Rule 497(b)
File No. 33-49993
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
Prospectus, Part I 10,770 Units (Guaranteed Series 99) and 3,959 Units
(Series 71) Dated: September 30, 1996
NOTE: Part I of this Prospectus may not be distributed
unless accompanied by Part II.
This Prospectus consists of two parts. The first part contains a "Summary
of Essential Financial Information" on the reverse hereof as of June 28, 1996
and a summary of additional specific information including "Special Factors
Concerning the Portfolio" and audited financial statements of the Trust,
including the related bond portfolio, as of May 31, 1996. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest on the Bonds which is exempt from federal income tax when
received by the Trust will be excludable from the federal gross income of the
Unit holders and, with certain exceptions, interest income to the Unit holders
is generally exempt from all New York State and New York City income taxes.
Capital gains, if any, are subject to tax. See Part II under "Tax Status."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Ratings Services, a
division of the McGraw-Hill Companies ("Standard & Poor's").
Offering. The initial public offering of Units in the Trust has been
completed. The Units offered hereby are issued and outstanding Units which have
been acquired by the Sponsors either by purchase from the Trustee of Units
tendered for redemption or in the secondary market. See Part II under "Rights
of Unit Holders -- Redemption -- Purchase by the Sponsors of Units Tendered for
Redemption" and "Public Offering -- Market for Units." The price at which the
Units offered hereby were acquired was not less than the redemption price
determined as described herein. See Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
The Public Offering Price of the Units is based on the aggregate bid price
of the Securities in the Trust divided by the number of Units outstanding, plus
a sales charge determined on the basis of the maturities of the Securities in
the Trust. See "Public Offering -- Offering Price" in Part II of this
Prospectus.
Market for Units. The Sponsors, although they are not obligated to do so,
intend to maintain a secondary market for the Units at prices based upon the
aggregate bid price of the Securities in the Trust plus accrued interest to the
date of settlement, as more fully described in Part II under "Public Offering
- -- Market for Units." If such a market is not maintained, a Unit holder may be
able to dispose of his Units only through redemption at prices based upon the
aggregate bid price of the underlying Securities. The purchase price of the
Securities in the Trust, if they were available for direct purchase by
investors, would not include the sales charges included in the Public Offering
Price of the Units.
Investors should retain both Parts of this Prospectus for future
reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT JUNE 28, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Guaranteed
Series 99 Series 71
--------------------- ---------------------
<S> <C> <C>
Aggregate Principal Amount of Bonds in the Trust: $ 10,785,000 $ 3,965,000
Number of Units: 10,770 3,959
Fractional Undivided Interest in the Trust Per Unit: 1/10,770 1/3,959
Total Value of Securities in the Portfolio (Based on Bid Side
Evaluations of Securities): $ 9,642,407.19 $ 3,552,411.56
===================== =====================
Sponsors' Repurchase Price Per Unit: $ 895.30 $ 897.30
Plus Sales Charge(1): 56.15 56.32
--------------------- ---------------------
Public Offering Price Per Unit(2): $ 951.45 $ 953.62
===================== =====================
Redemption Price Per Unit(3): $ 895.30 $ 897.30
Excess of Public Offering Price Over Redemption Price Per Unit: $ 56.15 $ 56.32
Weighted Average Maturity of Bonds in the Trust: 22.542 years 24.144 years
</TABLE>
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the day next following receipt by a
Sponsor of an order for a Unit sale or purchase or by the Trustee of a
Unit tendered for redemption.
Annual Insurance Premium: Guaranteed Series 99 - $27,564
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in 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
under which Trust
Agreement may be
Terminated: $2,000,000
</TABLE>
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<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 28, 1996
(Continued)
<CAPTION>
Guaranteed
Series 99 Series 71
------------------------------ -----------------------------
Monthly Semi-annual Monthly Semi-annual
<S> <C> <C> <C> <C>
P Estimated Annual Interest Income: $54.01 $54.01 $54.54 $54.54
Less Annual Premium on Portfolio Insurance 2.56 2.56 - -
E Less Estimated Annual Expenses 1.66 1.16 2.52 2.05
------- ------- ------- -------
R Estimated Net Annual Interest Income: $49.79 $50.29 $52.02 $52.49
====== ====== ====== ======
U Estimated Interest Distribution: $ 4.14 $25.14 $ 4.33 $26.24
N Estimated Current Return Based on Public Offering
Price (4): 5.23% 5.29% 5.46% 5.50%
I
Estimated Long-Term Return Based on Public
Offering Price (5): 5.38% 5.44% 5.59% 5.65%
T
Estimated Daily Rate of Net Interest Accrual: $.13830 $.13969 $.14450 .14580
Record Dates: 15th Day of 15th Day of 15th Day of 15th Day of
Month May and Month May and
November November
Payment Dates: 1st Day of 1st Day of 1st Day of 1st Day of
Month June and Month June and
December 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 3, 1996, the expected date of settlement, of
$9.82 monthly and $14.10 semi-annually for Guaranteed Series 99 and $10.39
monthly and $14.87 semi-annually for 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 the Trust's portfolio, weighted to
reflect the market value and time to maturity (or, in certain cases, to
earlier call date) of such Bonds, adjusted to reflect the Public Offering
Price (including sales charge and expenses) per Unit. See "Estimated
Current Return and Estimated Long-Term Return to Unit Holders" in Part II
of this Prospectus.
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<PAGE>
Portfolio Information
Guaranteed Series 99
On May 31, 1996, 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, 1996, 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. 39.3% 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. 17.9% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 42.8% 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 (39.3%);
Appropriations, 1 (17.9%); Revenue: Higher Education, 1 (19.3%); Water and
Sewer, 1 (16.8%); and Escrowed to Maturity, 1 (6.7%). The Trust is deemed to be
concentrated in the General Obligation bond category1. Eight issues,
constituting 82.2% of the Bonds in the Portfolio, are original issue discount
bonds, of which one is a zero coupon bond. On May 31, 1996, 1 issue (6.7%) was
rated AAA, 1 issue (18.8%) was rated A and 4 issues (20.5%) were rated BBB+ by
Standard & Poor's; 1 issue (16.8%) was rated A and 2 issues (37.2%) were rated
Baa1 by Moody's Investors Service, Inc. ("Moody's).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.
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust - - General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part
II of this Prospectus.
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<PAGE>
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. 27.0% of the aggregate principal amount of the Bonds in the
Portfolio are general obligations of the governmental entities issuing them and
are backed by the taxing power thereof. 18.3% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 54.7% of the
aggregate principal amount of the Bonds in the Portfolio are payable from the
income of specific projects or authorities and are not supported by the
issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and the purpose of issue are as follows: General Obligation, 2 (27.0%);
Appropriations, 1 (18.3%); Revenue: Health Care, 1 (15.3%); Higher Education, 2
(16.5%); Water and Sewer, 1 (16.0%); and Escrowed to Maturity, 1 (6.9%). The
Trust is deemed to be concentrated in the General Obligation bond category1.
Seven issues, constituting 81.7% of the Bonds in the Portfolio, are original
issue discount bonds, of which one is a zero coupon bond. On May 31, 1996, 2
issues (22.2%) were rated AAA, 1 issue (4.2%) was rated A, 2 issues (29.1%)
were rated BBB+ by Standard & Poor's; 1 issue (16.0%) was rated A and 2 issues
(28.5%) were rated Baa1 by Moody's.2 Subsequent to such date, such ratings may
have changed. See "Tax-Exempt Bond Portfolio." For a more detailed discussion,
it is recommended that Unit holders consult the official statements for each
Security in the Portfolio of the Trust.
Tax Status (The tax opinion which is described herein was rendered on the Date
of Deposit. Consult your tax advisor to discuss any relevant changes in tax
laws since the Date of Deposit. See also "Tax Status" in Part II of this
Prospectus.)
Interest income on the Bonds contained in the Trust Portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, excludable
from gross income under the Internal Revenue Code of 1986, as amended.
See "The Trust -- Portfolio" in Part II of this Prospectus.
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or on a
sale or redemption of a Unit of the Trust is, however, includable in gross
income as capital gain (or loss) for federal, state and local income tax
purposes assuming that the Unit is held as a capital asset. Such gain (or loss)
does not include any amount received in respect of accrued interest. In
addition, such gain (or loss) may be long- or short-term depending on the facts
and circumstances. Bonds selling at a market discount tend to increase in
market value as they approach maturity when the principal amount is payable,
thus increasing the potential for taxable gain (or reducing the potential for
loss) on their redemption, maturity or sale. In the case of Bonds acquired at a
market discount, gain will be treated as ordinary income to the extent of
accrued market discount. For tax years beginning after December 31, 1992,
long-term capital gains will be taxed at a maximum federal income tax rate of
28%, while ordinary income will be taxed at a maximum federal income tax rate
of 36% (plus a 10% surtax applicable to certain high income taxpayers).
1 A Trust is considered to be "concentrated" in a particular category or
issuer when the Bonds in that category or of that issuer constitute 25% or more
of the aggregate face amount of the Portfolio. See "The Trust - - General
Considerations" in Part II of this Prospectus.
2 For the meanings of ratings, see "Description of Bond Ratings" in Part
II of this Prospectus.
-5-
<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, 1996, and the
related statements of operations and changes in net assets for the years ended
May 31, 1996 and 1995 and the period from September 15, 1993 (initial date of
deposit) 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, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsors, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 99 and Empire State Municipal Exempt Trust, Series 71
as of May 31, 1996, and the results of its operations and changes in net assets
for the years ended May 31, 1996 and 1995 and the period from September 15,
1993 (initial date of deposit) to May 31, 1994, in conformity with generally
accepted accounting principles.
BDO Seidman, LLP
New York, New York
June 28, 1996
-6-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1996
<CAPTION>
Guaranteed
Series 99 Series 71
----------- ----------
<S> <C> <C>
CASH.................................................. $ 65,250 $ 10,417
INVESTMENTS IN SECURITIE3, at market
value (cost $10,350,130 AND $3,816,954)............... 9,605,476 3,537,818
ACCRUED INTEREST RECEIVABLE........................... 186,357 69,056
----------- ------------
Total trust property.......................... 9,857,083 3,617,291
LESS - ACCRUED EXPENSES............................... 3,910 170
------------ -------------
NET ASSETS............................................ $9,853,173 $3,617,121
========== ==========
</TABLE>
See accompanying notes to financial statements.
-7-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
STATEMENT OF NET ASSETS
MAY 31, 1996
(Continued)
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
Guaranteed Series 99
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS..................................... $5,272,479 $4,330,870 $9,603,349
UNDISTRIBUTED NET INVESTMENT
INCOME........................................ 81,105 168,719 249,824
----------- ----------- -----------
Total value................................ $5,353,584 $4,499,589 $9,853,173
========== ========== ==========
UNITS OUTSTANDING................................ 5,913 4,857 10,770
============ ============ ===========
VALUE PER UNIT................................... $ 905.39 $ 926.41
=========== ===========
Series 71
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS..................................... $2,525,557 $1,008,795 $3,534,352
UNDISTRIBUTED NET INVESTMENT
INCOME........................................ 41,345 41,424 82,769
----------- ----------- -----------
Total value................................ $2,566,902 $1,050,219 $3,617,121
========== ========== ==========
UNITS OUTSTANDING................................ 2,829 1,130 3,959
============ ============ ============
VALUE PER UNIT................................... $ 907.35 $ 929.39
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-8-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENTS OF OPERATIONS
<CAPTION>
Period from
September 15,
1993 (initial date
Year ended May 31, of deposit) to
------------------------------------------
1996 1995 May 31, 1994
----------------- ----------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST.............................. $583,181 $591,967 $ 286,803
-------- -------- -----------
EXPENSES:
Trustee fees 9,475 9,854 6,937
Evaluation fees.......................................... 238 2,514 652
Insurance premiums....................................... 27,646 28,082 20,624
Sponsors' advisory fees.................................. 2,675 2,758 2,001
Auditors' fees........................................... 1,800 1,300 -
---------- ---------- ---------------
Total expenses....................................... 41,834 44,508 30,214
--------- --------- ------------
NET INVESTMENT INCOME..................................... 541,347 547,459 256,589
REALIZED LOSS ON SECURITIES SOLD OR
REDEEMED (Note 3)........................................ (7,989) (18,836) -
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION).............................. (45,920) 446,106 (1,144,840)
--------- -------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................ $487,438 $974,729 $ (888,251)
======== ======== ===========
</TABLE>
See accompanying notes to financial statements.
-9-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Period from
September 15,
993 (initial date
Year ended May 31, 1 of deposit) to
----------------------------------------
1996 1995 May 31, 1994
--------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 541,347 $ 547,459 $ 256,589
Realized loss on securities sold or redeemed.............. (7,989) (18,836) -
Net change in unrealized market appreciation
(depreciation).......................................... (45,920) 446,106 (1,144,840)
------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................... 487,438 974,729 (888,251)
------------ ----------- ------------
DISTRIBUTIONS TO UNIT HOLDERS OF NET
INVESTMENT INCOME......................................... (542,841) (552,730) -
----------- ----------- ---------------
CAPITAL SHARE TRANSACTIONS:
Issuance of 11,000 units.................................. - - 10,569,680
Redemption of 96, 134 and -0- units....................... (86,624) (108,228) -
------------ ----------- ---------------
Total capital share transactions...................... (86,624) (108,228) 10,569,680
------------ ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS...................... (142,027) 313,771 9,681,429
NET ASSETS:
Beginning of period....................................... 9,995,200 9,681,429 -
----------- ----------- ---------------
End of period............................................. $9,853,173 $9,995,200 $ 9,681,429
========== ========== ===========
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan............................................ $49.84 $49.82 $21.75
Semi-annual plan........................................ $50.38 $50.30 $ 1.00
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENTS OF OPERATIONS
<CAPTION>
Period from
September 15,
1993 (initial date
Year ended May 31, of deposit) to
------------------------------------------
1996 1995 May 31, 1994
----------------- ----------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME - INTEREST.............................. $216,639 $217,948 $ 103,681
-------- -------- ---------
EXPENSES:
Trustee fees 3,891 3,946 2,721
Evaluation fees.......................................... 1,210 1,245 465
Sponsors' advisory fees.................................. 995 1,003 728
Auditors' fees........................................... 1,300 1,300 -
---------- ---------- ------------
Total expenses....................................... 7,396 7,494 3,914
--------- --------- ----------
NET INVESTMENT INCOME..................................... 209,243 210,454 99,767
REALIZED LOSS ON SECURITIES SOLD OR
REDEEMED (Note 3)........................................ (2,074) - -
NET CHANGE IN UNREALIZED MARKET
APPRECIATION (DEPRECIATION).............................. (21,534) 159,452 (417,054)
--------- -------- ---------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS................................ $185,635 $369,906 $(317,287)
======== ======== =========
</TABLE>
See accompanying notes to financial statements.
-11-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
Period from
September 15,
993 (initial date
Year ended May 31, 1 of deposit) to
----------------------------------------
1996 1995 May 31, 1994
--------------- ----------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income..................................... $ 209,243 $ 210,454 $ 99,767
Realized loss on securities sold or redeemed.............. (2,074) - -
Net change in unrealized market appreciation
(depreciation).......................................... (21,534) 159,452 (417,054)
------------ ----------- -----------
Net increase (decrease) in net assets resulting
from operations.................................... 185,635 369,906 (317,287)
------------ ----------- -----------
DISTRIBUTIONS TO UNIT HOLDERS OF NET
INVESTMENT INCOME (208,910) (211,809) (15,976)
----------- ----------- -----------
CAPITAL SHARE TRANSACTIONS:
Issuance of 4,000 units................................... - - 3,852,703
Redemption of 35, -0- and 6 units......................... (31,843) - (5,298)
------------ -------------- -------------
Total capital share transactions...................... (31,843) - 3,847,405
------------ -------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS...................... (55,118) 158,097 3,514,142
NET ASSETS:
Beginning of period....................................... 3,672,239 3,514,142 -
----------- ----------- --------------
End of period............................................. $3,617,121 $3,672,239 $3,514,142
========== ========== ==========
DISTRIBUTION PER UNIT (Note 2):
Interest:
Monthly plan............................................ $52.43 $52.67 $22.90
Semi-annual plan........................................ $53.08 $53.13 $ 1.00
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
General
The Trust is registered under the Investment Company Act of 1940.
Securities
Securities are stated at bid side market value as determined by an
independent outside evaluator.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Reclassifications
Certain 1994 amounts have been reclassified for comparative purposes.
NOTE 2 - DISTRIBUTIONS
Interest received by the Trust is distributed to Unit holders either
semi-annually on the first day of June and December or, if elected by the Unit
holder, on the first day of each month, after deducting applicable expenses. No
principal distributions, resulting from the sale or redemption of securities,
were made in the period from September 15, 1993 (initial date of deposit) to
May 31, 1996.
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<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - 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, 1996:
<S> <C> <C> <C> <C> <C> <C>
2 $ 85,000 8/ 1/95 Puerto Rico Public Buildings Authority, $79,900 $ 86,818 $(6,918)
Public Education and Health Facilities
Refunding Bonds, Guaranteed by the
Commonwealth of Puerto Rico, Series M
2 15,000 3/13/96 Puerto Rico Public Buildings Authority, 14,250 15,321 (1,071)
Public Education and Health Facilities
Refunding Bonds, Guaranteed by the
Commonwealth of Puerto Rico, Series M
-------- ------- -------- --------
$100,000 $94,150 $102,139 $(7,989)
======== ======= ======== =======
</TABLE>
<TABLE>
Series 71
<CAPTION>
Port-
folio Principal Date Realized
No. Amount Redeemed Description Net Proceeds Cost Loss
- ------- -------- -------- ----------- ------------ ---- -----
Year ended May 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
3 $20,000 6/29/95 Puerto Rico Public Buildings Authority, $18,900 $20,428 $(1,528)
Public Education and Health Facilities
Refunding Bonds, Series M, Guaranteed
by the Commonwealth of Puerto Rico
3 15,000 2/15/96 Puerto Rico Public Buildings Authority, 14,775 15,321 (546)
Public Education and Health Facilities
Refunding Bonds, Series M, Guaranteed
by the Commonwealth of Puerto Rico
------- ------- ------- --------
$35,000 $33,675 $35,749 $(2,074)
======= ======= ======= =======
</TABLE>
-14-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
AND
EMPIRE STATE MUNICIPAL EXEMPT TRUST, SERIES 71
NOTES TO FINANCIAL STATEMENTS
<TABLE>
NOTE 4 - 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
Realized net loss on securities sold or redeemed (26,825) (2,074)
Redemption of 230 and 41 units (194,852) (37,141)
Unrealized market depreciation of securities (744,654) (279,136)
Undistributed net investment income 249,824 82,769
------------ -----------
Net assets $ 9,853,173 $3,617,121
=========== ==========
</TABLE>
-15-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
<CAPTION>
Date of Redemption Features
Port- Aggregate Name of Issuer and Maturity S.F. - Sinking Fund
folio Rating Principal Title of Bond Coupon (Note B) Opt. - Optional Call
No. (Note A) Amount Rate (Note B)
----- -------- ------- ------------------------------- ------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 725,000 Glen Cove Industrial 0.000% 10/15/19 No Sinking Fund
Development Agency, No Optional Call
Civic Facility Revenue
Bonds (The Regency at
Glen Cove), 1992 Series B
(Escrowed to Maturity)
2 A 2,025,000 Puerto Rico Public Buildings 5.750 07/01/15 07/01/11 @ 100 S.F.
Authority, Public 07/01/03 @ 101.5 Opt.
Education and Health
Facilities Refunding
Bonds, Guaranteed by the
Commonwealth of Puerto
Rico, Series M
3 A* 1,810,000 New York City Municipal 5.500 06/15/20 06/15/18 @ 100 S.F.
Water Finance Authority, 06/15/02 @ 100 Opt.
Water and Sewer System
Revenue Bonds, Fiscal
1993 Series A
4 BBB+ 250,000 The City of New York, 6.250 08/01/18 No Sinking Fund
General Obligation Bonds, 08/01/02 @ 101.5 Opt.
Fiscal 1993 Series A
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds May 31, Income to
No. to Trust 1996 Trust
----- ------------- ------ -----------------
1 $ 168,563 $ 177,712 $ -
2 2,068,315 1,954,469 116,437
3 1,805,475 1,665,399 99,550
4 261,015 240,703 15,625
-16-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
(Continued)
<CAPTION>
Date of Redemption Features
Port- Aggregate Name of Issuer and Maturity S.F. - Sinking Fund
folio Rating Principal Title of Bond Coupon (Note B) Opt. - Optional Call
No. (Note A) Amount Rate (Note B)
----- -------- ------- ------------------------------- ------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
5 BBB+ $ 175,000 The City of New York, 6.250% 08/01/17 No Sinking Fund
General Obligation Bonds 08/01/02 @ 101.5 Opt.
Fiscal 1993 Series A
6 BBB+ 300,000 The City of New York, 6.250 08/01/21 No Sinking Fund
General Obligation Bonds 08/01/02 @ 101.5 Opt.
Fiscal 1993 Series A
7 BBB+ 1,490,000 The City of New York, 6.000 05/15/20 No Sinking Fund
General Obligation Bonds 05/15/03 @ 101.5 Opt.
Fiscal 1993 Series A
8 Baa1* 2,085,000 Dormitory Authority of the 6.000 07/01/16 07/01/15 @ 100 S.F.
State of New York, City 07/01/00 @ 100 Opt.
University System
Consolidated, Second
General Resolution
Revenue Bonds,
Series 1990 C
9 Baa1* 1,925,000 New York State Housing 5.500 09/15/22 03/15/15 @ 100 S.F.
Finance Agency, Service 03/15/03 @ 102 Opt.
Contract Obligation
Revenue Bonds, 1993
Series A
-----------
$10,785,000
===========
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds May 31, Income to
No. to Trust 1996 Trust
----- ------------- ------ -----------------
5 $ 182,710 $ 168,821 $ 10,938
6 313,218 287,163 18,750
7 1,521,141 1,384,761 89,400
8 2,131,412 2,002,726 125,100
9 1,898,281 1,723,722 105,875
----------- ---------- ---------
$10,350,130 $9,605,476 $581,675
=========== ========== ========
-17-
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 99
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
(Continued)
NOTES TO TAX-EXEMPT BOND PORTFOLIO
(A) A description of the rating symbols and their meanings appears under
"Description of Bond Ratings" in Part II of this Prospectus. Ratings
are by Standard & Poor's Corporation, except for those indicated by an
asterisk (*), which are by Moody's. 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 or Moody's.
(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.
-18-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
<CAPTION>
Date of Redemption Features
Port- Aggregate Name of Issuer and Maturity S.F. - Sinking Fund
folio Rating Principal Title of Bond Coupon (Note B) Opt. - Optional Call
No. (Note A) Amount Rate (Note B)
----- -------- ------- ------------------------------ ------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 605,000 New York State Medical 5.700% 02/15/29 08/15/96 @ 100 S.F.
Care Facilities Finance 08/15/03 @ 102 Opt.
Agency, St. Luke's-
Roosevelt Center, Hospital
FHA-Insured Mortgage
Revenue Bonds, 1993
Series A
2 AAA 275,000 Glen Cove Industrial 0.000 10/15/19 No Sinking Fund
Development Agency, No Optional Call
Civic Facility Revenue
Bonds (The Regency at
Glen Cove), 1992 Series B
(Escrowed to Maturity)
3 A 165,000 Puerto Rico Public Buildings 5.750 07/01/15 07/01/11 @ 100 S.F.
Authority, Public 07/01/03 @ 101.5 Opt.
Education and Health
Facilities Refunding
Bonds, Series M,
Guaranteed by the
Commonwealth of Puerto
Rico
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds May 31, Income to
No. to Trust 1996 Trust
----- ------------- ------ -----------------
1 $ 617,100 $ 556,455 $ 34,485
2 63,938 67,408 -
3 168,529 159,253 9,487
-19-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
(Continued)
<CAPTION>
Date of Redemption Features
Port- Aggregate Name of Issuer and Maturity S.F. - Sinking Fund
folio Rating Principal Title of Bond Coupon (Note B) Opt. - Optional Call
No. (Note A) Amount Rate (Note B)
----- -------- ------- -------------------------------- ------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
4 A* $ 635,000 New York City, Municipal 6.000% 06/15/19 06/15/17 @ 100 S.F.
Water Finance Authority, 06/15/99 @ 100 Opt.
Water and Sewer System
Revenue Bonds, Fiscal
1990 Series A
5 BBB+ 905,000 The City of New York, 6.250 08/01/17 No Sinking Fund
General Obligation Bonds, 08/01/02 @ 101.5 Opt.
Fiscal 1993 Series A
6 BBB+ 250,000 Dormitory Authority of the 5.250 05/15/19 05/15/14 @ 100 S.F.
State of New York, State No Optional Call
University Educational
Facilities, Revenue Bonds,
1993 Series B
7 Baa1* 405,000 Dormitory Authority of the 6.000 07/01/16 07/01/15 @ 100 S.F.
State of New York, City 07/01/00 @ 100 Opt.
University System
Consolidated, Second
General Resolution
Revenue Bonds,
Series 1990 C
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds May 31, Income to
No. to Trust 1996 Trust
----- ------------- ------ -----------------
4 $ 653,561 $ 624,865 $ 38,100
5 944,874 873,044 56,563
6 240,000 218,580 13,125
7 414,015 389,019 24,300
-20-
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
SERIES 71
TAX-EXEMPT BOND PORTFOLIO
MAY 31, 1996
(Continued)
<CAPTION>
Date of Redemption Features
Port- Aggregate Name of Issuer and Maturity S.F. - Sinking Fund
folio Rating Principal Title of Bond Coupon (Note B) Opt. - Optional Call
No. (Note A) Amount Rate (Note B)
----- -------- ------- ------------------------------ ------- ------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
8 Baa1* $ 725,000 New York State Housing 5.500% 09/15/22 03/15/15 @ 100 S.F.
Finance Agency, Service 03/15/03 @ 102 Opt.
Contracts Obligation
Revenue Bonds, 1993
Series A
----------
$3,965,000
==========
</TABLE>
Market Value
Port- as of Annual Interest
folio Cost of Bonds May 31, Income to
No. to Trust 1996 Trust
----- ------------- ------ -----------------
8 $ 714,937 $ 649,194 $ 39,875
---------- ---------- --------
$3,816,954 $3,537,818 $215,935
========== ========== ========
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, except for those indicated by an asterisk
(*), which are by Moody's. 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 or Moody's.
(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.
-21-
<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
purchase, which are expected to be settled by the date set forth in Part I.
303862.1
<PAGE>
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, Inc. ("Moody's") 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.
Economic Trends. Over the long term, the State of New York
(the "State") and the City of New York (the "City") face serious potential
economic problems. The City accounts for approximately 41% of the State's
population and personal income, and the City's financial health affects the
State in numerous ways. The State historically has been one of the wealthiest
states in the nation. For decades, however, the State has grown more slowly
than the nation as a whole, gradually eroding its relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
- 2 -
303862.1
<PAGE>
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high State and local
tax burden relative to other states. The State and its localities have used
these taxes to develop and maintain their transportation networks, public
schools and colleges, public health systems, other social services and
recreational facilities. Despite these benefits, the burden of State and local
taxation, in combination with the many other causes of regional economic
dislocation, has contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and
its localities may take to encourage economic growth and achieve balanced
budgets, reductions in Federal spending could materially and adversely affect
the financial condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately
7.3 million, is an international center of business and culture. Its
non-manufacturing economy is broadly based, with the banking and securities,
life insurance, communications, publishing, fashion design, retailing and
construction industries accounting for a significant portion of the City's
total employment earnings. Additionally, the City is the nation's leading
tourist destination. The City's manufacturing activity is conducted primarily
in apparel and printing.
The national economic downturn which began in July 1990
adversely affected the local economy, which had been declining since late 1989.
As a result, the City experienced job losses in 1990 and 1991 and real Gross
City Product ("GCP") fell in those two years. Beginning in calendar year 1992,
the improvement in the national economy helped stabilize conditions in the
City. Employment losses moderated toward year-end and real GCP increased,
boosted by strong wage gains. After noticeable improvements in the City's
economy during calendar year 1994, economic growth slowed in calendar year
1995, and the City's current four-year financial plan assumes that moderate
economic growth will continue through calendar year 2000.
For each of the 1981 through 1995 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principles ("GAAP"). The City was required to close
substantial budget gaps in recent years in order to maintain balanced operating
results. For fiscal year 1995, the City adopted a budget which halted the trend
in recent years of substantial increases in City-funded spending from one year
to the next. There can be no assurance that the City will continue to maintain
a balanced budget as required by State law without additional tax or other
revenue increases or reductions in City services, which could adversely affect
the City's economic base.
Pursuant to the laws of the State, the City prepares an
annual four-year financial plan, which is reviewed and revised on a quarterly
basis and which includes the City's capital, revenue and expense projections
and outlines proposed gap-closing programs for years with projected budget
gaps. The City's current four-year financial plan projects substantial budget
gaps for each of the 1998 through 2000 fiscal years. The City is required to
submit its financial plans to review bodies, including the New York State
Financial Control Board ("Control Board").
The fourth quarter modification to the City's financial plan
for the 1996 fiscal year, submitted to the Control Board on June 21, 1996 (the
"1996 Modification"), projects a balanced budget in accordance with GAAP for
the 1996 fiscal year, after taking into account a discretionary transfer of
$243 million. The 1996 Modification assumes $119 million of savings from a
- 3 -
303862.1
<PAGE>
proposed increase in the investment earnings assumptions for pension assets,
$39 million of which, relating to the police pension fund, the City currently
does not expect to be achieved. The Financial Plan for the 1997 through 2000
fiscal years, submitted to the Control Board on June 21, 1996, which relates to
the City, the Board of Education ("BOE") and the City University of New York
("CUNY"), is based on the City's expense and capital budgets for the City's
1997 fiscal year, which were adopted on June 12, 1996, and includes proposed
actions by the City for the 1997 fiscal year to close substantial projected
budget gaps resulting from lower than projected tax receipts and other revenues
and greater than projected expenditures.
Although the City has maintained balanced budgets in each of
its last fifteen fiscal years, and is projected to achieve balanced operating
results for the 1996 fiscal year, there can be no assurance that the
gap-closing actions proposed in the Financial Plan can be successfully
implemented or that the City will maintain a balanced budget in future years
without additional State aid, revenue increases or expenditure reductions.
Additional tax increases and reductions in essential City services could
adversely affect the City's economic base.
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. In
addition, the Federal Budget negotiation process could result in a reduction in
or a delay in the receipt of Federal grants in the City's 1997 fiscal year
which could have additional adverse effects on the City's cash flow or
revenues.
The Mayor is responsible for preparing the City's four-year
financial plan, including the City's current financial plan for the 1997
through 2000 fiscal years (the "1997-2000 Financial Plan" or "Financial Plan").
The City's projections set forth in the Financial Plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the condition of the regional and local economies, the impact on real
estate tax revenues of the real estate market, wage increases for City
employees consistent with those assumed in the Financial Plan, employment
growth, the results of a pending actuarial audit of the City's pension system
which is expected to significantly increase the City's annual pension costs,
the ability to implement proposed reductions in City personnel and other cost
reduction initiatives, which may require in certain cases the cooperation of
the City's municipal unions, the ability of the New York City Health and
Hospitals Corporation ("HHC") and BOE to take actions to offset reduced
revenues, the ability to complete revenue generating transactions and provision
of State and Federal aid and mandate relief and the impact on City revenues of
proposals for Federal and State welfare reform.
Implementation of the Financial Plan is also dependent upon
the City's ability to market its securities successfully in the public credit
markets. The City's financing program for fiscal years 1997 through 2000
contemplates the issuance of $5.7 billion of general obligation bonds and $4.5
billion of bonds to be issued by the proposed New York City Infrastructure
Finance Authority ("Infrastructure Finance Authority") primarily to reconstruct
and rehabilitate the City's infrastructure and physical assets and to make
other capital investments. The creation of Infrastructure Finance Authority,
which is subject to the enactment of State legislation, is being proposed by
the City as part of the City's effort to avoid conflict with the forecast level
of the constitutional restrictions on the amount of debt the
- 4 -
303862.1
<PAGE>
City is authorized to issue. In addition, the City issues revenue and tax
anticipation notes to finance its seasonal working capital requirements. The
success of projected public sales of City bonds and notes and Infrastructure
Finance Authority bonds 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 or bonds of the proposed
Infrastructure Finance Authority, it would be prevented from meeting its
planned capital and operating expenditures. Future developments concerning the
City and public discussion of such developments, as well as prevailing market
conditions, may affect the market for outstanding City general obligation bonds
and notes.
The 1997-2000 Financial Plan projects revenues and
expenditures for the 1997 fiscal year balanced in accordance with GAAP. The
projections for the 1997 fiscal year reflect proposed actions to close a
previously projected gap of approximately $2.6 billion for the 1997 fiscal
year. The proposed actions for the 1997 fiscal year include (i) additional
agency actions totaling $1.2 billion; (ii) a revised tax reduction program
which would increase projected tax revenues by $385 million due to the
four-year extension of the 12.5% personal income tax surcharge and other
actions; (iii) savings resulting from cost containment in entitlement programs
to reduce City expenditures and additional proposed State aid of $75 million;
(iv) the assumed receipt of revenues relating to rent payments for the City's
airports totaling $269 million, which are currently the subject of a dispute
with the Port Authority; (v) the sale of the City's television station for $207
million; and (vi) pension cost savings totaling $134 million resulting from a
proposed increase in the earnings assumption for pension assets from 8.5% to
8.75%, $40 million of which the City currently does not expect to be achieved.
The Financial Plan also sets forth projections for the 1998
through 2000 fiscal years and projects gaps of $1.7 billion, $2.7 billion and
$3.4 billion for the 1998, 1999 and 2000 fiscal years, respectively.
The 1997-2000 Financial Plan is based on numerous
assumptions, including the condition of the City's and the region's economy and
a modest employment recovery and the concomitant receipt of economically
sensitive tax revenues in the amounts projected. The 1997-2000 Financial Plan
is subject to various other uncertainties and contingencies relating to, among
other factors, the extent, if any, to which wage increases for City employees
exceed the annual wage costs assumed for the 1997 through 2000 fiscal years;
continuation of projected interest earnings assumptions for pension fund assets
and current assumptions with respect to wages for City employees affecting the
City's required pension fund contributions; the willingness and ability of the
State, in the context of the State's current financial condition, to provide
the aid contemplated by the Financial Plan and to take various other actions to
assist the City; the ability of HHC, BOE and other such agencies to maintain
balanced budgets; the willingness of the Federal government to provide the
amount of Federal aid contemplated in the Financial Plan; adoption of the
City's budgets by the City Council in substantially the forms submitted by the
Mayor; the ability of the City to implement proposed reductions in City
personnel and other cost reduction initiatives, and the success with which the
City controls expenditures; the impact of conditions in the real estate market
on real estate tax revenues; the City's ability to market its securities
successfully in the public credit markets; and unanticipated expenditures that
may be incurred as a result of the need to maintain the City's infrastructure.
Certain of these assumptions have been questioned by the City Comptroller and
other public officials.
The projections for the 1997 through 2000 fiscal years also
assume (i) approval by the Governor and the State Legislature of the extension
of the 12.5% personal income tax surcharge, which is projected to provide
revenue of $171 million, $447 million, $478 million and $507 million in the
1997 through
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2000 fiscal years, respectively; (ii) collection of the projected rent payments
for the City's airports, which may depend on the successful completion of
negotiations with the Port Authority or the enforcement of the City's rights
under the existing leases thereto through pending legal actions; (iii) the
ability of HHC and BOE to identify actions to offset substantial City and State
revenue reductions and the receipt by BOE of additional State aid; and (iv)
State approval of the cost containment initiatives and State aid proposed by
the City. The Financial Plan does not reflect any increased costs which the
City might incur as a result of welfare legislation recently enacted by
Congress.
In connection with the Financial Plan, the City has outlined
a gap-closing program for the 1998 through 2000 fiscal years to substantially
reduce the remaining $1.7 billion, $2.7 billion and $3.4 billion projected
budget gaps for such fiscal years. This program, which is not specified in
detail, assumes additional agency programs to reduce expenditures or increase
revenues by $674 million, $959 million and $1.1 billion in the 1998 through
2000 fiscal years, respectively; additional reductions in entitlement cost of
$400 million, $750 million and $1.0 billion in the 1998 through 2000 fiscal
years, respectively; additional savings of $250 million, $300 million and $500
million in the 1998 through 2000 fiscal years, respectively, resulting from
restructuring City government by consolidating operations, privatization and
mandate management and other initiatives; additional proposed Federal and State
aid of $105 million, $200 million and $300 million in the 1998 through 2000
fiscal years, respectively; additional revenue initiatives and asset sales of
$155 million, $350 million and $400 million in the 1998 through 2000 fiscal
years, respectively; and the availability in each of the 1998 through 2000
fiscal years of $100 million of the General Reserve.
The City's projected budget gaps for the 1999 and 2000 fiscal
years do not reflect the savings expected to result from prior years' programs
to close the gaps set forth in the Financial Plan. Thus, for example, recurring
savings anticipated from the actions which the City proposes to take to balance
the fiscal year 1998 budget are not taken into account in projecting the budget
gaps for the 1999 and 2000 fiscal years.
The City's financial plans have been the subject of extensive
public comment and criticism. On July 16, 1996, the staff of the City
Comptroller issued a report on the Financial Plan. The report concluded that
the City's fiscal situation remains serious, and that the City faces budgetary
risks of approximately $787 million to $941 million for the 1997 fiscal year,
which increase to $4.16 billion to $4.31 billion for fiscal year 2000.
On July 10, 1995, Standard & Poor's revised downward its
rating on City general obligation bonds from A- to BBB+ and removed City bonds
from CreditWatch. Standard & Poor's stated that "structural budgetary balance
remains elusive because of persistent softness in the City's economy,
highlighted by weak job growth and a growing dependence on the historically
volatile financial services sector". Other factors identified by Standard &
Poor's in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance the Financial Plan,
optimistic projections of additional federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels.
On March 1, 1996, Moody's stated that the rating for City
general obligation bonds remains under review pending the outcome of the
adoption of the City's budget for the 1997 fiscal year, and, in light of the
status of the debate on public assistance and Medicaid reform; the enactment of
a State budget, upon which major assumptions regarding State aid are dependent,
which may be extensively delayed; and the seasoning of the City's economy with
regard to its strength and direction in the face of a potential national
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economic slowdown. Since July 15, 1993, Fitch Investors Service, L.P.
("Fitch") has rated City bonds A-. On February 28, 1996, Fitch placed the
City's general obligation bonds on FitchAlert with negative implications.
New York State and its Authorities. The State's current
fiscal year commenced on April 1, 1996, and ends on March 31, 1997, and is
referred to herein as the State's 1996-97 fiscal year. The State's budget for
the 1996-97 fiscal year was enacted by the Legislature on July 13, 1996, more
than three months after the start of the fiscal year. The State Financial Plan
for the 1996-97 fiscal year was formulated on July 25, 1996 and is based on the
State's budget as enacted by the Legislature and signed into law by the
Governor, as well as actual results for the first quarter of the current fiscal
year. The State's prior fiscal year commenced on April 1, 1995, and ended on
March 31, 1996, and is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the Legislature
on June 7, 1995, more than two months after the start of the fiscal year. The
State Financial Plan for the 1995-96 fiscal year was formulated on June 20,
1995 and is based on the State's budget as enacted by the Legislature and
signed into law by the Governor.
The State closed projected budget gaps of $5.0 billion and
$3.9 billion for its 1995-96 and 1996-97 fiscal years, respectively. The
1997-98 gap was projected at $1.44 billion, based on the Governor's proposed
budget of December 1995. As a result of changes made in the enacted budget,
that gap is now expected to be larger. However, the gap is not expected to be
as large as those faced in the prior two fiscal years. The Governor has
indicated that he will propose to close any potential imbalance primarily
through General Fund expenditure reductions and without increases in taxes or
deferrals of scheduled tax reductions.
The 1996-97 State Financial Plan is projected to be balanced
on a cash basis. As compared to the Governor's proposed budget as revised on
March 20, 1996, the State's adopted budget for 1996-97 increases General Fund
spending by $842 million, primarily from increases for education, special
education and higher education ($563 million). The balance represents funding
increases to a variety of other programs, including community projects and
increased assistance to fiscally distressed cities. Resources used to fund
these additional expenditures include $540 million in increased revenues
projected for 1996-97 based on higher-than-projected tax collections during the
first half of calendar 1996, $110 million in projected receipts from a new
State tax amnesty program, and other resources including certain non-recurring
resources. The total amount of non-recurring resources included in the 1996-97
State budget is projected by the State Division of the Budget ("DOB") to be
$1.3 billion, or 3.9 percent of total General Fund receipts.
The economic and financial condition of the State may be
affected by various financial, social, economic and political factors. Those
factors can be very complex, may vary from fiscal year to fiscal year, and are
frequently the result of actions taken not only by the State and its agencies
and instrumentalities, but also by entities, such as the Federal government,
that are not under the control of the State. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse
than predicted, with corresponding material and adverse effects on the State's
financial projections.
The DOB believes that its projections of receipts and
disbursements relating to the current State Financial Plan, and the assumptions
on which they are based, are reasonable. Actual results, however, could differ
materially and adversely from the projections set forth below, and those
projections may be changed materially and adversely from time to time.
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The State Financial Plan is based on a June 1996 projection
by DOB of national and State economic activity. The national economy has
resumed a more robust rate of growth after a "soft landing" in 1995, with over
11 million jobs added nationally since early 1992. The State economy has
continued to expand, but growth remains somewhat slower than in the nation.
Although the State has added approximately 240,000 jobs since late 1992,
employment growth in the State has been hindered during recent years by
significant cutbacks in the computer and instrument manufacturing, utility,
defense, and banking industries. Government downsizing has also moderated these
job gains. DOB forecasts that national economic growth will be quite strong in
the first half of calendar 1996, but will moderate considerably as the year
progresses. The overall growth rate of the national economy during calendar
year 1996 is expected to be just slightly below the "consensus" of a widely
followed survey of national economic forecasters. Growth in real Gross Domestic
Product during 1996 is projected to be moderate at 2.1 percent, with
anticipated declines in federal spending and net exports more than offset by
increases in consumption and investment. Inflation, as measured by the Consumer
Price Index, is projected to be contained at about 3 percent due to moderate
wage growth and foreign competition. Personal income and wages are projected to
increase by about 5 percent.
The forecast of the State's economy shows modest expansion
during the first half of calendar 1996, but some slowdown is projected during
the second half of the year. Although industries that export goods and services
are expected to continue to do well, growth is expected to be slowed by
government cutbacks at all levels and by tight fiscal constraints on health and
social services. On an average annual basis, employment growth in the State is
expected to be up slightly from the 1995 rate. Personal income is expected to
record moderate gains in 1996. Bonus payments in the securities industry are
expected to increase further from last year's record level.
The forecast for continued slow growth, and any resultant
impact on the State's 1996-97 Financial Plan, contains some uncertainties.
Stronger-than-expected gains in employment could lead to a significant
improvement in consumption spending. Investments could also remain robust.
Conversely, the prospect of a continuing deadlock on federal budget deficit
reduction or fears of excessively rapid economic growth could create upward
pressures on interest rates. In addition, the State economic forecast could
over- or underestimate the level of future bonus payments or inflation growth,
resulting in forecasted average wage growth that could differ significantly
from actual growth. Similarly, the State forecast could fail to correctly
account for expected declines in government and banking employment and the
direction of employment change that is likely to accompany telecommunications
deregulation.
The General Fund is the principal operating fund of the State
and is used to account for all financial transactions, except those required to
be accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular
purposes. In the State's 1996-97 fiscal year, the General Fund is expected to
account for approximately 47 percent of total governmental-fund receipts and 71
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.
The General Fund is projected to be balanced on a cash basis
for the 1996-97 fiscal year. Total receipts and transfers from other funds are
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected to be $33.12 billion, an increase of $444 million from the total in
the prior fiscal year.
The State reported a General Fund operating surplus of $380
million for the 1995-96 fiscal year, as compared to an operating deficit of
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$1.43 billion for the prior fiscal year. The 1995-96 fiscal year surplus
reflects several major factors, including the cash-basis surplus and the
benefit of $529 million in Local Government Assistance Corporation ("LGAC")
bond proceeds which were used to fund various local assistance programs. This
was offset in part by a $437 million increase in tax refund liability primarily
resulting from the effects of ongoing tax reductions and (to a lesser extent)
changes in accrual measurement policies, and increases in various other
expenditure accruals. Revenues increased $530 million (nearly 1.7 percent) over
the prior fiscal year with an increase in personal income taxes and
miscellaneous revenues offset by decreases in business and other taxes.
Expenditures decreased $716 million (2.2 percent) from the prior fiscal year
with the largest decrease occurring in State aid for social services programs
and State operations spending. Net other financing sources nearly tripled,
increasing $561 million, due primarily to an increase in bonds issued by LGAC,
a transfer from the Mass Transportation Operating Assistance Fund and transfers
from public benefit corporations.
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 Ratings Services, a division of
the McGraw-Hill Companies ("Standard & Poor's) also continued its negative
rating outlook assessment on State general obligation debt. On April 26, 1993,
Standard & Poor's revised the rating outlook assessment to stable. On February
14, 1994, Standard & Poor's raised its outlook to positive and, on October 3,
1995, confirmed its A- rating. On January 6, 1992, Moody's reduced its ratings
on outstanding limited-liability State lease purchase and contractual
obligations from A to Baa1. On October 2, 1995, Moody's reconfirmed its A
rating on the State's general obligation long-term indebtedness.
Litigation. The court actions in which the State is a
defendant generally involve State programs and miscellaneous tort, real
property, and contract claims. While the ultimate outcome and fiscal impact, if
any, on the State of those proceedings and claims are not currently
predictable, adverse determinations in certain of them might have a material
adverse effect upon the State's ability to maintain a balanced 1996-97 State
Financial Plan.
The claims involving the City other than routine litigation
incidental to the performance of their governmental and other functions and
certain other litigation arise out of alleged constitutional violations, torts,
breaches of contract and other violations of law and condemnation proceedings.
While the ultimate outcome and fiscal impact, if any, on the City of those
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the City's ability to
carry out the 1997-2000 Financial Plan. The City has estimated that its
potential future liability on account of outstanding claims against it as of
June 30, 1995 amounted to approximately $2.5 billion.
General Considerations
Because certain of the Bonds may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and the proceeds from such events will be distributed to Unit
holders and will not be reinvested, no assurance can be given that 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.
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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 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
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obligation of the State or local government, and is subject to its willingness
to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage
revenue bonds". Under the Internal Revenue Code of 1986, as amended (the
"Code") (and under similar provisions of the prior tax law), "mortgage revenue
bonds" are obligations the proceeds of which are used to finance owner-occupied
residences under programs which meet numerous statutory requirements relating
to residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions, and certain
information reporting, certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not be introduced
or that existing legislation will not be further amended, revised, or enacted
after delivery of these Bonds or that certain required future actions will be
taken by the issuing governmental authorities, which action or failure to act
could cause interest on the Bonds to be subject to federal income tax. If any
portion of the Bond proceeds is not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Original Issue Discount and Zero
Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of
Bonds may consist of obligations of state and local housing authorities whose
revenues are primarily derived from mortgage loans to housing projects for low
to moderate income families. Since such obligations are not general obligations
of a particular state or municipality and are generally payable primarily or
solely from rents and other fees, adverse economic developments including
failure or inability to increase rentals, fluctuations of interest rates and
increasing construction and operating costs may reduce revenues available to
pay existing obligations.
The housing bonds in 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
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developments in connection with such facilities, legislative and administrative
actions have been taken and proposed relating to the development and operation
of nuclear generating facilities. The Sponsors are unable to predict whether
any such actions or whether any such proposals or litigation, if enacted or
instituted, will have an adverse impact on the revenues available to pay the
debt service on the Bonds in the portfolio issued to finance such nuclear
projects.
Each of the problems referred to above could adversely affect
the ability of the issuers of public power revenue bonds to make payments of
principal of and/or interest on such bonds. Certain municipal utilities or
agencies may have entered into contractual arrangements with investor-owned
utilities and large industrial users and consequently may be dependent in
varying degrees on the performance of such contracts for payment of bond debt
service.
Health Care Revenue Bonds. Some of the aggregate principal
amount of Bonds may consist of hospital revenue bonds. Ratings of hospital
bonds are often initially based on feasibility studies which contain
projections of occupancy levels, revenues and expenses. Actual experience may
vary considerably from such projections. A hospital's gross receipts and net
income will be affected by future events and conditions including, among other
things, demand for hospital services and the ability of the hospital to provide
them, physicians' confidence in hospital management capability, economic
developments in the service area, competition, actions by insurers and
governmental agencies and the increased cost and possible unavailability of
malpractice insurance. Additionally, a major portion of hospital revenue
typically is derived from federal or state programs such as Medicare and
Medicaid which have been revised substantially in recent years and which are
undergoing further review at the state and federal level.
Proposals for significant changes in the health care system
and the present programs for third party payment of health care costs are under
consideration in Congress and many states. Future legislation or changes in the
areas noted above, among other things, would affect all hospitals to varying
degrees and, accordingly, any adverse change in these areas may affect the
ability of such issuers to make payment of principal and interest on such
bonds.
Higher Education Revenue Bonds. Higher education revenue
bonds include debt of state and private colleges, universities and systems, and
parental and student loan obligations. The ability of universities and colleges
to meet their obligations is dependent upon various factors, including the
revenues, costs and enrollment levels of the institutions. In addition, their
ability may be affected by declines in Federal, state and alumni financial
support, fluctuations in interest rates and construction costs, increased
maintenance and energy costs, failure or inability to raise tuition or room
charges and adverse results of endowment fund investments.
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
- --------
* For the purposes of the description of users of facilities, all
references to "corporations" shall be deemed to include any other
nongovernmental person or entity.
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facilities, public water supply, treatment and distribution facilities, and
sewage collection, treatment and disposal facilities. Repayment of these bonds
is dependent primarily on revenues derived from the billing of residential,
commercial and industrial customers for utility services, as well as, in some
instances, connection fees and hook-up charges. Such utility revenue bonds may
be adversely affected by the lack of availability of Federal and state grants
and by decisions of Federal and state regulatory bodies and courts.
Solid Waste and Resource Recovery Revenue Bonds. Bonds in
this category include securities issued to finance facilities for removal and
disposal of solid municipal waste. Repayment of these bonds is dependent on
factors which may include revenues from appropriations from a governmental
entity, the financial condition of the private project corporation and revenues
derived from the collection of charges for disposal of solid waste. Repayment
of resource recovery bonds may also be dependent to various degrees on revenues
from the sale of electric energy or steam. Bonds in this category may be
subject to mandatory redemption in the event of project non-completion, if the
project is rendered uneconomical or if it is considered an environmental
hazard.
Transportation Revenue Bonds. Bonds in this category include
bonds issued for airport facilities, bridges, turnpikes, port authorities,
railroad systems or mass transit systems. Generally, airport facility revenue
bonds are payable from and secured by the revenues derived from the ownership
and operation of a particular airport. Payment on other transportation bonds is
often dependent primarily or solely on revenues from financed facilities,
including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of 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
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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 the Trust may be general obligations
and/or revenue bonds of issuers located in Puerto Rico which will be affected
by general economic conditions in Puerto Rico. The economy of Puerto Rico is
closely integrated with that of the mainland United States. During fiscal year
1995, approximately 89% of Puerto Rico's exports were to the United States
mainland, which was also the source of 65% of Puerto Rico's imports. In fiscal
1995, Puerto Rico experienced a $4.6 billion positive adjusted trade balance.
The economy of Puerto Rico is dominated by the manufacturing and service
sectors. The manufacturing sector has experienced a basic change over the years
as a result of increased emphasis on higher wage, high technology industries
such as pharmaceuticals, electronics, computers, microprocessors, professional
and scientific instruments, and certain high technology machinery and
equipment. The service sector, including finance, insurance and real estate,
wholesale and retail trade, and hotel and related services, also plays a major
role in the economy. It ranks second only to manufacturing in contribution to
the gross domestic product and leads all sectors in providing employment. In
recent years, the service sector has experienced significant growth in response
to and paralleling the expansion of the manufacturing sector. Since fiscal
1985, personal income, both aggregate and per capita, has increased
consistently in each fiscal year. In fiscal 1995, aggregate personal income was
$27.0 billion ($22.5 billion in 1987 prices) and personal income per capita was
$7,296 ($6,074 in 1987 prices). Personal income includes transfer payments to
individuals in Puerto Rico under various social programs. Total federal
payments to Puerto Rico, which include many types in addition to federal
transfer payments, are lower on a per capita basis in Puerto Rico than in any
state. Transfer payments to individuals in fiscal 1994 were $5.9 billion, of
which $4.0 billion, or 67.6%, represent entitlement to individuals who had
previously performed services or made contributions under programs such as
Social Security, Veterans Benefits and Medicare. The number of persons employed
in Puerto Rico during fiscal 1995 averaged 1,051,000, an increase of 4.0% over
fiscal 1994. The unemployment rate in
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Puerto Rico for fiscal 1995 decreased from 16.0% to 13.8%. The Puerto Rico
Planning Board's most recent gross product forecast for fiscal 1996, made in
February 1995, showed an increase of 2.7%. The Planning Board's Economic
Activity Index, a composite index for thirteen economic indicators, increased
2.7% for the first seven months of fiscal 1995 compared to the same period of
fiscal 1994, which period showed an increase of 1.7% over the same period of
fiscal 1993. During the first four months of fiscal 1996 the Index increased
1.8% compared to the same period of fiscal 1995, which period showed an
increase of 2.7% over the same period of fiscal 1994. Growth in the Puerto Rico
economy in fiscal 1996 depends on several factors, including the state of the
United States economy and the relative stability in the price of oil imports,
the exchange value of the U.S. dollar, the level of federal transfers and the
cost of borrowing.
Original Issue Discount Bonds and Zero Coupon Bonds
Certain 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
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
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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:
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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 Bond
continues to fulfill its obligations, however, such Bond will in any case
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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.
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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 the insurability of new issues of
municipal bonds. See "Notes to Portfolios" in Part I of this Prospectus.
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<PAGE>
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 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
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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.
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
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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, 1996, MBIAC had admitted assets of $4.0
billion (unaudited), total liabilities of $2.7 billion (unaudited), and total
capital and surplus of $1.3 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, MBIAC had admitted assets of $3.8 billion
(audited), total liabilities of $2.5 billion (audited), and total capital and
surplus of $1.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. All information regarding MBIA, a wholly owned subsidiary of MBIA
Inc., including the financial statements of MBIA for the year ended December
31, 1995, prepared in accordance with generally accepted accounting principles,
included in the Annual Report on Form 10-K of MBIA Inc. for the year ended
December 31, 1995 is hereby incorporated by reference into this Official
Statement and shall be deemed to be a part hereof. Any statement contained in a
document incorporated by reference herein shall be modified or superseded for
purposes of this Official Statement to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Official Statement.
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 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 &
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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, 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 has
assigned its "AAA" investment rating to the Units and Bonds in the Insured
Trust and Moody's 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 or
Moody's 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
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included in alternative minimum taxable income. Interest on the Bonds is
includible in the adjusted current earnings of a corporation for purposes of
such alternative minimum tax. The Code does not otherwise require corporations,
and does not require taxpayers other than corporations, including individuals,
to treat interest on the Bonds as an item of tax preference in computing an
alternative minimum tax; (3) subject to certain exceptions, no financial
institution is allowed a deduction for that portion of the institutions's
interest expense allocable to tax-exempt interest on tax-exempt bonds acquired
after August 7, 1986; (4) the amount of the deduction allowed to property and
casualty insurance companies for underwriting loss is decreased by an amount
determined with regard to tax-exempt interest income and the deductible portion
of dividends received by such companies; (5) all taxpayers are required to
report for informational purposes on their Federal income tax returns the
amount of tax-exempt interest they receive; (6) an issuer must meet certain
requirements on a continuing basis in order for interest on a tax-exempt bond
to be tax-exempt, with failure to meet such requirements resulting in the loss
of tax exemption; and (7) a branch profits tax on U.S. branches of foreign
corporations is implemented which, because of the manner in which the branch
profits tax is calculated, may have the effect of subjecting the U.S. branch of
a foreign corporation to Federal income tax on the interest on bonds otherwise
exempt from such tax.
The Superfund Revenue Act of 1986 (the "Superfund Act")
imposes a deductible, broad-based tax on a corporation's alternative minimum
taxable income (before net operating losses and any deduction for the tax) at a
rate of $12 per $10,000 (0.12%) of alternative minimum taxable income in excess
of $2,000,000. The tax is imposed for tax years beginning after 1986 and
beginning before 1996 and is applicable even if the corporation pays no
alternative minimum tax. For purposes of the Superfund Act, alternative minimum
taxable income includes interest on all tax-exempt bonds to the same extent and
in the same manner as the Code. The Superfund Act does not impose a tax on
taxpayers other than corporations.
Section 86 of the Code provides that a portion of social
security benefits is includible in taxable income for taxpayers whose "modified
adjusted gross income," combined with a portion of their social security
benefits, exceeds a base amount. The base amount is $25,000 for an 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
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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.
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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,
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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
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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."
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
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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 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.
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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.
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.
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Redemption
Tender of Units
While it is anticipated that Units can be sold in the
secondary market, Units may also be tendered to the Trustee for redemption at
its corporate trust office at 101 Barclay Street, New York, New York 10286,
upon payment of any applicable tax. At the present time there are no specific
taxes related to the redemption of the Units. No redemption fee will be charged
by the Sponsors or the Trustee. Units redeemed by the Trustee will be
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 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
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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 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
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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.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan")
with Empire Builder Tax Free Bond Fund (the "Empire Builder") which permits
Unit holders of 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 Building will be of "investment grade" quality - that is, at the time of
purchase by the Empire Building, 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 Building and
Glickenhaus, as investment advisor for Empire Builder each will have the
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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.
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[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
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[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.
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<PAGE>
SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State
Municipal Exempt Trust, Series 10 and all subsequent Series, including all
Guaranteed Series.
Glickenhaus, a New York limited partnership, is engaged in
the underwriting and securities brokerage business and in the investment
advisory business. It is a member of the New York Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. and is an associate member of
the American Stock Exchange. Glickenhaus acts as a sponsor for successive
Series of The Glickenhaus Value Portfolios and The Municipal Insured National
Trusts and for the prior Series of Empire State Municipal Exempt Trust
(including those sold under the name of Municipal Exempt Trust, New York Exempt
Series 1, New York Series 2 and New York Series 3). Glickenhaus, in addition to
participating as a member of various selling groups of other investment
companies, executers 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.
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
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<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
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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, 1995, the total partners' capital of
Glickenhaus was $146,106,000 (audited); and at March 31, 1996, the total
stockholders' equity of Lebenthal was $4,518,542 (audited).
The foregoing information with regard to the Sponsors relates
to the Sponsors only, and not to any series of Empire State Municipal Exempt
Trust. Such information is included in this Prospectus only for the purpose of
informing investors as to the financial responsibility of the Sponsors and
their ability to carry out their contractual obligations shown herein. More
comprehensive financial information can be obtained upon request from any
Sponsor.
TRUSTEE
The Trustee is The Bank of New York, a trust company
organized under the laws of New York, having its offices at 101 Barclay Street,
New York, New York 10286, (800) 221-7771. The Bank of New York is subject to
supervision and examination by the Superintendent of Banks of the State of New
York and the Board of Governors of the Federal Reserve System, and its deposits
are insured by the Federal Deposit Insurance Corporation to the extent
permitted by law. The Trustee must be a corporation organized under the laws of
the United States or the State of New York, which is authorized under such laws
to exercise corporate trust powers, and must have at all times an aggregate
capital, surplus and undivided profits of not less than $5,000,000 and its
principal office and place of business in the Borough of
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<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.
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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
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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
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<PAGE>
adverse effects of changes in circumstances and economic conditions
than bonds in higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate
capacity to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for bonds in this category than
for bonds in higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are
regarded, on balance, as predominantly speculative with respect to
capacity to pay interest and repay principal in accordance with the
terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such
bonds will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications
of credit quality, the ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating
is provisional. A provisional rating assumes the successful completion
of the project being financed by the bonds being rated and indicates
that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to
completion of the project, makes no comment on the likelihood of, or
the risk of default upon failure of, such completion. Accordingly, the
investor should exercise his own judgment with respect to such
likelihood and risk.
NR: Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that Standard
& Poor's does not rate a particular type of obligation as a matter of
policy.
SP-1: Very strong or strong capacity to pay principal and
interest. Those issues determined to possess overwhelming safety
characteristics will be given a plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
*Moody's rating. A summary of the meaning of the applicable rating symbols as
published by Moody's follows:
Aaa: Bonds which are rated "Aaa" are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high
quality by all standards. Together with the "Aaa" group they comprise
what are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be as large
as in "Aaa"
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<PAGE>
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the
long-term risks appear somewhat larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable
investment attributes and are to be considered as upper medium grade
obligations. Factors giving security to principal and interest are
considered adequate, but elements may be present which suggest a
susceptibility to impairment sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium
grade obligations; i.e, they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B: Bonds which are rated "B" generally lack characteristics
of the desirable investment. Assurance of interest and principal
payments or maintenance of other terms of the contract over any long
period of time may be small.
Con.(...): Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These bonds are secured by (a) earnings of projects
under construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals which begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.
Moody's applies numerical modifiers "1," "2" and "3" in each rating
classification from "Aa" through "B" in its corporate rating system. The
modifier "1" indicates that the security ranks in the higher end of its generic
rating category; the modifier "2" indicates a mid-range ranking; and the
modifier "3" indicates that the security ranks in the lower end of its generic
rating category.
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<TABLE>
<S> <C>
--------------------------------------------------------------
This Prospectus contains information concerning
the Trust and the Sponsors, but does not contain
all the information set forth in the registration EMPIRE STATE
statements and exhibits relating thereto, which the MUNICIPAL EXEMPT TRUST
Trust has filed with the Securities and Exchange
Commission, Washington, D.C. under the
Securities Act of 1933 and the Investment Company
Act of 1940, and to which reference is hereby made.
- ------------------------------------------------------- PROSPECTUS, PART II
INDEX
- -------------------------------------------------------
Sponsors:
Page
GLICKENHAUS & CO.
The Trust.............................................. 1 6 East 43rd Street
New York, New York 10017
Public Offering........................................ 16 (212) 953-7532
Estimated Current Return and Estimated
Long-Term Return to Unit Holders...................... 19 LEBENTHAL & CO., INC.
120 Broadway
Insurance on the Bonds in the Insured Trust............ 19 New York, New York 10271
(212)425-6116
Tax Status............................................. 23
Rights of Unit Holders................................. 27
Automatic Accumulation Account......................... 34
Sponsors............................................... 36
Trustee................................................ 38
Evaluator.............................................. 39
Amendment and Termination of the Trust Agreement....... 40
Legal Opinions......................................... 41
Auditors............................................... 41
Description of Bond Ratings............................ 41
- -------------------------------------------------------
No person is authorized to give any information or to make
any representations not contained in this Prospectus and any
information or representation not contained herein must not
be relied upon as having been authorized by the Trust or the
Sponsors. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, securities in
any state to any person to whom it is not lawful to make
such offer in such state.
- ------------------------------------------------------- --------------------------------------------------------------
</TABLE>
303862.1
