operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and licenses
and, therefore, may be subject to fluctuations in such assistance.
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
- --------
* For the purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
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facility. In the case of the first type, bonds are generally payable from a
designated source of revenues derived from the facility and may further receive
the benefit of the legal or moral obligation of one or more political
subdivisions or taxing jurisdictions. In most cases of project financing of the
first type, receipts or revenues of the Issuer are derived from the project or
the operator or from the unexpended proceeds of the bonds. Such revenues include
user fees, service charges, rental and lease payments, and mortgage and other
loan payments.
The second type of issue will generally finance projects which
are owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
The private activity bonds in the Trust have generally been
issued under bond resolutions, agreements or trust indentures pursuant to which
the revenues and receipts payable under the issuer's arrangements with the users
or the corporate operator of a particular project have been assigned and pledged
to the holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds
secured primarily or solely by receipt of certain state or local taxes,
including sales and use taxes or excise taxes. Consequently, such bonds may be
subject to fluctuations in the collection of such taxes. Such bonds do not
include tax increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also
contain revenue bonds which are payable from and secured primarily or solely by
revenues from the ownership and operation of particular facilities, such as
correctional facilities, parking facilities, convention centers, arenas, museums
and other facilities owned or used by a charitable entity. Payment on bonds
related to such facilities is, therefore, primarily or solely dependent on
revenues from such projects, including user fees, charges and rents. Such
revenues may be affected adversely by increased construction and maintenance
costs or taxes, decreased use, competition from alternative facilities,
reduction or loss of rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are
secured by direct obligations of the U.S. Government or, in some cases,
obligations guaranteed by the U.S. Government, placed in an escrow account
maintained by an independent trustee until maturity or a predetermined
redemption date. In a few isolated instances to date, bonds which were thought
to be escrowed to maturity have been called for redemption prior to maturity.
Puerto Rico Bonds
Certain of the Bonds in the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected by
general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1993, approximately 86% of Puerto Rico's exports were to the United States
mainland, which was also the source of 69% of Puerto Rico's imports. In fiscal
1993, Puerto Rico experienced a $2.5 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over
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the years as a result of increased emphasis on higher wage, high technology
industries such as pharmaceuticals, electronics, computers, microprocessors,
professional and scientific instruments, and certain high technology machinery
and equipment. The service sector, including finance, insurance and real estate,
also plays a major role in the economy. It ranks second only to manufacturing in
contribution to the gross domestic product and leads all sectors in providing
employment. In recent years, the service sector has experienced significant
growth in response to and paralleling the expansion of the manufacturing sector.
Since fiscal 1987, personal income has increased consistently in each fiscal
year. In fiscal 1993, aggregate personal income was $24.1 billion ($20.6 billion
in 1987 prices) and personal income per capita was $6,760 ($5,767 in 1987
prices). Real personal income showed a small decrease in fiscal 1991 principally
as a result of a decline in real transfer payments. Total federal payments to
Puerto Rico, which include many types in addition to federal transfer payments,
are lower on a per capita basis in Puerto Rico than in any state. Transfer
payments to individuals in fiscal 1993 were $5.3 billion, of which $3.6 billion,
or 67.6%, represent entitlement to individuals who had previously performed
services or made contributions under programs such as social security, veterans
benefits and Medicare. The number of persons employed in Puerto Rico during
fiscal 1994 averaged 1,011,000. Unemployment, although at a low level compared
to the late 1970s, remains above the average for the United States. In fiscal
1994, the unemployment rate in Puerto Rico was 15.9%. Puerto Rico's decade-long
economic expansion continued throughout the five-year period from fiscal 1989
through fiscal 1993. Almost every sector of its economy was affected and record
levels of employment were achieved. Factors behind this expansion include
Commonwealth sponsored economic development programs, the relatively stable
prices of oil imports, the continued growth of the United States economy,
periodic declines in exchange value of the United States dollar and the
relatively low cost of borrowing during the period. Real gross product amounted
to approximately $20.07 billion in fiscal 1993, or 3.1% above the fiscal 1992
level. The Puerto Rico Planning Board's economic activity index, a composite
index for thirteen economic indicators, increased 1.6% in fiscal 1994 compared
to fiscal 1993, which period showed a decrease of 1.4% over fiscal 1992. Growth
in the Puerto Rico economy in fiscal 1994 and 1995 depends on several factors,
including the state of the United States economy and the relative stability in
the price of oil imports, the exchange value of the U.S. dollar and the cost of
borrowing.
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,
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as adjusted, and the amount received will be taxable gain or loss to the Unit
holders. All or a portion of any such gain may be taxable as ordinary income.
There can be no assurance that additional Federal legislation
will not be enacted or that existing legislation will not be amended hereafter
with the effect that interest on bonds becomes subject to Federal income
taxation. If the interest on the Bonds should ultimately be deemed to be
taxable, the Sponsors may instruct the Trustee to sell them, and, since they
would be sold as taxable securities, it is expected that they would have to be
sold at a substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund or call provisions. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. Sinking fund provisions are designed to redeem a significant portion of
an issue gradually over the life of the issue. Obligations to be redeemed are
generally chosen by lot. A callable debt obligation is one which is subject to
redemption prior to maturity at the option of the issuer. To the extent that
obligations in the Trust have a bid site valuation higher than their par value,
redemption of such obligations at par would result in a loss of capital to a
purchaser of Units at the public offering price. The estimated current return of
the Units might also be adversely affected if the return on the retired Bonds is
greater than the average return on the Bonds in the Trust. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. See "Special
Factors Concerning the Portfolio" in Part I of this Prospectus for information
for the number of bonds in the Portfolio that are original issue discount and
zero coupon bonds and "Portfolio Information" in Part I of this Prospectus for a
breakdown of the percentage of Bonds in the Trust with offering side valuations
at a premium, discount or at par. See also "Estimated Current Return and
Estimated Long Term Return". The portfolio and "Summary of Essential Financial
Information" in Part I of this Prospectus contain a listing of the sinking fund
and call provisions, if any, with respect to each of the Bonds therein.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict what effect, if any, this
legislation will have on the Trust.
To the best knowledge of the Sponsors, there is no litigation
pending as of the date hereof in respect of any Securities which might
reasonably be expected to have a material adverse effect on the Trust, unless
otherwise stated in Part I of this Prospectus. At any time, however, litigation
may be initiated on a variety of grounds with respect to Securities in the
Trust. Such litigation as, for example, suits challenging the issuance 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
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other factors may arise from time to time which potentially may impair the
ability of issuers to meet obligations undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth below,
which is based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. For the purpose of computing the
sales charge, Bonds are deemed to mature on their expressed maturity dates,
unless the Evaluator evaluates the price of the Bonds to a different date, such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date. This method of computing the sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
0 Months to 2 Years 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price is
applied to all secondary market unit purchases. There is no reduction of the
sales charge for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on
the Securities at the date of delivery of the Units to the purchaser is also
added to the Public Offering Price.
Unless Securities are in default in payment of principal or
interest or in significant risk of such default, the Evaluator will not
attribute any value to the Units due to the insurance obtained by the Trust. See
also "Rights of Unit Holders--Certificates" and "Rights of Unit
Holders--Redemption" for information relating to redemption of Units. The
Evaluator will consider in its evaluation of Defaulted Bonds which are covered
by insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments as well as the market value of the Securities
and the market value of similar securities of issuers whose securities, if
identifiable, carry identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or risk of
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
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<PAGE>
custodial fee) and (ii) the market value of such Defaulted Bonds not covered by
Permanent Insurance. In any case the Evaluator will consider the ability of the
Insurer to meet its commitments under the Trust's insurance policy and, in the
case of Series 18 and subsequent Series, MBIA's or MBIAC's commitment to issue
Permanent Insurance. For a description of the circumstances under which a full
or partial suspension of the right of Unit holders to redeem their Units may
occur, see "Rights of Unit Holders--Redemption."
It is the present intention of the Trustee (and, in the case
of Series 18 and subsequent Series, assuming the Trustee does not exercise the
right to obtain Permanent Insurance on any Defaulted Bonds), so long as the
Trust contains either some Bonds not in default or any Pre-insured Bonds, not to
sell Defaulted Bonds to effect redemptions or for any other reason but rather to
retain them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE
OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance obtained by the
issuer of a Pre-insured Bond, or by some other party, is effective so long as
such Pre-insured Bond is outstanding and the insurer of such Bond continues to
fulfill its obligations. Therefore, any such insurance may be considered to
represent an element of market value in regard to the Pre-insured Bond, but the
exact effect, if any, of this insurance on such market value cannot be
predicted. Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will in any case continue to be
insured under the policy obtained by the Trust from the Insurer as long as the
Bond is held in the Trust.
Certain commercial banks are making Units of the Trust
available to their customers on an agency basis. A portion of the sales charge
discussed above is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units; however,
the Glass-Steagall Act does permit certain agency transactions, and banking
regulators have not indicated that these particular agency transactions are not
permitted under such Act.
Market for Units
Although they are not obligated to do so, the Sponsors have
maintained and intend to continue to maintain a market for the Units and to
continuously offer to purchase Units at prices based on the aggregate bid price
of the Securities. The Sponsors' Repurchase Price shall be not less than the
Redemption Price plus accrued interest through the expected date of settlement.
See "Rights of Unit Holders--Redemption--Computation of Redemption Price per
Unit." There is no sales charge incurred when a Unit holder sells Units back to
the Sponsors. Any Units repurchased by the Sponsors may be reoffered to the
public by the Sponsors at the Public Offering Price at the time, plus accrued
interest.
If the supply of Units of any Series exceeds demand, or for
some other business reason, the Sponsors may discontinue purchases of Units of
such Series at prices based on the aggregate bid price of the Securities. The
Sponsors do not in any way guarantee the enforceability, marketability or price
of any Security in the portfolio or of the Units of the Trust. In the event that
a market is not maintained for the Units, a Unit holder desiring to dispose of
his Units may be able to do so only by tendering such Units to the Trustee for
redemption at the Redemption Price, which is based upon the aggregate bid price
of the underlying Securities. The aggregate bid price of 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."
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Employees (and their immediate families) of the Sponsors may,
pursuant to employee benefit arrangements, purchase Units of the Trust at a
price equal to the bid side evaluation of the underlying securities in the
Trust, divided by the number of Units outstanding. Such arrangements result in
less selling effort and selling expenses than sales to employee groups of other
companies. Resales or transfers of Units purchased under the employee benefit
arrangements may only be made through the Sponsors' secondary market, so long as
it is being maintained.
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is the
Sponsors' intention to effect a public distribution of the Units solely through
their own organizations. Units may, however, be sold to dealers who are members
of the National Association of Securities Dealers, Inc. at a discount. Such
discount is subject to change from time to time by the Agent for the Sponsors.
Sales will be made only with respect to whole Units, and the Sponsors reserve
the right to reject, in whole or in part, any order for the purchase of Units.
It is the Sponsors' intention to continue to qualify Units of the Trust for sale
where such qualification is necessary. In maintaining a market for the Units
(see "Public Offering--Market for Units"), the Sponsors will realize profits or
sustain losses in the amount of any difference between the price at which they
buy Units and the price at which they resell such Units (the Public Offering
Price described in the currently effective Prospectus which includes the sales
charge set forth in Part I of this Prospectus under "Summary of Essential
Financial Information") or the price at which they may redeem such Units (based
upon the aggregate bid side evaluation of the Securities), as the case may be,
and to the extent that they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In
contrast, tax-exempt bonds customarily are offered on a "yield price" basis.
Therefore, the rate of return on each Unit is measured in terms of both
Estimated Current Return and Estimated Long-Term Return. Estimated Current
Return based on the Public Offering Price per Unit and Estimated Long-Term
Return per Unit and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return 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
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the Bonds in the portfolio and (ii) takes into account the expenses and sales
charge associated with each Unit of the Trust. The Estimated Long-Term Return
assumes that each Bond is retired on its pricing life date (i.e., that date
which produces the lowest dollar price when yield price calculations are done
for each optional call date and the maturity date of a callable security). If
the Bond is retired on any optional call or maturity date other than the pricing
life date, the yield to the holder of that Bond will be greater than the initial
quoted yield. Since the market values and estimated retirements of the Bonds,
the expenses of the Trust and the Net Annual Interest Income and Public Offering
Price per Unit may change, there is no assurance that the Estimated Long-Term
Return as set forth under "Summary of Essential Financial Information" in Part I
of this Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Trust has been obtained from the
Insurer by the Trust. The Insurer has issued a policy of insurance covering each
of the Bonds in the Trust, including Pre-insured Bonds. As to each Trust, the
Insurer shall not have any liability under the policy with respect to any Bonds
which do not constitute part of the Trust. In determining to insure the Bonds,
the Insurer has applied its own respective standards which generally correspond
to the standards it has established for determining the insurability of new
issues of municipal bonds.
By the terms of its policy, the Insurer unconditionally
guarantees to the Trust the payment, when due, required of the issuer of the
Bonds of an amount equal to the principal of (either at the stated maturity or
by any advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on the Bonds as such payments shall become due but not paid. Except as
provided below with respect to small issue industrial development Bonds and
pollution control revenue Bonds, in the event of any acceleration of the due
date of principal by reason of mandatory or optional redemption (other than
mandatory sinking fund redemption), default or otherwise, the payments
guaranteed will be made in such amounts and at such times as would have been due
had there not been an acceleration. The Insurer will be responsible for such
payments less any amounts received by the Trust from any trustee for the Bond
issuers or from any other source. The policy issued by the Insurer does not
guarantee payment on an accelerated basis, the payment of any redemption premium
or the value of the Units. The MBIA and MBIAC policies also do not insure
against nonpayment of principal of or interest on the Bonds resulting from the
insolvency, negligence or any other act or omission of the trustee or other
paying agent for the Bonds. With respect to small issue industrial development
Bonds and pollution control revenue Bonds in Series 9 through Series 30 and
Series 31 and subsequent Series, however, MBIA and MBIAC, respectively,
guarantee the full and complete payments required to be made by or on behalf of
an issuer of such Bonds if there occurs pursuant to the terms of the Bonds an
event which results in the loss of the tax-exempt status of interest on such
Bonds, including principal, interest or premium payments payable thereon, if
any, as and when required to be made by or on behalf of the issuer pursuant to
the terms of such Bonds. No assurance can be given that the policy issued by the
Insurer would insure the payment of principal or interest on Bonds which is not
required to be paid by the issuer thereof because the Bonds were not validly
issued. At the respective times of 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
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<PAGE>
against the Trustee to recover premium payments due it. The Trustee in turn will
be entitled to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any
Bond which has been redeemed from or sold by the Trustee on the date of such
redemption or on the settlement date of such sale, and the Insurer shall not
have any liability under the policy as to any such Bond thereafter. If the date
of such redemption or the settlement date of such sale occurs between a record
date and a date of payment of any such Bonds, any MBIA or MBIAC policy will
terminate as to such Bond on the business day next succeeding such date of
payment. The termination of a MBIA or MBIAC policy as to any Bond shall not
affect MBIA's or MBIAC's obligations regarding any other Bond in such Trust or
any other Trust which has obtained a MBIA or MBIAC insurance policy. The policy
issued by the Insurer will terminate as to all Bonds on the date on which the
last of the Bonds matures, is redeemed or is sold by the Trust.
In the case of Series 18 through 30 and Series 31 and
subsequent Series, pursuant to irrevocable commitments of MBIA and MBIAC,
respectively, the Trustee upon the sale of a Bond in the Trust has the right to
obtain permanent insurance with respect to such Bond (i.e., insurance to
maturity of the Bonds) (the "Permanent Insurance") upon the payment of a single
predetermined insurance premium from the proceeds of the sale of such Bond.
Accordingly, any Bond in such Series of the Trust is eligible to be sold on an
insured basis. It is expected that the Trustee will exercise the right to obtain
Permanent Insurance for a Bond in the Trust upon instruction from the Sponsors
only if upon such exercise the Trust would receive net proceeds (sale of Bond
proceeds less the insurance premium attributable to the Permanent Insurance and
the related custodial fee) from such sale in excess of the sale proceeds if such
Bond was sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond is
determined based upon the insurability of each Bond as of the Date of Deposit
and will not be increased or decreased for any change in the creditworthiness of
such Bond unless such Bond is in default as to payment of principal and/or
interest. In such event, the Permanent Insurance premium shall be subject to an
increase predetermined at the Date of Deposit and payable from the proceeds of
the sale of such Bond.
Except as indicated below, insurance obtained by the Trust has
no effect on the price or redemption value of Units thereof. It is the present
intention of the Evaluator to attribute a value to the insurance obtained by the
Trust (including, as to Series 18 and subsequent Series, the right to obtain
Permanent Insurance) for the purpose of computing the price or redemption value
of Units thereof only if the Bonds covered by such insurance are in default in
payment of principal or interest or, in the Sponsors' opinion, in significant
risk of such default ("Defaulted Bonds"). The value of the insurance will be
equal to the difference between (1) the market value of a Defaulted Bond insured
by the Trust (as to Series 18 and subsequent Series, the market value of a
Defaulted Bond assuming the exercise of the right to obtain Permanent Insurance
less the insurance premium attributable to the purchase of Permanent Insurance
and the related custodial fee) and (2) the market value of similar securities
not in default or significant risk thereof (as to Series 18 and subsequent
Series, the market value of such Defaulted Bonds not covered by Permanent
Insurance). Insurance obtained by the issuer 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
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<PAGE>
parties may be considered to represent an element of market value in regard to
the Bonds thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted.
In the event that interest on or principal of a Bond is due
for payment but is unpaid by reason of nonpayment by the issuer thereof, the
Insurer will make payments to its fiscal agent, as identified in the insurance
policy (the "Fiscal Agent"), equal to such unpaid amounts of principal and
interest not later than one business day after the Insurer has been notified by
the Trustee that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the Trustee the amount
of principal and interest which is then due for payment but is unpaid upon
receipt by the Fiscal Agent of (1) evidence of the Trust's right to receive
payment of such principal and interest and (2) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest then due for payment shall thereupon vest in the Insurer.
Upon payment by the Insurer of any principal or interest payments with respect
to any Bonds, the Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
National Union, which was incorporated in Pennsylvania in
1901, is a stock insurance company which provides fire and casualty insurance
and is a wholly-owned subsidiary of American International Group, Inc.
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 and the Commonwealth of Puerto Rico.
As of March 31, 1995, MBIAC had admitted assets of $3.5
billion (unaudited), total liabilities of $2.4 billion (unaudited), and total
capital and surplus of $1.1 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. Copies of MBIAC's year end financial statements prepared in
accordance with statutory accounting practices are available from MBIAC. The
address of MBIAC is 113 King Street, Armonk, New York 10504.
- --------
* Now known as Cigna Property and Casualty Company.
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<PAGE>
No representation is made herein as to the accuracy or
adequacy of such information or as to the absence of material adverse changes in
such information subsequent to the date thereof. The Sponsors are not aware that
the information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the
negotiations in respect thereof (and, in the case of Series 18 and subsequent
Series, certain agreements relating to Permanent Insurance) represent the only
significant relationship between the Insurer and the Trust. Otherwise, neither
the Insurer nor any associate thereof has any material business relationship,
direct or indirect, with the Trust or the Sponsors, except that the Sponsors may
from time to time in the normal course of their business participate as
underwriters or as managers or as members of underwriting syndicates in the
distribution of new issues of municipal bonds for which a policy of insurance
guaranteeing the payment of interest and principal has been obtained from the
Insurer, and except that James A. Lebenthal, Chairman of the Board of Directors
of Lebenthal & Co., Inc., is a director of MBIA Inc. Although all issues
contained in the portfolio of the Trust are individually insured, neither the
Trust, the Units nor the portfolio is insured directly or indirectly by the
Insurer.
A purpose of the insurance on the Bonds in the portfolio
obtained by the Trust is to obtain a higher yield on the Trust portfolio than
would be available if all the Securities in such portfolio had Standard & Poor's
"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."
Gain (or loss) realized on a sale, maturity or redemption of
the Bonds or on a sale or redemption of a Unit is, however, includible in gross
income as capital gain (or loss) for Federal, state and local income tax
purposes, assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
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<PAGE>
addition, such gain (or loss) may be long- or short-term, depending on the
holding period of the Units. Bonds selling at a market discount tend to increase
in market value as they approach maturity when the principal amount is payable,
thus increasing the potential for taxable gain (or reducing the potential for
loss) on their redemption, maturity or sale. Gain on the disposition of a Bond
purchased at a market discount generally will be treated as ordinary income,
rather than capital gain, to the extent of accrued market discount. The
deductibility of capital losses is limited to the amount of capital gain; in
addition, up to $3,000 of capital losses of non-corporate Unit holders may be
deducted against ordinary income. Since the proceeds from sales of Bonds, under
certain circumstances, may not be distributed pro-rata, a Unit holder's taxable
income for any year may exceed the actual cash distributions to the Unit holder
in that year.
Among other things, the Code provides for the following: (1)
interest on certain private activity bonds issued after August 7, 1986 is
included in the calculation of the individual's alternative minimum tax
(currently taxed at a rate of up to 28%); none of the Bonds in the Trust is a
private activity bond, the interest on which is subject to the alternative
minimum tax; (2) interest on certain private activity bonds issued after August
7, 1986 is included in the calculation of the corporate alternative minimum tax
and 75% of the amount by which adjusted current earnings (including interest on
all tax-exempt bonds, such as the Bonds) exceed alternative minimum taxable
income, as modified for this calculation, will be included in alternative
minimum taxable income. Interest on the Bonds is includible in the adjusted
current earnings of a corporation for purposes of such alternative minimum tax,
the Code does not otherwise require corporations, and does not require taxpayers
other than corporations, including individuals, to treat interest on the Bonds
as an item of tax preference in computing an alternative minimum tax; (3)
subject to certain exceptions, no financial institution is allowed a deduction
for that portion of the institutions's interest expense allocable to tax-exempt
interest on tax-exempt bonds acquired after August 7, 1986; (4) the amount of
the deduction allowed to property and casualty insurance companies for
underwriting loss is decreased by an amount determined with regard to tax-exempt
interest income and the deductible portion of dividends received by such
companies; (5) all taxpayers are required to report for informational purposes
on their Federal income tax returns the amount of tax-exempt interest they
receive; (6) an issuer must meet certain requirements on a continuing basis in
order for interest on a tax-exempt bond to be tax-exempt, with failure to meet
such requirements resulting in the loss of tax exemption; and (7) a branch
profits tax on U.S. branches of foreign corporations is implemented which,
because of the manner in which the branch profits tax is calculated, may have
the effect of subjecting the U.S. branch of a foreign corporation to Federal
income tax on the interest on bonds otherwise exempt from such tax.
The Superfund Revenue Act of 1986 (the "Superfund Act")
imposes a deductible, broad-based tax on a corporation's alternative minimum
taxable income (before net operating losses and any deduction for the tax) at a
rate of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess
of $2,000,000. The tax is imposed for tax years beginning after 1986 and
beginning before 1996 and is applicable even if the corporation pays no
alternative minimum tax. For purposes of the Superfund Act, alternative minimum
taxable income includes interest on all tax-exempt bonds to the same extent and
in the same manner as the Code. The Superfund Act does not impose a tax on
taxpayers other than corporations.
Section 86 of the Code provides that a portion of social
security benefits is includible in taxable income for taxpayers whose "modified
adjusted gross income," combined with a portion of their social security
benefits, exceeds a base amount. The base amount is $25,000 for an
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<PAGE>
individual, $32,000 for a married couple filing a joint return and zero for
married persons filing separate returns. Interest on tax-exempt bonds is added
to adjusted gross income for purposes of determining whether an individual's
income exceeds the base amount described above.
In addition, certain "S Corporations" may be subject to
minimum tax on certain passive income, including tax-exempt interest, such as
interest on the Bonds.
At the time of the original issuance of the Bonds held by the
Trust, opinions relating to the validity of the Bonds and the exemption of
interest thereon from regular Federal income tax were or (with respect to "when,
as and if issued" Bonds) were to be rendered by bond counsel to the issuing
governmental authorities. Neither the Sponsors nor their special counsel have
made any review of proceedings relating to the issuance of such Bonds or the
basis for bond counsel's opinions.
In the case of certain Bonds which may be included in the
Trust, the opinions of bond counsel indicate that, although interest on such
Bonds is generally exempt from Federal income tax, such Bonds are "industrial
development bonds" under the 1954 Code or are "private activity bonds" as that
term is defined in the Code (the following discussion also applies to Bonds that
are "industrial development bonds" as they are defined in the 1954 Code in terms
similar to those under which private activity bonds are defined in the Code and
are generally subject to the same limitations). Interest on certain qualified
small issue private activity bonds is exempt from all present Federal income
taxation only so long as the "principal user" of the bond-financed facility and
any "related person" remain within the capital expenditure limitations imposed
by Section 144(a)(4) of the Code and only so long as the aggregate private
activity bond limits of Section 144(a)(10) of the Code (Sections 103(b)(6)(D)
and 103(b)(15) of the 1954 Code, respectively) are met. In addition, interest on
private activity bonds will not be exempt from Federal income tax for any period
during which such bonds are held by a "substantial user" of the facilities
financed by the proceeds of such bonds (or a "related person" to such a
"substantial user"). Interest attributable to such Bonds, if received by a Unit
holder who is such a "substantial user" or "related person," will be taxable
(i.e., not tax-exempt) to the same extent as if such Bonds were held directly as
owner.
In addition, a Bond can lose its tax-exempt status as a result
of other subsequent but unforeseeable events such as prohibited "arbitrage"
activities by the issuer of the Bond or the failure of the Bond to continue to
satisfy the conditions required for the exemption of interest thereon from
regular federal income tax. No investigation has been made as to the current or
future owners or users of the facilities financed by the bonds, the amount of
such persons' outstanding tax-exempt private activities bonds, or the facilities
themselves, and no assurance can be given that future events will not affect the
tax-exempt status of the Bonds. Investors should consult their tax advisors for
advice with respect to the effect of these provisions on their particular tax
situation.
Under Section 265 of the Code, if borrowed funds are used by a
Unit holder to purchase or carry Units of the Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. Under rules
used by the Internal Revenue Service, the purchase of Units may be considered to
have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of Units. Similar rules are applicable for
purposes of state and local taxation. Also, under Section 291 of the Code,
certain financial institutions that acquired Units on or before August 7, 1986
may be subject to a reduction in the amount of interest expense that would
otherwise be allowable as a deduction for Federal income tax purposes. Subject
to certain exceptions under Section 265 of the Code, no
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<PAGE>
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.
For obligations issued on or before September 27, 1985, bond
premium must be amortized under the method the Unit holder regularly employs for
amortizing bond premium (assuming such method is reasonable) or, otherwise, on a
straight-line basis. Thus, if a Unit holder has previously amortized bond
premium with respect to other bonds (whether tax-exempt or taxable) on a
straight-line basis, the Unit holder may be prohibited from adopting a more
favorable method of amortizing bond premium such as a constant interest method.
For obligations issued after September 27, 1985, amortizable bond premium must
be computed on the basis of the Unit holder's yield to maturity, determined by
using the Unit holder's basis for the Bond, compounding at the close of each
"accrual period" (as defined in Section 1272(a)(5) of the Code). With respect to
any tax-exempt bond, the amount of bond premium is determined with reference to
the amount of the basis of such bond and the total amount payable at maturity or
on an earlier call date. If the amount payable on an earlier call date is used
in determining the amortizable bond premium attributable to the period before
the earlier call date, such bond shall be treated as maturing on such date for
the amount so payable and then reissued on such date for the amount so payable.
The exemption of interest on municipal obligations for Federal
income tax purposes does not necessarily result in exemption under the income
tax laws of any state or local government. Interest income derived from the
Bonds is not excluded from net income in determining New York State or New York
City franchise taxes on corporations or financial institutions. The laws
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of such states and local governments vary with respect to the taxation of such
obligations.
From time to time proposals have been introduced before
Congress, the purpose of which is to restrict or eliminate the Federal income
tax exemption for interest on debt obligations similar to the Bonds in the
Trust, and it can be expected that similar proposals may be introduced in the
future. The Sponsors cannot predict whether additional legislation, if any, in
respect of the Federal income tax status of interest on debt obligations may be
enacted and what the effect of such legislation would be on Bonds in the Trust.
In addition, the enactment of a "flat tax" or other legislation that
significantly alters the federal income tax system may have a material adverse
effect on the value of Units. If the interest on any Bonds in the Trust should
ultimately be deemed to be taxable, the Sponsors may instruct the Trustee to
sell such Bonds, and, since they would be sold as taxable securities, it is
expected that they would be sold at a substantial discount from current market
prices.
In South Carolina v. Baker, the U.S. Supreme Court held that
the federal government may constitutionally require states to register bonds
they issue and subject the interest on such bonds to federal income tax if not
registered, and that there is no constitutional prohibition against the federal
government's taxing the interest earned on state or other municipal bonds. The
Supreme Court decision affirms the authority of the federal government to
regulate and control bonds such as the Bonds in the Trust and to tax interest on
such bonds in the future. The decision does not, however, affect the current
exemption from taxation of the interest earned on the Bonds in the Trust in
accordance with Section 103 of the Code.
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
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<PAGE>
gains, if any (semi-annually), received by the Trust will be distributed on each
Distribution Date to Unit holders of record of the Trust as of the preceding
Record Date who are entitled to such distributions at that time under the plan
of distribution chosen. All distributions will be net of applicable expenses and
funds required for the redemption of Units. See "Summary of Essential Financial
Information" in Part I of this Prospectus, "The Trust--Expenses and Charges" and
"Rights of Unit Holders--Redemption."
The Trustee will credit to the Interest Account for the Trust
all interest received by the Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
the Trust will be credited to the Principal Account for the Trust. The pro rata
share of the Interest Account of the Trust and the pro rata share of cash in the
Principal Account of the Trust represented by each Unit thereof will be computed
by the Trustee each month as of the Record Date. See "Summary of Essential
Financial Information" in Part I of this Prospectus. Proceeds received from the
disposition of any of the Securities subsequent to a Record Date and prior to
the next succeeding Distribution Date will be held in the Principal Account for
the Trust and will not be distributed until the second succeeding Distribution
Date. Because interest on the Securities is not received by the Trust at a
constant rate throughout the year, any particular interest distribution may be
more or less than the amount credited to the Interest Account of the Trust as of
the Record Date. Persons who purchase Units between a Record Date and a
Distribution Date will receive their first distribution on the second
Distribution Date following their purchase of Units under the applicable plan of
distribution. No distribution need be made from the Principal Account if the
balance therein is less than an amount sufficient to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to
the first Record Date and to the related Distribution Date is an asset of the
respective Unit holder and will be realized in subsequent distributions or upon
the earlier of the sale of such Units or the maturity, redemption or sale of
Securities in the Trust.
The plan of distribution selected by a Unit holder will remain
in effect until changed. Unit holders purchasing Units in the secondary market
will initially receive distributions in accordance with the election of the
prior owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such 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.
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Because interest on Securities in the Trust is payable at
varying intervals, usually in semi-annual installments, the interest accruing to
the Trust will not be equal to the amount of money received and available
monthly for distribution from the Interest Account to Unit holders choosing the
monthly payment plan. Therefore, on each monthly Distribution Date, the amount
of interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest distribution
made. In addition, because of the varying interest payment dates of the
Securities constituting the Trust portfolio, accrued interest at any point in
time will be greater than the amount of interest actually received by the Trust
and distributed to Unit holders. Therefore, there will usually remain an item of
accrued interest that is added to the value of the Units. If a Unit holder sells
all or a portion of his Units, he will be entitled to receive his proportionate
share of the accrued interest from the purchaser of his Units. Similarly, if a
Unit holder redeems all or a portion of his Units, the Redemption Price per Unit
which he is entitled to receive from the Trustee will also include accrued
interest on the Securities. Thus, the accrued interest attributable to a Unit
will not be entirely recovered until the Unit holder either redeems or sells
such Unit or until the Trust is terminated. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
At no cost to the Trust, the Sponsors have borne all the
expenses of creating and establishing the Trust, including the cost of the
initial preparation, printing and execution of 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
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Department of Labor's Consumer Price Index entitled "All Services Less Rent." If
the balances in the Principal and Interest Accounts are insufficient to provide
for amounts payable by the Trust, or amounts payable to the Trustee which are
secured by its prior lien on the Trust, the Trustee is permitted to sell Bonds
to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus
is based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
portfolio of the Trust mature, are redeemed by their respective issuers or are
sold by the Trustee, the amount of the premium will be reduced in respect of
those Securities no longer owned by and held in the Trust. The Trust does not
incur any premium expense for any insurance which has been obtained by an issuer
of a Pre-insured Bond, since the premium or premiums for such insurance have
been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on Bonds
which are also 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
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distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (2) as to the Principal Account: the
dates of disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest, with respect to the Trust the premium attributable to the
Trustee's exercise of the right to obtain Permanent Insurance and any related
custodial fee), deductions for payments of applicable taxes and for fees and
expenses of the Trust, redemptions of Units, the amount of any "when issued"
interest treated as a return of capital and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) a list of the Securities held and
the number of Units outstanding on the last business day of such calendar year;
(4) the Redemption price per Unit based upon the last computation thereof made
during such calendar year; and (5) amounts actually distributed during such
calendar year from the Interest Account and from the Principal Account,
separately stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit
holders, at all reasonable times during usual business hours, books of record
and account of its transactions as Trustee including records of the names and
addresses of Unit holders, certificates issued or held, a current list of
Securities in the portfolio of the Trust and a copy of the Trust Agreement.
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
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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.
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.
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Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on
the basis of the bid prices of the Securities in the Trust, as of the Evaluation
Time stated under "Summary of Essential Financial Information" in Part I of this
Prospectus on the day any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of (1) the
aggregate value of the Securities in the Trust (determined by the Evaluator as
set forth below), except for those cases in which the value of insurance has
been included, (2) cash on hand in the Trust, and (3) accrued and unpaid
interest on the Securities as of the date of computation, less (a) amounts
representing taxes or governmental charges payable out of the Trust, (b) the
accrued expenses of the Trust, and (c) cash held for distribution to Unit
holders of record as of a date prior to the evaluation. The Evaluator may
determine the value of the Securities in the Trust (i) on the basis of current
bid prices for the Securities, (ii) if bid prices are not available for any
Securities, on the basis of current bid prices for comparable bonds, (iii) by
appraisal, or (iv) by any combination of the above. In determining the
Redemption Price per Unit, no value will be assigned to the portfolio insurance
obtained by the Trust on the Bonds in the Trust unless such Bonds are in default
in payment of principal or interest or in significant risk of such default. On
the other hand, Pre-insured Bonds in the Trust are entitled at all times to the
benefits of insurance obtained by their respective issuers so long as the
Pre-insured Bonds are outstanding and the insurer continues to fulfill its
obligations, and such benefits are reflected and included in the market value of
Pre-insured Bonds. For a description of 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
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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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<PAGE>
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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<PAGE>
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, 1994, the total partners' capital of
Glickenhaus was $112,898,000 (audited); and at March 31, 1995, the total
stockholders' equity of Lebenthal was $3,561,506 (audited).
The foregoing information with regard to the Sponsors relates
to the Sponsors only, and not to any series of Empire State Municipal Exempt
Trust. Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and their
ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company organized
under the laws of New York, having its offices at 101 Barclay Street, New York,
New York 10286, (212) 815-2000. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and the
Board of Governors of the Federal Reserve System, and its deposits are insured
by the Federal Deposit Insurance Corporation to the extent permitted by law. The
Trustee must be a corporation organized under the laws of the United States or
the State of New York, which is authorized under such laws to exercise corporate
trust powers, and must have at all times
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<PAGE>
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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<PAGE>
LEGAL OPINIONS
Certain legal matters have been passed upon by Hall, McNicol,
Hamilton & Clark, The News Building, 220 East 42nd Street, New York, New York
10017, as counsel for the Sponsors as to Series 1 through 8, by Brown & Wood,
One World Trade Center, New York, New York 10048, as special counsel for the
Sponsors as to Series 9 through 64 and by Battle Fowler LLP, 75 East 55th
Street, New York, New York 10022 as special counsel for the Sponsors as to
Series 65 subsequent Series of Empire State Municipal Exempt Trust, Guaranteed
Series. Tanner, Propp, Fersko & Sterner, 99 Park Avenue, New York, New York
10016, acts as counsel for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public auditors, as stated in their report with respect thereto, and are
included therein in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
A Standard & Poor's corporate or municipal bond rating is a
current assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees. The bond rating
is not a recommendation to purchase, sell or hold a security, inasmuch as it
does not comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to
Standard & Poor's by the issuer and obtained by Standard & Poor's from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
AAA: Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A: Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the
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<PAGE>
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 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"
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<PAGE>
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.
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This Prospectus contains information concerning the Trust and the Sponsors, but
does not contain all the information set forth in the registration statements
and exhibits relating thereto, which the Trust has filed with the Securities and
Exchange Commission, Washington, D.C. under the Securities Act of 1933 and the
Investment Company Act of 1940, and to which reference is hereby
- -------------------------------------------------------
INDEX
- -------------------------------------------------------
Page
The Trust.............................................. 1
Public Offering........................................ 23
Estimated Current Return and Estimated Long-Term Return to
Unit Holders....................................... 25
Insurance on the Bonds................................. 26
Tax Status............................................. 29
Rights of Unit Holders................................. 33
Automatic Accumulation Account......................... 41
Sponsors............................................... 42
Trustee................................................ 44
Evaluator.............................................. 45
Amendment and Termination of
the Trust Agreement.................................. 46
Legal Opinions..........................................47
Auditors............................................... 47
Description of Bond Ratings............................ 47
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.
- -------------------------------------------------------
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES
PROSPECTUS, PART II
Sponsors:
GLICKENHAUS & CO.
6 East 43rd Street
New York, New York 10017
(212)953-7532
LEBENTHAL & CO., INC.
120 Broadway
New York, New York 10272
(212)425-6116
C/M: 10726.0053 279831.2
<PAGE>
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus.
Signatures.
Written Consent of the following persons:
Consent of Independent Auditors.
Consent of Counsel (previously filed)
Consents of the Evaluator including Confirmation of Ratings
(included in Exhibit 99.5.1).
The following exhibits:
*99.5.1 -- Consents 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.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 85 and
Guaranteed Series 86 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 20th day of September, 1995.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 85
AND GUARANTEED SERIES 86
(Registrants)
GLICKENHAUS & CO.
(Depositor)
By:/s/ BRIAN C. LAUX
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.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
ROBERT SANTORO* General Partner )
)
ALFRED FEINMAN* General Partner ) September 20, 1995
)
)
SETH M. GLICKENHAUS* General Partner )
) By:/s/ BRIAN C. LAUX
STEVEN B. GREEN* General Partner, ) Brian C. Laux
Chief Financial Officer ) Attorney-in-Fact*
)
ARTHUR WINSTON* General Partner )
)
JEFFREY L. LEDERER* General Partner )
)
</TABLE>
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Amendment No. 1 to Registration Statement No. 33-58492 on May 12, 1993
and as Exhibit 5.2(a) to Amendment No. 1 to Registration Statement No.
33-78036 on May 3, 1994.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 85 and
Guaranteed Series 86 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 20th day of September, 1995.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 85
AND GUARANTEED SERIES 86
(Registrants)
LEBENTHAL & CO., INC.
(Depositor)
By:/s/ D. WARREN KAUFMAN
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post- Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
<S> <C> <C>
H. GERARD BISSINGER, II* Director )
) September 20, 1995
JEFFREY M. JAMES* Director )
)
D. WARREN KAUFMAN* Director )
) By: /s/ D. WARREN KAUFMAN
ALEXANDRA LEBENTHAL* Director, President ) D. Warren Kaufman
) Attorney-in-Fact*
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
DUNCAN K. SMITH* Director )
</TABLE>
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
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<PAGE>
CONSENT OF COUNSEL
The consent of 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 85
AND GUARANTEED SERIES 86
We hereby consent to the use in Post-Effective Amendment No. 3 to
Registration Statement No. 33-45509 of our opinion dated June 30, 1995
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 85 and Guaranteed Series 86 and to the reference to our firm
under the heading "Auditors" in the Prospectus which is a part of such
Registration Statement.
BDO SEIDMAN, LLP
New York, New York
September 29, 1995
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<PAGE>
Exhibit Description Page No.
*99.5.1 -- Consents 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 299347.1
Muller Data Corporation
A Thomson Financial Services Company
395 Hudson Street
New York, NY 10014-3622
Telephone (212) 807-3800
September 8, 1995
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10003
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series 85 - Post-effective Amendment No. 3
Guaranteed Series 86 - Post-effective Amendment No. 3
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-45509 for the above captioned trusts. We
hereby acknowledge that Muller Data Corporation is currently
acting as the evaluator for the trusts. We hereby consent to the
use in the Amendment of the reference to Muller Data Corporation
as evaluator.
In addition, we hereby confirm that the ratings indicated in the
above referenced Amendment to the Registration Statement for the
respective bonds comprising the trusts 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
MBS:tg
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