As filed with the Securities and Exchange Commission on September 28, 1995
Registration No. 33-49993*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
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 99 AND SERIES 71
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 99 and Series 71 covered by
prospectuses heretofore filed as part of separate registration statements
on Form S-6 (Registration Nos. 33-49993 and 33-53688, respectively) under
the Act.
C/M: 10726.0053 299551.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99 AND SERIES 71
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
(b) Certain information regarding
periodic payment certificates... Not Applicable
ii
C/M: 10726.0053 299551.1
<PAGE>
(c) Certain percentages............. Public Offering--Offering Price
(d) Certain other fees, etc. payable Rights of Unit Holders--Certificates
by holders......................
(e) Certain profits receivable by
depositors, principal
underwriters, trustee or
affiliated persons.............. Public Offering--Offering Price; Rights
of Unit Holders--Redemption--Purchase by
the Sponsors of Units Tendered for
Redemption
(f) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... The Trust; Rights of Unit Holders--
Certificates
15. Receipt and handling of payments
from purchasers................... Public Offering--Offering Price;
Amendment and Termination of the Trust
Agreement
16. Acquisition and disposition of
underlying securities............. The Trust--Portfolio; Sponsors--
Responsibility
17. Withdrawal or redemption............ Public Offering--Market for Units;
Rights of Unit Holders--Redemption
18. (a) Receipt, custody and
disposition of income........... The Trust--Portfolio--General
Considerations; Insurance on the
Bonds; Public Offering--Offering
Price; Rights of Unit Holders--
Distribution of Interest and
Principal; Rights of Unit Holders--
Reports and Records; Amendment and
Termination of the Trust Agreement
(b) Reinvestment of distributions... Automatic Accumulation Account
(c) Reserves or special funds....... Rights of Unit Holders; Rights of Unit
Holders--Distribution of Interest and
Principal; Expenses and Charges--Other
Charges; Amendment and Termination of
the Trust Agreement
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and
Principal; Amendment and Termination
of the Trust Agreement
20. Certain miscellaneous provisions
of trust agreement................ Sponsors--Resignation; Trustee--
Resignation; Trustee--Limitations on
Liability; Amendment and Termination
of the Trust Agreement
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... "
(e) and (f) Depositor, removal
and successor................... "
21. Loans to security holders........... Not Applicable
22. Limitations on liability............ The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
iii
C/M: 10726.0053 299551.1
<PAGE>
23. Bonding arrangements................ Additional Information--Item A
24. Other material provisions
of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......... Sponsors
26. Fees received by depositors........ Not Applicable
27. Business of depositors............. Sponsors
28. Certain information as to
officials and affiliated
persons of depositor.............. Contents of Registration Statement
29. Voting securities of depositors..... Not Applicable
30. Persons controlling depositors...... "
31. Payments by depositors for certain
services rendered to trust........ "
32. Payment by depositors for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositors for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states.............. Public Offering--Distribution of Units
36. Suspension of sales of trust's
securities........................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Public Offering--Distribution of Units
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation............. Prospectus front cover; Public
Offering--Offering Price; Public
Offering--Distribution of Units
(b) Schedule as to offering price... Not Applicable
(c) Variation in offering price
to certain persons.............. Public Offering--Offering Price; Public
Offering--Distribution of Units
iv
C/M: 10726.0053 299551.1
<PAGE>
45. Suspension of redemption rights..... Not Applicable
46. (a) Redemption valuation............ Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption
price................ Not Applicable
47. Maintenance of position in
underlying securities............. Public Offering--Market for Units;
Rights of Unit Holders--Redemption--
Purchase by the Sponsors of Units
Tendered for Redemption; Rights of
Unit Holders--Redemption--Computation
of Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................ Trustee
49. Fees and expenses of trustee........ Rights of Unit Holders--Expenses and
Charges; Rights of Unit Holders--
Distribution of Interest and Principal
50. Trustee's lien...................... Rights of Unit Holders--Expenses and
Charges--Other Charges; Rights of Unit
Holders--Distribution of Interest and
Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................ Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Prospectus front cover;
Sponsors--Responsibility
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsors--Responsibility
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Prospectus front cover; Tax
Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Certain information regarding
periodic payment certificates..... "
56. Certain information regarding
periodic payment certificates..... "
57. Certain information regarding
periodic payment certificates..... "
v
C/M: 10726.0053 299551.1
<PAGE>
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
C/M: 10726.0053 299551.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
Prospectus, Part I 10,785 Units and 3,977 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 each Trust,
including the related bond portfolio, as of May 31, 1995. The second part of
this Prospectus contains a general summary of each 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 each 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."
Empire State Municipal Exempt Trust is comprised of Guaranteed Series 99
(the "Insured Trust") and Series 71 (the "Uninsured Trust") (collectively, the
"Trusts") each of which is a unit investment trust formed for the purpose of
obtaining tax-exempt interest income through investment in a diversified
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 each Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Insured 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 of the Insured Trust 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 each 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 each 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 each 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 300921.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
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
<TABLE>
<CAPTION>
Guaranteed
Series 99 Series 71
------------------ --------------
<S> <C> <C>
Aggregate Principal Amount of Bonds in the Trust: $10,885,000 $3,980,000
Number of Units: 10,785 3,977
Fractional Undivided Interest in the Trust Per Unit: 1/10,785 1/3,977
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $9,499,401.69 $3,511,238.71
============= =============
Sponsors' Repurchase Price Per Unit: $880.80 $882.89
Plus Sales Charge(1): 55.70 55.38
------ ------
Public Offering Price Per Unit(2): $936.50 $938.27
======= =======
Redemption Price Per Unit(3): $880.80 $882.89
Excess of Public Offering Price Over Redemption
Price Per Unit: $55.70 $55.38
Weighted Average Maturity of Bonds in the Trust: 23.503 years 25.119 years
</TABLE>
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: Guaranteed Series 99 - $27,792
Evaluator's Fee: $.55 for each issue of Bonds in
each Trust for each daily
valuation.
Trustee's Annual Fee: For each $1,000 principal amount
of Bonds in each 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: September 8, 1993
Date of Trust Agreement: September 8, 1993
Mandatory Termination Date: December 31, 2042
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust Guaranteed
Series 99 and Series 71 under
which Trust Agreement may be
Terminated: $2,000,000 and
$800,000, respectively.
-2-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 30, 1995
(Continued)
<CAPTION>
Guaranteed
Series 99 Series 71
--------------------- --------------
Monthly Semi-annual Monthly Semi-annual
<S> <C> <C> <C> <C>
P Estimated Annual Interest Income: $54.47 $54.47 $54.51 $54.51
Less Annual Premium on Portfolio Insurance 2.58 2.58 - -
E Less Estimated Annual Expenses 1.71 1.17 2.02 1.55
----- ----- ----- -----
R Estimated Net Annual Interest Income: $50.18 $50.72 $52.49 $52.96
====== ====== ====== ======
U Estimated Interest Distribution: $4.18 $25.36 $4.37 $26.49
N Estimated Current Return Based on Public
Offering Price (4): 5.36% 5.42% 5.59% 5.64%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.56% 5.61% 5.80% 5.85%
Estimated Daily Rate of Net Interest
Accrual: $.13938 $.14088 $.14580 $.14711
Record Dates: 15th Day of 15th Day of May 15th Day of 15th Day of May
Month and November Month and November
Payment Dates: 1st Day of 1st Day of June 1st Day of 1st Day of June
Month and December Month and December
</TABLE>
- --------------------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in Part
II of this Prospectus.
2. Plus accrued interest to July 6, 1995, the expected date of settlement, of
$10.24 monthly and $14.54 semi-annually for the Guaranteed Series 99 and of
$10.86 monthly and $15.38 semi-annually for the Series 71.
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 each 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.
C/M 10726.0053 300921.1
<PAGE>
Portfolio Information
Guaranteed Series 99
On May 31, 1995, the bid side valuation of 100.0% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par. See
Note (B) to "Tax-Exempt Bond Portfolio" for information concerning call and
redemption features of the Bonds.
Series 71
On May 31, 1995, the bid side valuation of 100.0% of the aggregate principal
amount of Bonds in the Portfolio for this Trust was at a discount from par. See
Note (B) to "Tax-Exempt Bond Portfolio" for information concerning call and
redemption features of the Bonds.
Special Factors Concerning the Portfolio
Guaranteed Series 99
The Portfolio consists of 9 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. 39.8% of the aggregate principal amount of the Bonds in the Portfolio
are general obligations of the governmental entities issuing them and are backed
by the taxing power thereof. 17.7% of the aggregate principal amount of the
Bonds in the Portfolio are payable from appropriations. 42.5% 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, 5 (39.8%); Appropriations,
1 (17.7%); Revenue: Higher Education, 1 (19.2%); Water and Sewer, 1 (16.6%); and
Escrowed to Maturity, 1 (6.7%). The Trust is deemed to be concentrated in the
General Obligation bonds category.1 Eight issues, constituting 82.3% of the
Bonds in the Portfolio, are original issue discount bonds, of which one is a
zero coupon bond. On May 31, 1995, 1 issue (6.7%) was rated AAA, 1 issue (19.6%)
was rated A and 4 issues (20.3%) were rated A- by Standard & Poor's Corporation;
1 issue (16.6%) was rated A and 2 issues (36.8%) were rated Baa1 by Moody's
Investors Service, Inc.2 Subsequent to such date, such ratings may have changed.
See "Tax-Exempt Bond Portfolio." For a more detailed discussion, it is
recommended that Unit holders consult the official statements for each Security
in the Portfolio of the Trust.
Series 71
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. 27.6% 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. 18.1% of the aggregate principal amount of the
Bonds in the Portfolio are payable from appropriations. 54.3% 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.
- ----------------------------
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 "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 300921.1
<PAGE>
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 (27.6%); Appropriations,
1 (18.1%); Revenue: Health Care, 1 (15.1%); Higher Education, 2 (16.4%); Water
and Sewer, 1 (15.9%); and Escrowed to Maturity, 1 (6.9%). The Trust is deemed to
be concentrated in the General Obligation bonds category.1 Seven issues,
constituting 81.9% of the Bonds in the Portfolio, are original issue discount
bonds, of which one is a zero coupon bond. On May 31, 1995, 2 issues (22.0%)
were rated AAA, 1 issue (5.0%) was rated A, 1 issue (22.6%) was rated A- and 1
issue (6.2%) was rated BBB+ by Standard & Poor's Corporation; 1 issue (15.9%)
was rated A and 2 issues (28.3%) were rated Baa1 by Moody's Investors Service,
Inc.2 Subsequent to such date, such ratings may have changed. See "Tax-Exempt
Bond Portfolio." For a more detailed discussion, it is recommended that Unit
Holders consult the official statements for each Security in the Portfolio of
the Trust.
Tax Status (The tax opinion which is described herein was rendered on the Date
of Deposit. Consult your tax advisor to discuss any relevant changes in tax
laws since the Date of Deposit. See also "Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in each 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
"Portfolio" in Part II of this Prospectus.
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on a
sale or redemption of a Unit of each 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).
C/M 10726.0053 300921.1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------------------------
----------------------------------------------
The Sponsors, Trustee and Unit Holders of Empire State Municipal
Exempt Trust, Guaranteed Series 99 and Empire State Municipal
Exempt Trust, Series 71:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 99 and Empire State Municipal Exempt
Trust, Series 71, including the bond portfolio, as of May 31, 1995, and the
related statements of operations and changes in net assets for the year ended
May 31, 1995 and the period from September 15, 1993 to 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 99 and Empire State Municipal Exempt Trust, Series 71
as of May 31, 1995, and the results of its operations and changes in net assets
for the year May 31, 1995 and the period from September 15, 1993 to May 31,
1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
New York, New York
June 30, 1995
-6-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1995
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
<CAPTION>
Guaranteed
Series 99 Series 71
------------- -----------
<S> <C> <C>
ASSETS:
CASH................................................................ $55 782 $8 003
INVESTMENTS IN SECURITIES, at market value
(cost $10,452,269 and $3,852,703)................................ 9 753 535 3 595 101
ACCRUED INTEREST RECEIVABLE......................................... 188 737 69 889
-------- -------
Total trust property............................................. 9 998 054 3 672 993
LESS - ACCRUED EXPENSES............................................. 2 854 754
------ ----
NET ASSETS.......................................................... $9 995 200 $3 672 239
========== ==========
</TABLE>
See accompanying notes to financial statements.
-7-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1995
(Continued)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
<CAPTION>
NET ASSETS REPRESENTED BY: Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
Guaranteed Series 99
VALUE OF FRACTIONAL UNDIVIDED
x INTERESTS........................................ $5 366 937 $4 376 945 $9 743 882
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 81 844 169 474 251 318
------- -------- --------
Total value............................... $5 448 781 $4 546 419 $9 995 200
========== ========== ==========
UNITS OUTSTANDING.................................... 5 985 4 881 10 866
====== ====== =======
VALUE PER UNIT....................................... $910.40 $931.45
======= =======
Series 71
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS........................................ $2 558 881 $1 030 922 $3 589 803
UNDISTRIBUTED NET INVESTMENT
INCOME........................................... 40 615 41 821 82 436
------- ------- -------
Total value............................... $2 599 496 $1 072 743 $3 672 239
========== ========== ==========
UNITS OUTSTANDING.................................... 2 847 1 147 3 994
====== ====== ======
VALUE PER UNIT....................................... $913.06 $935.26
======= =======
</TABLE>
See accompanying notes to financial statements.
-8-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENTS OF OPERATIONS
---------------------------------------------------------
---------------------------------------------------------
<CAPTION>
Period from
September 15,
Year ended 1993 to
May 31, 1995 May 31, 1994
<S> <C> <C>
INVESTMENT INCOME - INTEREST.................................................. $591 967 $420 954
-------- --------
EXPENSES:
Trustee fees .......................................................... 9 854 6 937
Evaluation fees.............................................................. 2 514 652
Insurance premiums........................................................... 28 082 20 624
Sponsors' advisory fees...................................................... 2 758 2 001
Audit fee ............................................................... 1 300 -
------ ---------
Total expenses........................................................... 44 508 30 214
------- -------
NET INVESTMENT INCOME......................................................... 547 459 390 740
REALIZED LOSS ON SECURITIES SOLD
OR REDEEMED (Note 4)......................................................... (18 836) -
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (Note 3)......................................... 446 106 (1 144 840)
-------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................................... $974 729 $(754 100)
======== =========
</TABLE>
See accompanying notes to financial statements.
-9-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------
------------------------------------------------------------
<CAPTION>
Period from
September 15,
Year ended 1993 to
May 31, 1995 May 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $547 459 $390 740
Realized loss on securities sold or redeemed................................. (18 836) -
Net change in unrealized market
appreciation (depreciation)................................................ 446 106 (1 144 840)
-------- -----------
Net increase (decrease) in net assets
resulting from operations............................................. 974 729 (754 100)
-------- ---------
DISTRIBUTIONS TO UNIT HOLDERS:
Accrued interest to Date of Deposit.......................................... -- (134 151)
Net investment income........................................................ (552 730) -
--------- ------------
Total distributions...................................................... (552 730) (134 151)
--------- ---------
CAPITAL SHARE TRANSACTIONS:
Redemption of 134 and -0- units.............................................. (108 228) -
--------- -----------
NET INCREASE (DECREASE) ASSETS................................................ 313 771 (888 251)
NET ASSETS:
Beginning of period.......................................................... 9 681 429 10 569 680
---------- -----------
End of period................................................................ $9 995 200 $9 681 429
========== ==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan............................................................... $49.82 $21.75
Semi-annual plan........................................................... $50.30 $1.00
</TABLE>
See accompanying notes to financial statements.
-10-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENTS OF OPERATIONS
------------------------------------------------------------
------------------------------------------------------------
<CAPTION>
Period from
September 15,
Year ended 1993 to
May 31, 1995 May 31, 1994
<S> <C> <C>
INVESTMENT INCOME - INTEREST.................................................. $217 948 $154 380
-------- --------
EXPENSES:
Trustee fees .......................................................... 3 946 2 721
Evaluation fees.............................................................. 1 245 465
Sponsors' advisory fees...................................................... 1 003 728
Auditors' fees............................................................... 1 300 -
------ --------
Total expenses........................................................... 7 494 3 914
------ ------
NET INVESTMENT INCOME......................................................... 210 454 150 466
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION) (Note 3)......................................... 159 452 (417 054)
-------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................................................... $369 906 $(266 588)
======== =========
</TABLE>
See accompanying notes to financial statements.
-11-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENTS OF CHANGES IN NET ASSETS
------------------------------------------------------------
------------------------------------------------------------
<CAPTION>
Period from
September 15,
Year ended 1993 to
May 31, 1995 May 31, 1994
<S> <C> <C>
OPERATIONS:
Net investment income........................................................ $210 454 $150 466
Net change in unrealized market
appreciation (depreciation)................................................ 159 452 (417 054)
-------- ---------
Net increase (decrease) in net assets
resulting from operations............................................. 369 906 (266 588)
-------- ---------
DISTRIBUTIONS TO UNIT HOLDERS:
Accrued interest to Date of Deposit.......................................... - (50 699)
Net investment income........................................................ (211 809) (15 976)
--------- --------
Total distributions...................................................... (211 809) (66 675)
--------- --------
CAPITAL SHARE TRANSACTIONS:
Redemption of -0- and 6 units................................................ - (5 298)
------------ -------
NET INCREASE (DECREASE) IN NET ASSETS......................................... 158 097 (338 561)
NET ASSETS:
Beginning of period.......................................................... 3 514 142 3 852 703
---------- ----------
End of period................................................................ $3 672 239 $3 514 142
========== ==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan............................................................... $52.67 $22.90
Semi-annual plan........................................................... $53.13 $1.00
</TABLE>
See accompanying notes to financial statements.
-12-
C/M 10726.0053 300921.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
NOTES TO FINANCIAL STATEMENTS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
General
Each 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 Trusts are not subject to taxes on income and, accordingly, no
provision has been made.
NOTE 2 - DISTRIBUTIONS
Interest received by each 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 May 1995.
NOTE 3 - NET CHANGE IN UNREALIZED MARKET APPRECIATION
Guaranteed Series 99
The $1,144,840 of unrealized market depreciation of securities for the period
September 15, 1993 to May 31, 1994 was increased by $87,775 of unrealized market
appreciation of securities attributable to the use of offering prices at
September 8, 1993 (Date of Deposit) in the initial registration.
Series 71
The $417,054 of unrealized market depreciation of securities for the period
September 15, 1993 to May 31, 1994 was increased by $30,650 of unrealized market
appreciation of securities attributable to the use of offering prices at
September 8, 1993 (Date of Deposit) in the initial registration.
-13-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
NOTES TO FINANCIAL STATEMENTS
(Concluded)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
NOTE 4 - BONDS SOLD OR REDEEMED (GUARANTEED SERIES 99)
<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>
7 $100 000 1/24/95 The City of New York, $85 000 $102 090 $(17 090)
General Obligation Bonds,
Fiscal 1993, Series A
2 15 000 2/28/95 Puerto Rico Public 13 575 15 321 (1 746)
Buildings Authority,
Public Education and
Health Facilities
Refunding Bonds,
Guaranteed by the
Commonwealth of
Puerto Rico, Series M
$115 000 $98 575 $117 411 $(18 836)
======== ======= ======== =========
</TABLE>
<TABLE>
NOTE 5 - NET ASSETS
<CAPTION>
Guaranteed
Series 99 Series 71
------------- -----------
<S> <C> <C>
Cost of 11,000 and 4,000 units at Date of Deposit $11 114 180 $4 051 183
Less gross underwriting commission 544 500 198 480
-------- --------
Net cost - initial offering price 10 569 680 3 852 703
Redemption of 134 and 6 units (108 228) (5 298)
Realized loss on securities sold or redeemed (18 836) -
Unrealized market depreciation of securities (698 734) (257 602)
Undistributed net investment income 251 318 82 436
-------- -------
Net assets $9 995 200 $3 672 239
========== ==========
</TABLE>
-14-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
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 $725 000 Glen Cove Indus- 0.000% 10/15/19 No Sinking Fund
trial Development No Optional Call
Agency, Civic
Facility Revenue
Bonds (The
Regency at Glen
Cove), 1992
Series B
(Escrowed to
Maturity)
2 A 2 125 000 Puerto Rico Public 5.750 07/01/15 07/01/11 @ 100 S.F.
Buildings Author- 07/01/03 @ 101.5 Opt.
ity, Public Edu-
cation and Health
Facilities Re-
funding Bonds,
Guaranteed by the
Commonwealth of
Puerto Rico,
Series M
3 A* 1 810 000 New York City 5.500 06/15/20 06/15/18 @ 100 S.F.
Municipal Water 06/15/02 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal
1993 Series A
4 A- 250 000 The City of New 6.250 08/01/18 No Sinking Fund
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
5 A- $175 000 The City of New 6.250% 08/01/17 No Sinking Fund
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds
Fiscal 1993
Series A
6 A- 300 000 The City of New 6.250% 08/01/21 No Sinking Fund
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds
Fiscal 1993
Series A
7 A- 1 490 000 The City of New 6.000 05/15/20 No Sinking Fund
York, General 05/15/03 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
8 Baa1* 2 085 000 Dormitory Authority 6.000 07/01/16 07/01/15 @ 100 S.F.
of the State of 07/01/00 @ 100 Opt.
New York, City
University System
Consolidated,
Second General
Resolution
Revenue Bonds,
Series 1990 C
9 Baa1* 1 925 000 New York State 5.500 09/15/22 03/15/15 @ 100 S.F.
Housing Finance 03/15/03 @ 102 Opt.
Agency, Service
Contract Obliga-
tion Revenue
Bonds, 1993
Series A
$10 885 000
===========
</TABLE>
<PAGE>
Annual
Port- Cost of Market Value Interest
folio Bonds as of Income to
No. to Trust May 31, 1995 Trust
- ----- -------- ------------ -------
1 $168 563 $180 547 $-
2 2 170 454 2 058 573 122 188
3 1 805 475 1 640 385 99 550
4 261 015 244 005 15 625
5 $182 710 $171 085 $10 938
6 313 218 291 327 18 750
7 1 521 141 1 403 789 89 400
8 2 131 412 2 035 002 125 100
9 1 898 281 1 728 822 105 875
$10 452 269 $9 753 535 $587 426
=========== ========== ========
C/M 10726.0053 300921.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
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.
-17-
C/M 10726.0053 300921.1
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
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 $605 000 New York State 5.700% 02/15/29 08/15/95 @ 100 S.F.
Medical Care 08/15/03 @ 102 Opt.
Facilities
Finance Agency, St.
Luke's-Roosevelt
Center, Hospital
FHA-Insured
Mortgage Revenue
Bonds, 1993
Series A
2 AAA 275 000 Glen Cove Indus- 0.000 10/15/19 No Sinking Fund
trial Development No Optional Call
Agency, Civic
Facility Revenue
Bonds (The
Regency at Glen
Cove), 1992
Series B
(Escrowed to
Maturity)
3 A 200 000 Puerto Rico Public 5.750 07/01/15 07/01/11 @ 100 S.F.
Buildings Author- 07/01/03 @ 101.5 Opt.
ity, Public Edu-
cation and Health
Facilities Re-
funding Bonds,
Series M,
Guaranteed by the
Commonwealth of
Puerto Rico
4 A* $635 000 New York City, 6.000% 06/15/19 06/15/17 @ 100 S.F.
Municipal Water 06/15/99 @ 100 Opt.
Finance Authority,
Water and Sewer
System Revenue
Bonds, Fiscal
1990 Series A
5 A- 905 000 The City of New 6.250% 08/01/17 No Sinking Fund
York, General 08/01/02 @ 101.5 Opt.
Obligation Bonds,
Fiscal 1993
Series A
6 BBB+ 250 000 Dormitory Authority 5.250 05/15/19 05/15/14 @ 100 S.F.
of the State of No Optional Call
New York, State
University Educa-
tional Facilities,
Revenue Bonds,
Series 1993 B
7 Baa1* 405 000 Dormitory Authority 6.000 07/01/16 07/01/15 @ 100 S.F.
of the State of 07/01/00 @ 100 Opt.
New York, City
University System
Consolidated,
Second General
Resolution
Revenue Bonds,
Series 1990 C
8 Baa1* $725 000 New York State 5.500% 09/15/22 03/15/15 @ 100 S.F.
Housing Finance 03/15/03 @ 102 Opt.
Agency, Service
Contracts Obliga-
tion Revenue
Bonds, 1993
Series A
$4 000 000
==========
</TABLE>
<PAGE>
Port- Annual
folio Cost of Market Value Interest
No. Bonds as of Income to
- ----- to Trust May 31, 1995 Trust
-------- ------------ -------
1 $617 100 $565 609 $34 485
2 63 938 68 483 -
3 204 278 193 748 11 500
4 $653 561 $616 528 $38 100
5 944 874 884 755 56 563
6 240 000 219 575 13 125
7 414 015 395 288 24 300
8 $714 937 $651 115 $39 875
$3 852 703 $3 595 101 $217 948
========== ========== ========
<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 300921.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
Empire State Municipal Exempt Trust (the "Fund") is comprised
of Empire State Municipal Exempt Trust, Series 71 (the "Uninsured Trust") and
Guaranteed Series 99 (the "Insured Trust") (the Uninsured Trust and the Insured
Trust are collectively referred to in this Prospectus as the "Trusts"), each of
which is a series of similar but separate unit investment trusts created under
the laws of the State of New York by separate Trust Indentures and Agreements
(the "Trust Agreements"), dated the Date of Deposit, among Glickenhaus & Co. and
Lebenthal & Co., Inc. as sponsors (the "Sponsors"), The Bank of New York, as
trustee (the "Trustee"), and Muller Data Corporation, as evaluator (the
"Evaluator").
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 of either Trust are redeemed by the Trustee, the fractional undivided
interest in each 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 Fund is to obtain tax-exempt interest
income through an investment in (a) for the Uninsured Trust, a fixed portfolio
consisting primarily of various long-term, investment grade municipal bonds with
average maturities of over 10 years and (b) for the Insured Trust, a fixed
insured portfolio consisting primarily of various long-term municipal bonds with
average maturities of over 10 years. No assurance can be given that the Fund's
objectives will be achieved as these objectives are subject to the continuing
ability of the respective issuers of the bonds to meet their obligations and,
with regard to the Insured Trust, of the Insurer to meet its obligations under
the insurance. In addition, an investment in such portfolio can be affected by
fluctuations in interest rates.
Portfolio
The portfolios of each Trust consist of the Bonds described in
"The Portfolios" in Part I and are represented by the Sponsors' contracts to
C/M: 10726.0053 303862.1
<PAGE>
purchase, which are expected to be settled by the date set forth in Part I. The
Trusts may contain Bonds which have been purchased on a when, as, and if issued
basis. Accordingly, the delivery of such Bonds may be delayed or may not occur.
(See "The Portfolios" in Part I.) Interest on these Bonds begins accruing to the
benefit of Unit holders on their respective dates of delivery. Unit holders will
be "at risk" with respect to these Bonds (i.e., may derive either gain or loss
from fluctuations in the offering side evaluation of the Bonds) from the date
they commit for Units. (See "The Portfolios" in Part I.) For a discussion of the
Sponsors' obligations in the event of the failure of any contract for the
purchase of any of the Bonds and limited right to substitute other bonds to
replace any failed contract, see "Substitution of Bonds". As a result of the
Municipal Bond Investors Assurance Corporation insurance, Moody's Investors
Service has assigned a rating of "Aaa" to all of the Bonds in the Insured Trust,
as insured and Standard & Poor's Corporation has assigned a rating of "AAA" to
the Units and Bonds while in the Insured Trust. (See "Insurance on the Bonds in
the Insured Trust".)
In view of the Fund'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." The insurance on the Bonds in the portfolio obtained
by the Insured Trust does not cover such Bonds until they are delivered to the
Insured Trust. See "The Trusts--Portfolios--General Considerations".
An investment in Units of the Fund 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
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
- 2 -
C/M: 10726.0053 303862.1
<PAGE>
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 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
- 3 -
C/M: 10726.0053 303862.1
<PAGE>
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 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,
- 4 -
C/M: 10726.0053 303862.1
<PAGE>
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.
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
- 5 -
C/M: 10726.0053 303862.1
<PAGE>
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.
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
- 6 -
C/M: 10726.0053 303862.1
<PAGE>
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; (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
- 7 -
C/M: 10726.0053 303862.1
<PAGE>
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, $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
- 8 -
C/M: 10726.0053 303862.1
<PAGE>
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 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
- 9 -
C/M: 10726.0053 303862.1
<PAGE>
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.
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
- 10 -
C/M: 10726.0053 303862.1
<PAGE>
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 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.
- 11 -
C/M: 10726.0053 303862.1
<PAGE>
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 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. Standard & Poor's also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On
- 12 -
C/M: 10726.0053 303862.1
<PAGE>
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.
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.
- 13 -
C/M: 10726.0053 303862.1
<PAGE>
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 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
- 14 -
C/M: 10726.0053 303862.1
<PAGE>
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
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 either Trust
will retain for any length of time its present size and composition. Except as
described in footnotes to "Summary of Essential Financial Information" for the
Uninsured Trust and the Insured Trust, interest accrues to the benefit of Unit
holders commencing with the expected date of settlement for purchase of the
Units. Neither the Sponsors nor the Trustee shall be liable in any way for any
default, failure or defect in any Security.
The following paragraphs discuss the characteristics of the
Bonds in either of the Trusts and of certain types of issuers of the Bonds in
either
- 15 -
C/M: 10726.0053 303862.1
<PAGE>
of the Trusts. 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 either of the Trusts
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 Insured 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 either of the Trusts 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 Bonds in either of the
Trusts may be Bonds that are, in whole or in part, subject to and dependent upon
(1) the governmental entity making appropriations from time to time or (2) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special taxes. The obligation to make lease
payments exists only to the extent of the monies available to the governmental
entity therefor, and no liability is incurred by the governmental entity beyond
the monies so appropriated. Subject to the foregoing, once an annual
appropriation is made, the governmental entity's obligation to make lease rental
payments is absolute and unconditional without setoff or counterclaim,
regardless of contingencies, whether or not a given project is completed or used
by the governmental entity and notwithstanding any circumstances or occurrences
which might arise. In the event of non-appropriation, certificate holders' or
bondowners' sole remedy (absent credit enhancement) generally is limited to
repossession of the collateral for resale or releasing, and the obligation of
the governmental lessee is not backed by a pledge of the general credit of the
governmental lessee. In the event of non-appropriation, the Sponsors may
instruct the Trustee to sell such Bonds.
Moral Obligation Bonds. Certain of the Bonds in either of the
Trusts may be 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.
- 16 -
C/M: 10726.0053 303862.1
<PAGE>
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 each of the Trusts, 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 each of the Trusts are also subject to mandatory
redemption in part at par at any time that voluntary or involuntary prepayments
of principal on the underlying mortgages are made to the trustee for such Bonds
or that the mortgages are sold by the bond issuer. Prepayments of principal tend
to be greater in periods of declining interest rates; it is possible that such
prepayments could be sufficient to cause a housing bond to be redeemed
substantially prior to its stated maturity date, earliest call date or sinking
fund redemption date.
Public Power Revenue Bonds. General problems of the electric
utility industry include difficulty in financing large construction programs
during an inflationary period; restrictions on operations and increased costs
and delays attributable to environmental considerations; the difficulty of the
capital markets in absorbing utility debt and equity securities; the
availability of fuel for electric generation at reasonable prices, including
among other considerations the potential rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal; technical
cost factors and other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including among other considerations the problems associated with the use of
radioactive materials and the disposal of radioactive waste; and the effects of
energy conservation. Certain Bonds may have been issued in connection with the
financing of nuclear generating facilities. In view of recent developments in
connection with such facilities, legislative and administrative actions have
been taken and proposed relating to the
- 17 -
C/M: 10726.0053 303862.1
<PAGE>
development and operation of nuclear generating facilities. The Sponsors are
unable to predict whether any such actions or whether any such proposals or
litigation, if enacted or instituted, will have an adverse impact on the
revenues available to pay the debt service on the Bonds in the portfolio issued
to finance such nuclear projects.
Each of the problems referred to above could adversely affect
the ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings of hospital bonds
are often initially based on feasibility studies which contain projections of
occupancy levels, revenues and expenses. Actual experience may vary considerably
from such projections. A hospital's gross receipts and net income will be
affected by future events and conditions including, among other things, demand
for hospital services and the ability of the hospital to provide them,
physicians' confidence in hospital management capability, economic developments
in the service area, competition, actions by insurers and governmental agencies
and the increased cost and possible unavailability of malpractice insurance.
Additionally, a major portion of hospital revenue typically is derived from
federal or state programs such as Medicare and Medicaid which have been revised
substantially in recent years and which are undergoing further review at the
state and federal level.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such bonds.
Higher Education Revenue Bonds. Higher education revenue bonds
include debt of state and private colleges, universities and systems, and
parental and student loan obligations. The ability of universities and colleges
to meet their obligations is dependent upon various factors, including the
revenues, costs and enrollment levels of the institutions. In addition, their
ability may be affected by declines in Federal, state and alumni financial
support, fluctuations in interest rates and construction costs, increased
maintenance and energy costs, failure or inability to raise tuition or room
charges and adverse results of endowment fund investments.
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
- --------
* For the purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
- 18 -
C/M: 10726.0053 303862.1
<PAGE>
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 either of the Trusts
may contain other Bonds that are "private activity bonds" (often called
industrial revenue bonds ("IRBs") if issued prior to 1987), which would be
primarily of two types: (1) Bonds for a publicly owned facility that a private
entity may have a right to use or manage to some degree, such as an airport,
seaport facility or water system and (2) Bonds for facilities deemed owned or
beneficially owned by a private entity but which were financed with tax-exempt
bonds of a public issuer, such as a manufacturing facility or a pollution
control facility. In the case of the first type, bonds are generally payable
from a designated source of revenues derived from the facility and may further
receive the benefit of the legal or moral obligation of one or more political
subdivisions or taxing jurisdictions. In most cases of project financing of the
first type, receipts or revenues of the Issuer are derived from the project or
the operator or from the unexpended proceeds of the bonds. Such revenues include
user fees, service charges, rental and lease payments, and mortgage and other
loan payments.
The second type of issue will generally finance projects which
are owned by or for the benefit of, and are operated by, corporate entities.
Ordinarily, such private activity bonds are not general obligations of
governmental entities and are not backed by the taxing power of such entities,
and are solely dependent upon the creditworthiness of the corporate user of the
project or corporate guarantor.
The private activity bonds in either of the Trusts 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
- 19 -
C/M: 10726.0053 303862.1
<PAGE>
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 of the Bonds in either of the
Trusts may be 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 of the Bonds in either of the Trusts may be 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 either of the Trusts 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
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
- 20 -
C/M: 10726.0053 303862.1
<PAGE>
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 of the Bonds in either of the Trusts may be 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. Each 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 Trusts' basis, as adjusted, and
the amount received will be taxable gain or loss to the Unit holders. All or a
portion of any such gain may be taxable as ordinary income.
There can be no assurance that additional Federal legislation
will not be enacted or that existing legislation will not be amended hereafter
with the effect that interest on bonds becomes subject to Federal income
taxation. If the interest on the Bonds should ultimately be deemed to be
taxable, the Sponsors may instruct the Trustee to sell them, and, since they
would be sold as taxable securities, it is expected that they would have to be
sold at a substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in each of the Trusts 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 either of the Trusts
- 21 -
C/M: 10726.0053 303862.1
<PAGE>
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 either of the Trusts. 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 "The Portfolios" in Part I
for a list of original issue discount and/or zero coupon bonds and for a
breakdown of the percentage of Bonds in each Trust with offering side valuations
at a premium, discount or at par. See also "Estimated Current Return and
Estimated Long Term Return" in Part I. The portfolio contains a listing of the
sinking fund and call provisions, if any, with respect to each of the Bonds
therein.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the
adjustment of indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict what effect, if any, this
legislation will have on either 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 either 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 either
Trust. Such litigation as, for example, suits challenging the issuance of
pollution control revenue bonds under recently enacted environmental protection
statutes, may affect the validity of such Securities or the tax-free nature of
the interest thereon. While the outcome of such litigation can never be entirely
predicted with certainty, bond counsel have given opinions to the issuing
authorities of each Bond on the date of issuance to the effect that such
Securities have been validly issued and that the interest thereon is exempt from
regular Federal income tax. In addition, other litigation or other factors may
arise from time to time which potentially may impair the ability of issuers to
meet obligations undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the
aggregate bid price of the Bonds in the Trust (as determined by the Evaluator)
plus a sales charge determined in accordance with the schedule set forth below,
which is based upon the maturities of each Bond in the Trust. The Sponsors have
implemented this variable format as a more equitable method of assessing the
sales charge for secondary market purchases. For the purpose of computing the
sales charge, Bonds are deemed to mature on their expressed maturity dates,
unless the Evaluator evaluates the price of the Bonds to a different date, such
as a call date or a mandatory tender date, in which case the maturity will be
deemed to be such other date. This method of computing the sales charge will
apply different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
Percentage of Percentage of
Years to Public Offering Net Amount
Maturity Per Bond Price 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.
The Evaluator will consider in its evaluation of Securities
which are in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default ("Defaulted Bonds") and which are
covered by insurance obtained by the Insured Trust the value of the insurance
guaranteeing interest and principal payments. The value of the insurance will be
equal to the difference between (i) the market value of Defaulted Bonds assuming
the exercise of the right to obtain Permanent Insurance (less the insurance
premium attributable to the purchase of Permanent Insurance and the related
custodial fee) and (ii) the market value of such Defaulted Bonds not covered by
Permanent Insurance. In any case the Evaluator will consider the ability of MBIA
to meet its commitments under the Insured Trust's insurance policy, including
the commitment to issue Permanent Insurance. The Evaluator intends to use a
similar valuation method with respect to Securities insured by the Insured Trust
if there is a significant risk of default and a resulting decrease in the market
value. 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".
If the Trustee does not exercise the right to obtain Permanent
Insurance as to any Defaulted Bonds in the Insured Trust, it is the present
intention of the Trustee, so long as the Insured 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 INSURED
TRUST CANNOT BE REALIZED UPON SALE. Insurance obtained by the issuer of a
Pre-insured Bond, or by some party other than the Insured Trust, 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
- 22 -
C/M: 10726.0053 303862.1
<PAGE>
Bond continues to fulfill its obligations, however, such Bond will in any case
continue to be insured under the policy obtained by the Insured Trust from MBIA
as long as the Bond is held in the Insured Trust.
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 either Trust exceeds demand, or for
some other business reason, the Sponsors may discontinue purchases of Units of
such Trust 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 either 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
either Trust may be expected to be less than the aggregate offering price. If a
Unit holder wishes to dispose of his Units, he should inquire of the Sponsors as
to current market prices prior to making a tender for redemption to the Trustee.
See "Rights of Unit Holders--Redemption" and "Sponsors."
Employees (and their immediate families) of the Sponsors may,
pursuant to employee benefit arrangements, purchase Units of either 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 each 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.
- 23 -
C/M: 10726.0053 303862.1
<PAGE>
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of each Trust are offered on a "dollar price" basis. In
contrast, tax-exempt bonds customarily are offered on a "yield price" basis.
Therefore, the rate of return on each Unit is measured in terms of both
Estimated Current Return and Estimated Long-Term Return. Estimated Current
Return based on the Public Offering Price per Unit and Estimated Long-Term
Return per Unit and information regarding estimated monthly and semi-annual
distributions of interest to Unit holders are set forth under "Summary of
Essential Financial Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated
Net Annual Interest Income per Unit by the Public Offering Price. Estimated Net
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with principal prepayment, redemption, maturity,
exchange or sale of Bonds. The Public Offering Price per Unit will vary with
changes in the offering price of the Bonds. Estimated Current Return takes into
account only the interest payable on the Bonds and does not involve a
computation of yield to maturity or to an earlier redemption date nor does it
reflect any amortization of premium or discount from par value in the Bond's
purchase price. Moreover, because interest rates on bonds purchased at a premium
are generally higher than current interest rates on newly issued bonds of a
similar type with comparable ratings, the Estimated Current Return per Unit may
be affected adversely if such Bonds are redeemed prior to their maturity.
Therefore, there is no assurance that the Estimated Current Return as set forth
under "Summary of Essential Financial Information" in Part I of this Prospectus
will be realized in the future.
Estimated Long-Term Return is calculated using a formula that
(i) takes into consideration, and determines and factors in the relative
weightings of, the market values, yields (taking into account the amortization
of premiums and the accretion of discounts) and estimated retirements of all the
Bonds in the portfolio and (ii) takes into account the expenses and sales charge
associated with each Unit of the Trust. The Estimated Long-Term Return assumes
that each Bond is retired on its pricing life date (i.e., that date which
produces the lowest dollar price when yield price calculations are done 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 IN THE INSURED TRUST
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in the Insured Trust has been obtained from
the Insurer by the Insured Trust. The Insurer has issued a policy of insurance
covering each of the Bonds in the Insured Trust, including Pre-insured Bonds.
The MBIAC insurance obtained by the Insured Trust is only effective as to Bonds
owned by and held in the Insured Trust and, consequently, does not cover Bonds
for which the contract for purchase fails. A "when issued" Bond will be covered
under the MBIAC policy upon the settlement date of the issue of such "when
issued" Bond. The MBIAC policy shall continue in force only with respect to
Bonds held in and owned by the Insured Trust, and the Insurer shall not have any
liability under the policy with respect to any Bonds which do not constitute
part of the Insured Trust. In determining to insure the Bonds, the Insurer has
applied its own standards which generally correspond to the standards it has
established for determining
- 24 -
C/M: 10726.0053 303862.1
<PAGE>
the insurability of new issues of municipal bonds. See "Notes to Portfolios"
in Part I of this Prospectus.
By the terms of its policy, the Insurer unconditionally
guarantees to the Insured 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 issues of small 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 by reason of mandatory or optional redemption
(other than a mandatory sinking fund redemption). The Insurer will be
responsible for such payments less any amounts received by the Insured Trust
from any trustee for the Bond issuers or from any other source. Except as
provided below, the MBIAC policy does not guarantee payment on an accelerated
basis, the payment of any redemption premium or the value of the Units of the
Insured Trust. The MBIAC policy also does not insure against nonpayment of
principal or of 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.
However, with respect to small issue industrial development Bonds and pollution
control revenue Bonds covered by the policy, the Insurer guarantees any
accelerated 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 MBIAC policy 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 MBIAC insurance policy is non-cancellable and will
continue in force so long as the Insured Trust is in existence and the
Securities described in the policy continue to be held in and owned by the
Insured Trust (see "The Trust--Insurance" in Part I of this Prospectus). Failure
to pay premiums on the MBIAC policy obtained by the Insured Trust will not
result in the cancellation of insurance but will force the Insurer to take
action against the Trustee to recover premium payments due it. The Trustee in
turn will be entitled to recover such payments from the Insured Trust.
The MBIAC policy shall terminate as to any Bond which has been
redeemed from the Insured Trust 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, the MBIAC policy will terminate as
to such Bond on the business day next succeeding such date of payment. The
termination of the MBIAC policy as to any Bond shall not affect the Insurer's
obligations regarding any other Bond in the Insured Trust or any other Trust
which has obtained a MBIAC insurance policy. The MBIAC policy will terminate as
to all Bonds on the date on which the last of the Bonds matures, is redeemed or
is sold by the Insured Trust.
Pursuant to an irrevocable commitment of the Insurer, the
Trustee upon the sale of a Bond in the Insured Trust has the right to obtain
permanent insurance with respect to such Bond (i.e., insurance to maturity of
the Bond) (the "Permanent Insurance") upon the payment of a single predetermined
- 25 -
C/M: 10726.0053 303862.1
<PAGE>
insurance premium from the proceeds of the sale of such Bond. Accordingly, any
Bond in the Insured 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 Insured Trust upon instruction from the Sponsors only if upon
such exercise the Insured 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 were sold on an uninsured basis.
The Permanent Insurance premium with respect to each Bond in
the Insured Trust 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 Insured
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 Insured Trust (including the right to obtain Permanent
Insurance) for the purpose of computing the price or redemption value of Units
thereof only if the Bonds covered by such insurance are in default in payment of
principal or interest or, in the Sponsors' opinion, in significant risk of such
default. The value of the insurance will be equal to the difference between (i)
the market value of a Bond which is in default in payment of principal or
interest or in significant risk of such default assuming the exercise of the
right to obtain Permanent Insurance (less the insurance premium attributable to
the purchase of Permanent Insurance and the related custodial fee) and (ii) the
market value of such Bonds not covered by Permanent Insurance. See "Public
Offering--Offering Price" for a more complete description of the Evaluator's
method of valuing defaulted Bonds and Bonds which have a significant risk of
default. Insurance obtained by the issuer of a Bond or by parties other than the
Insured 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 Insured Trust from the Insurer as long
as the Bond is held in the Insured Trust. Insurance obtained by the issuer of a
Bond or by other parties may be considered to represent an element of market
value in regard to the Bonds thus insured, but the exact effect, if any, of this
insurance on such market value cannot be predicted.
In the event that interest on or principal of a Bond is due
for payment but is unpaid by reason of nonpayment by the issuer thereof, the
Insurer will make payments to its fiscal agent, as identified in the insurance
policy (the "Fiscal Agent"), equal to such unpaid amounts of principal and
interest not later than one business day after the Insurer has been notified by
the Trustee that such nonpayment has occurred (but not earlier than the date
such payment is due). The Fiscal Agent will disburse to the Trustee the amount
of principal and interest which is then due for payment but is unpaid upon
receipt by the Fiscal Agent of (1) evidence of the Trust's right to receive
payment of such principal and interest and (2) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of such
principal or interest then due for payment shall thereupon vest in the Insurer.
Upon payment by the Insurer of any principal or interest payments with respect
to any Bonds, the Insurer shall succeed to the rights of the owner of such Bonds
with respect to such payment.
- 26 -
C/M: 10726.0053 303862.1
<PAGE>
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.
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.
Standard & Poor's Corporation has assigned to the Units and
Bonds in the Insured Trust a rating of "AAA". Moody's Investors Service has
assigned a rating of "Aaa" to all of the Bonds in the Insured Trust, as insured.
These ratings apply to the Bonds only while they are held in the Insured Trust.
Also, these ratings reflect Standard & Poor's and Moody's current assessments of
the creditworthiness of the Insurer and their ability to pay claims on their
policies of insurance.
Battle Fowler LLP, special counsel for the Sponsors, have
rendered an opinion to the effect that the payment of proceeds from the
insurance will be excludible from Federal gross income if, and to the same
extent as, such interest would have been so excludible if paid by the issuer of
the defaulted obligations. See "Tax Status".
The contract of insurance relating to the Insured Trust,
certain agreements relating to the Permanent Insurance and the negotiations in
respect thereof represent the only significant relationship between the Insurer
and the Insured 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 the Insurer's parent company, MBIA Inc. Although all issues
contained in the Insured Trust are individually insured, neither the Insured
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 Insured 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 Corporation's "AAA" rating and/or Moody's Investors Service'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,
- 27 -
C/M: 10726.0053 303862.1
<PAGE>
of course, no certainty that this result will be achieved. Any Pre-insured Bonds
in the Insured Trust (all of which are rated "AAA" by Standard & Poor's
Corporation and/or "Aaa" by Moody's Investors Service, respectively) may or may
not have a higher yield than uninsured bonds rated "AAA" by Standard & Poor's
Corporation and/or "Aaa" by Moody's Investors Service, respectively. In
selecting Pre-insured Bonds for the portfolio of the Insured Trust, the Sponsors
have applied the criteria hereinbefore described.
Because the Securities in the Insured Trust are insured by
MBIAC as to the payment of principal and interest, Standard & Poor's Corporation
has assigned its "AAA" investment rating to the Units and Bonds in the Insured
Trust and Moody's Investors Service has assigned a rating of "Aaa" to all of the
Bonds in the Insured Trust, as insured. See "Statement of Condition--Notes to
Portfolios" in Part I. The obtaining of these ratings by the Insured Trust
should not be construed as an approval of the offering of the Units by Standard
& Poor's Corporation or Moody's Investors Service or as a guarantee of the
market value of the Insured 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 the Trust expenses or portfolio asset sales for less than the Insured
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 each 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
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 either 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
- 28 -
C/M: 10726.0053 303862.1
<PAGE>
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 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
either 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 either
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
- 29 -
C/M: 10726.0053 303862.1
<PAGE>
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 either Trust, interest on such
indebtedness will not be deductible for Federal income tax purposes. Under rules
used by the Internal Revenue Service, the purchase of Units may be considered to
have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of Units. Similar rules are applicable for
purposes of state and local taxation. Also, under Section 291 of the Code,
certain financial institutions that acquired Units on or before August 7, 1986
may be subject to a reduction in the amount of interest expense that would
otherwise be allowable as a deduction for Federal income tax purposes. Subject
to certain exceptions under Section 265 of the Code, no deduction is allowed to
a financial institution for that portion of the institution's interest expense
allocable to tax-exempt interest on Units acquired after August 7, 1986.
Investors with questions regarding this issue should consult their tax advisors.
Each of the Trusts 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. Each 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.
- 30 -
C/M: 10726.0053 303862.1
<PAGE>
If a Unit holder's tax cost for his pro rata interest in a
Bond exceeds his pro rata interest in the Bond's face amount, the Unit holder
will be considered to have purchased his pro rata interest in the Bond at a
"premium." The Unit holder will be required to amortize any premium relating to
his pro rata interest in a Bond prior to the maturity of the Bond. Amortization
of premium on a Bond will reduce a Unit holder's tax basis for this pro rata
interest in the Bond, but will not result in any deduction from the Unit
holder's income. Thus, for example, a Unit holder who purchases a pro rata
interest in a Bond at a premium and resells it at the same price will recognize
taxable gain equal to the portion of the premium that was amortized during the
period the Unit holder is considered to have held such interest.
For obligations issued on or before September 27, 1985, bond
premium must be amortized under the method the Unit holder regularly employs for
amortizing bond premium (assuming such method is reasonable) or, otherwise, on a
straight-line basis. Thus, if a Unit holder has previously amortized bond
premium with respect to other bonds (whether tax-exempt or taxable) on a
straight-line basis, the Unit holder may be prohibited from adopting a more
favorable method of amortizing bond premium such as a constant interest method.
For obligations issued after September 27, 1985, amortizable bond premium must
be computed on the basis of the Unit holder's yield to maturity, determined by
using the Unit holder's basis for the Bond, compounding at the close of each
"accrual period" (as defined in Section 1272(a)(5) of the Code). With respect to
any tax-exempt bond, the amount of bond premium is determined with reference to
the amount of the basis of such bond and the total amount payable at maturity or
on an earlier call date. If the amount payable on an earlier call date is used
in determining the amortizable bond premium attributable to the period before
the earlier call date, such bond shall be treated as maturing on such date for
the amount so payable and then reissued on such date for the amount so payable.
The exemption of interest on municipal obligations for Federal
income tax purposes does not necessarily result in exemption under the income
tax laws of any state or local government. Interest income derived from the
Bonds is not excluded from net income in determining New York State or New York
City franchise taxes on corporations or financial institutions. The laws of such
states and local governments vary with respect to the taxation of such
obligations.
From time to time proposals have been introduced before
Congress, the purpose of which is to restrict or eliminate the Federal income
tax exemption for interest on debt obligations similar to the Bonds in each
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 Trusts.
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 either 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 Trusts and to tax interest
on such bonds in the future. The decision does not, however,
- 31 -
C/M: 10726.0053 303862.1
<PAGE>
affect the current exemption from taxation of the interest earned on the Bonds
in each Trust in accordance with Section 103 of the Code.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units of each Trust is evidenced by registered
certificates executed by the Trustee and the Sponsors. The Trustee is authorized
to treat as the record owner of Units that person who is registered as such
owner on the books of the Trustee. Certificates are transferable by presentation
and surrender to the Trustee properly endorsed and accompanied by a written
instrument or instruments of transfer.
Certificates may be issued in denominations of one Unit or any
multiple thereof. A Unit holder may be required to pay $2.00 per certificate
reissued or transferred and to pay any governmental charge that may be imposed
in connection with each such transfer or interchange. For new certificates
issued to replace destroyed, stolen or lost certificates, the Unit holder must
furnish indemnity satisfactory to the Trustee and must pay such expenses as the
Trustee may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly,
depending on the method of distribution chosen, principal, including capital
gains, will be distributed only semi-annually; provided, however, that, other
than for purposes of redemption, no distribution need be made from the Principal
Account if the balance therein is less than $1.00 per Unit then outstanding, and
that, if at any time the pro rata share represented by the Units of cash in the
Principal Account exceeds $10.00 as of a Monthly Record Date, the Trustee shall,
on the next succeeding Monthly Distribution Date, distribute the Unit holder's
pro rata share of the balance of the Principal Account. Interest (semi-annually
or monthly) and principal, including capital gains, if any (semi-annually),
received by a Trust will be distributed on each Distribution Date to Unit
holders of record of such 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 each Trust
all interest received by such Trust, including that part of the proceeds of any
disposition of Securities which represents accrued interest. Other receipts of
each Trust will be credited to the Principal Account for such Trust. The pro
rata share of the Interest Account of each Trust and the pro rata share of cash
in the Principal Account of each 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 each Trust and will not be distributed until the second succeeding
Distribution Date. Because interest on the Securities is not received by each
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 such 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
- 32 -
C/M: 10726.0053 303862.1
<PAGE>
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 a 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 each 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
each Trust. Amounts so withdrawn shall not be considered a part of each Trust's
assets until such time as the Trustee shall return all or any part of such
amounts to the appropriate account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account such amounts as may be necessary
to cover redemption of Units by the Trustee. See "Rights of Unit
Holders--Redemption." Funds which are available for future distributions,
payments of expenses and redemptions are in accounts which are non-interest
bearing to the Unit holders and are available for use by the Trustee pursuant to
normal banking procedures.
Because interest on Securities in each Trust is payable at
varying intervals, usually in semi-annual installments, the interest accruing to
each 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 each 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 such Trust is terminated. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit."
- 33 -
C/M: 10726.0053 303862.1
<PAGE>
Expenses and Charges
Initial Expenses
At no cost to either 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 each 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 each 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 Trusts' 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
Agreements, reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee's and Evaluator's fees are payable monthly on or
before each Distribution Date and the Sponsors' annual fee is payable annually
on December 1, each from the Interest Account to the extent funds are available
and then from the Principal Account. These fees may be increased without
approval of the Unit holders by amounts not exceeding proportionate increases in
consumer prices for services as measured by the United States Department of
Labor's Consumer Price Index entitled "All Services Less Rent." If the balances
in the Principal and Interest Accounts are insufficient to provide for amounts
payable by each Trust, or amounts payable to the Trustee which are secured by
its prior lien on each Trust, the Trustee is permitted to sell Bonds to pay such
amounts.
Insurance Premiums
The cost of the insurance obtained by the Insured 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 Insured Trust as of
the date of such information. The premium, which is an obligation of the Insured
Trust, is payable monthly by the Trustee on behalf of the Insured Trust. As
Securities in the portfolio mature, they 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 Insured Trust.
The Insured 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 Insured 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
- 34 -
C/M: 10726.0053 303862.1
<PAGE>
Permanent Insurance and the related custodial fee will be paid solely from the
proceeds of the sale of a Bond from the Insured 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
either of the Trusts: all expenses (including audit and counsel fees) of the
Trustee incurred in connection with its activities under the Trust Agreements,
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 each Trust and the
rights and interests of the Unit holders; fees of the Trustee for any
extraordinary services performed under the Trust Agreements; 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 each Trust; and all taxes and other
governmental charges imposed upon the Securities or any part of such 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 each 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 each 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 with respect to the Trust in which they hold Units: (1) as
to the Interest Account: interest received (including amounts representing
interest received upon any disposition of Securities and any earned original
issue discount), and, if the issuers of the Securities are located in different
states or territories, the percentage of such interest by such states or
territories, deductions for payment of applicable taxes and for fees and
expenses of the Trust (including insurance costs), redemptions of Units and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (2) as to
the Principal Account: the dates of disposition of any Securities and the net
proceeds received therefrom (including any unearned original issue discount but
excluding any portion representing interest, with respect to the Insured 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.
- 35 -
C/M: 10726.0053 303862.1
<PAGE>
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 of each Trust, certificates issued or held, a current
list of Securities in the portfolio of each Trust and a copy of each Trust
Agreement.
Redemption
Tender of Units
While it is anticipated that Units can be sold in the
secondary market, Units may also be tendered to the Trustee for redemption at
its corporate trust office at 101 Barclay Street, New York, New York 10286, upon
payment of any applicable tax. At the present time there are no specific taxes
related to the redemption of the Units. No redemption fee will be charged by the
Sponsors or the Trustee. Units redeemed by the Trustee will be cancelled.
Certificates for Units to be redeemed must be delivered to the
Trustee and must be properly endorsed and accompanied by a written instrument of
transfer. Thus, redemption of Units cannot be effected until certificates
representing such Units have been delivered to the person seeking redemption.
See "Rights of Unit Holders--Certificates." Unit holders must sign exactly as
their names appear on the face of the certificate with signature(s) guaranteed
by an officer of a national bank or trust company, a member firm of either the
New York, Midwest or Pacific Stock Exchange, or in such other manner as may be
acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority.
Within seven calendar days following such tender or, if the
seventh calendar day is not a business day, on the first business day prior
thereto, the Unit holder will be entitled to receive in cash an amount for each
Unit tendered equal to the Redemption Price per Unit computed as of the
Evaluation Time set forth in Part I of this Prospectus under "Summary of
Essential Financial Information" as of the next subsequent Evaluation Time. See
"Redemption--Computation of Redemption Price per Unit." The "date of tender" is
deemed to be the date on which Units are received by the Trustee, except that as
regards Units received after the Evaluation Time on the New York Stock Exchange,
the date of tender is the next day on which such Exchange is open for trading or
the next day on which there is a sufficient degree of trading in Units of each
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 each Trust will be reduced.
If the Trustee exercises the right to obtain Permanent
Insurance on a Bond in the Insured Trust, such Bond will be sold from the
Insured Trust on an insured basis. In the event the Trustee does not exercise
the right to obtain Permanent Insurance on a Bond, such Bond will be sold from
the Insured
- 36 -
C/M: 10726.0053 303862.1
<PAGE>
Trust on an uninsured basis, since the MBIAC insurance obtained by the Insured
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 Insured Trust. If the Trustee
does not obtain Permanent Insurance on a Defaulted Bond, to the extent that
Bonds which are current in payment of interest are sold from the Insured 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
Insured 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 Insured Trust terminates as
to Bonds which are sold by the Trustee, and because the insurance obtained by
the Insured Trust does not have a realizable cash value which can be used by the
Trustee to meet redemption of Units, under certain circumstances the Sponsors
may apply to the Securities and Exchange Commission for an order permitting a
full or partial suspension of the rights of Unit holders to redeem their Units
if a significant portion of the Bonds in the Insured Trust 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 Insured
Trust's insurance on Defaulted Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on
the basis of the bid prices of the Securities in the Trust, as of the Evaluation
Time stated under "Summary of Essential Financial Information" in Part I of this
Prospectus on the day any such determination is made. The Redemption Price per
Unit is each Unit's pro rata share, determined by the Trustee, of (1) the
aggregate value of the Securities in each 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 each 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 each Trust, (b) the
accrued expenses of each 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 each 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 Insured Trust on the Bonds in the Insured 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 Insured 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
- 37 -
C/M: 10726.0053 303862.1
<PAGE>
insurance obtained by the Insured Trust, see "Public Offering--Market for
Units."
Purchase by the Sponsors of Units Tendered for Redemption
Each 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 "Exchange Trusts") are offering Unit
holders of the Exchange Trusts for which the Sponsors are maintaining a
secondary market an option to exchange a Unit of any series of the Exchange
Trusts for a Unit of a different series of the Exchange Trusts being offered by
the Sponsors (other than in the initial offering period) at a Public Offering
Price generally based on the bid prices of the underlying Securities divided by
the number of Units outstanding (see "Public Offering--Market for Units") plus a
fixed sales charge of $15 per Unit (in lieu of the normal sales charge).
However, a Unit holder must have held his Unit for a period of at least six
months in order to exercise the exchange option or agree to pay a sales charge
based on the greater of $15 per Unit or an amount which together with the
initial sales charge paid in connection with the acquisition of Units being
exchanged equals the normal sales charge of the series into which the investment
is being converted, determined as of the date of the exchange. Such exchanges
will be effected in whole Units only. Any excess proceeds from the Units being
surrendered will be returned, and the Unit holder will not be permitted to
advance any new money in order to complete an exchange. The Sponsors reserve the
right to modify, suspend or terminate this plan at any time without further
notice to the Unit holders. In the event that the exchange option is not
available to a Unit holder at the time he wishes to exercise it, the Unit holder
will be immediately notified and no action will be taken with respect to his
Units without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the
tax consequences of exchanging Units.
- 38 -
C/M: 10726.0053 303862.1
<PAGE>
AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan")
with Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit
holders of either Trust to elect to have distributions from Units in such 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 either 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 each 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
- 39 -
C/M: 10726.0053 303862.1
<PAGE>
right to terminate this Plan at any time for any reason. The reinvestment of
distributions from either 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.
- 40 -
C/M: 10726.0053 303862.1
<PAGE>
[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of either 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 each Trust to elect to have distributions from Units in such 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 either Trust. The bonds purchased by the Bond Fund
will be of "investment grade" quality -- that is, at the time of purchase by the
Bond Fund, such bonds either will be rated not lower than the four highest
ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, A or
BBB) or will be unrated bonds which at the time of purchase are judged by the
Bond Fund's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Bond Fund that under
normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of each 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
- 40 -
C/M: 10726.0053 303862.1
<PAGE>
[ALTERNATE PAGE]
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 either
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.
- 41 -
C/M: 10726.0053 303862.1
<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, including all
Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series of
The 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 each
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 in the Insured Trust, 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 Insured Trust in order to preserve the
related insurance protection applicable to said Bonds, the overall value of the
Bonds remaining in the Insured Trust's portfolio will tend to diminish. 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
- 42 -
C/M: 10726.0053 303862.1
<PAGE>
Insured 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 Insured 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 in the Insured
Trust."
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
each Trust would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal Account of the
affected Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final
distributions to Unit holders, if the Trustee does not exercise the right to
obtain Permanent Insurance on any Defaulted Bond, because the portfolio
insurance obtained by the Insured Trust is applicable only while Bonds so
insured are held by the Insured Trust, the price to be received by the Insured
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 the Insured 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
- 43 -
C/M: 10726.0053 303862.1
<PAGE>
proceeds received, less applicable expenses, from insurance on Defaulted Bonds
in the Insured Trust 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 each Trust Agreement.
If the Sponsors are unable to agree with respect to action to be taken jointly
by them under each 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 each 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
each 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 each 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 each Trust Agreement and liquidate each 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 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
- 44 -
C/M: 10726.0053 303862.1
<PAGE>
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
each 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 either 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, 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 each 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 each 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.
- 45 -
C/M: 10726.0053 303862.1
<PAGE>
Responsibility
Each 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 each
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 a 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 a 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 a 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 either Trust Agreement.
In the event of any amendment, the Trustee is obligated to notify promptly all
Unit holders of the substance of such amendment.
A Trust shall terminate upon the maturity, redemption, sale or
other disposition, as the case may be, of the last of the Securities contained
in such Trust's portfolio. The Trustee shall notify all Unit holders when the
value of each Trust as shown by any evaluation is less than $2,000,000 or less
than 20% of the value of each Trust as of the Date of Deposit, whichever is
lower, at which time each 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 each Trust. In no event, however, may a 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 such Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro
- 46 -
C/M: 10726.0053 303862.1
<PAGE>
rata share of the balances remaining in the Interest and Principal Accounts of
such Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Battle Fowler
LLP, 75 East 55th Street, New York, New York 10022 as special counsel for the
Sponsors and Tanner, Propp, Fersko & Sterner, 99 Park Avenue, New York, New York
10016, acting as counsel for the Trustee.
AUDITORS
The financial statements of each 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
- 47 -
C/M: 10726.0053 303862.1
<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"
- 48 -
C/M: 10726.0053 303862.1
<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.
- 49 -
C/M: 10726.0053 303862.1
<PAGE>
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 made.
- -------------------------------------------------------
INDEX
- -------------------------------------------------------
Page
The Trust.............................................. 1
Public Offering........................................ 22
Estimated Current Return and Estimated
Long-Term Return to Unit Holders...................... 25
Insurance on the Bonds in the Insured Trust............ 25
Tax Status............................................. 29
Rights of Unit Holders................................. 33
Automatic Accumulation Account......................... 40
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.
C/M: 10726.0053 303862.1
<PAGE>
- --------------------------------------------------------------
EMPIRE STATE
MUNICIPAL EXEMPT TRUST
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
<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 mendment 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.
II-1
C/M: 10726.0053 299551.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 99 and
Series 71 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 99 AND SERIES 71
(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.
II-2
C/M: 10726.0053 299551.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 99 and
Series 71 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 99 AND SERIES 71
(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.
II-3
C/M: 10726.0053 299551.1
<PAGE>
CONSENT OF COUNSEL
The consent of Battle Fowler LLP to the use of their name in the
Prospectus included in the Registration Statement is contained in their
opinion filed previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST GUARANTEED SERIES 99 AND SERIES 71
We hereby consent to the use in Post-Effective Amendment No. 2 to
Registration Statement No. 33-49993 of our opinion dated June 30, 1995
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 99 and Series 71 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
II-4
C/M: 10726.0053 299551.1
<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 299551.1
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 99 - Post-effective Amendment No. 2
Series 71 - Post-effective Amendment No. 2
Gentlemen:
We have examined the post-effective Amendment to the Registration
Statement File No. 33-49993 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
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial
information extracted from the
financial statements and supporting
schedules as of the end of the most
current period and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000910389
<NAME> GTD 99
<SERIES>
<NUMBER> 1
<NAME> INSURED
<S> <C>
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 10452269
<INVESTMENTS-AT-VALUE> 9753535
<RECEIVABLES> 188737
<ASSETS-OTHER> 55782
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9998054
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2854
<TOTAL-LIABILITIES> 2854
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 10886
<SHARES-COMMON-PRIOR> 11000
<ACCUMULATED-NII-CURRENT> 251318
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (698734)
<NET-ASSETS> 9995200
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 591967
<OTHER-INCOME> 0
<EXPENSES-NET> 44508
<NET-INVESTMENT-INCOME> 547459
<REALIZED-GAINS-CURRENT> (18836)
<APPREC-INCREASE-CURRENT> 446106
<NET-CHANGE-FROM-OPS> 974729
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 521074
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 139884
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 134
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 313771
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 880.12
<PER-SHARE-NII> 50.38
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 47.95
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 919.86
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND> The schedule contains summary financial
information extracted from the
financial statements and supporting
schedules as of the end of the most
current period and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000910389
<NAME> GTD 71
<SERIES>
<NUMBER> 2
<NAME> UNINSURED
<S> <C>
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<PERIOD-TYPE> Year
<INVESTMENTS-AT-COST> 3852703
<INVESTMENTS-AT-VALUE> 3595101
<RECEIVABLES> 69889
<ASSETS-OTHER> 8003
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3672993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 754
<TOTAL-LIABILITIES> 754
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 3994
<SHARES-COMMON-PRIOR> 3994
<ACCUMULATED-NII-CURRENT> 82436
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (257602)
<NET-ASSETS> 3672239
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 217948
<OTHER-INCOME> 0
<EXPENSES-NET> 7494
<NET-INVESTMENT-INCOME> 210454
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 159452
<NET-CHANGE-FROM-OPS> 369906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 211809
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 158097
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 879.85
<PER-SHARE-NII> 52.69
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 53.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 919.43
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
