As filed with the Securities and Exchange Commission on November 26, 1996
Registration No. 33-62409*
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
To
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT
OF 1933 OF SECURITIES OF UNIT INVESTMENT
TRUSTS REGISTERED ON FORM N-8B-2
A. Exact name of trust: EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 121, GUARANTEED SERIES 122 AND
GUARANTEED SERIES 123
B. Name of depositors: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
C. Complete address of depositors' principal executive offices:
GLICKENHAUS & CO. LEBENTHAL & CO., INC.
6 East 43rd Street 120 Broadway
New York, NY 10017 New York, NY 10271
D. Name and complete address of agent for service:
SETH M. GLICKENHAUS JAMES A. LEBENTHAL Copy of comments to:
Glickenhaus & Co. Lebenthal & Co., Inc. MICHAEL R. ROSELLA, ESQ.
6 East 43rd Street 120 Broadway Battle Fowler LLP
New York, NY 10017 New York, NY 10271 75 East 55th Street
New York, NY 10022
(212) 856-6858
It is proposed that this filing become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] on November 29, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on ( date ) pursuant to paragraph (a) of Rule 485
========
* The Prospectus included in this Registration Statement constitutes a
combined Prospectus as permitted by the provisions of Rule 429 of the
General Rules and Regulations under the Securities Act of 1933 (the
"Act"). Said Prospectus covers units of undivided interest in Empire State
Municipal Exempt Trust, Guaranteed Series 121, Guaranteed Series 122 and
Guaranteed Series 123 covered by prospectuses heretofore filed as part of
separate registration statements on Form S-6 (Registration Nos. 33-62409,
33-63423 and 33-64251 respectively) under the Act.
415684.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 121,
GUARANTEED SERIES 122 AND GUARANTEED SERIES 123
CROSS-REFERENCE SHEET
Pursuant to Rule 404 of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items required by Instruction as
to the Prospectus in Form S-6)
<TABLE>
<CAPTION>
Form N8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
<S> <C> <C>
1. (a) Name of trust................... Prospectus front cover
(b) Title of securities issued...... "
2. Name and address of each depositor.. Sponsors
3. Name and address of trustee......... Trustee
4. Name and address of principal
underwriters...................... Sponsors; Public Offering --
Distribution of Units; Back Cover
5. State of organization of trust...... The Trust
6. Execution and termination of
trust agreement................... The Trust; Amendment and Termination of
the Trust Agreement
7. Changes of name..................... Not Applicable
8. Fiscal year......................... "
9. Litigation.......................... None
II. General Description of the Trust and Securities of the Trust
10. (a) Registered or bearer
securities..................... Rights of Unit Holders
(b) Cumulative or distributive
securities..................... "
(c) Redemption...................... "
(d) Conversion, transfer, etc....... "
(e) Periodic payment plan........... Not Applicable
(f) Voting rights................... Amendment and Termination of the Trust
Agreement
(g) Notice to certificateholders.... Rights of Unit Holders--Reports and
Records; Sponsors--Responsibility;
Trustee--Resignation; Amendment and
Termination of the Trust Agreement
(h) Consents required............... Sponsors--Responsibility; Amendment and
Termination of the Trust Agreement
(i) Other provisions................ The Trust--Tax Status
11. Type of securities
comprising units.................. Prospectus front cover; The Trust--
Portfolio
12. Certain information regarding
periodic payment certificates..... Not Applicable
13. (a) Load, fees, expenses, etc....... Prospectus front cover; Summary of
Essential Financial Information;
Rights of Unit Holders--Expenses and
Charges; Public Offering--Offering
Price; Public Offering--Market for
Units
</TABLE>
ii
415684.1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b) Certain information regarding
periodic payment certificates... Not Applicable
(c) Certain percentages............. Public Offering--Offering Price
(d) Certain other fees, etc. payable Rights of Unit Holders--Certificates
by holders......................
(e) Certain profits receivable by
depositors, principal
underwriters, trustee or
affiliated persons.............. Public Offering--Offering Price; Rights
of Unit Holders--Redemption--Purchase by
the Sponsors of Units Tendered for
Redemption
(f) Ratio of annual charges
to income....................... Not Applicable
14. Issuance of trust's securities...... The Trust; Rights of Unit Holders--
Certificates
15. Receipt and handling of payments
from purchasers................... Public Offering--Offering Price;
Amendment and Termination of the Trust
Agreement
16. Acquisition and disposition of
underlying securities............. The Trust--Portfolio; Sponsors--
Responsibility
17. Withdrawal or redemption............ Public Offering--Market for Units;
Rights of Unit Holders--Redemption
18. (a) Receipt, custody and
disposition of income........... The Trust--Portfolio--General
Considerations; Insurance on the
Bonds; Public Offering--Offering
Price; Rights of Unit Holders--
Distribution of Interest and
Principal; Rights of Unit Holders--
Reports and Records; Amendment and
Termination of the Trust Agreement
(b) Reinvestment of distributions... Automatic Accumulation Account
(c) Reserves or special funds....... Rights of Unit Holders; Rights of Unit
Holders--Distribution of Interest and
Principal; Expenses and Charges--Other
Charges; Amendment and Termination of
the Trust Agreement
(d) Schedule of distributions....... Not Applicable
19. Records, accounts and reports....... Rights of Unit Holders--Reports and
Records; Rights of Unit Holders--
Distribution of Interest and
Principal; Amendment and Termination
of the Trust Agreement
20. Certain miscellaneous provisions
of trust agreement................ Sponsors--Resignation; Trustee--
Resignation; Trustee--Limitations on
Liability; Amendment and Termination
of the Trust Agreement
(a) Amendment....................... "
(b) Termination..................... "
(c) and (d) Trustee, removal and
successor....................... "
(e) and (f) Depositor, removal
and successor................... "
21. Loans to security holders........... Not Applicable
</TABLE>
iii
415684.1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
22. Limitations on liability............ The Trust--Portfolio; Sponsors--
Limitations on Liability; Trustee--
Limitations on Liability
23. Bonding arrangements................ Additional Information--Item A
24. Other material provisions
of trust agreement................ Not Applicable
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of depositor.......... Sponsors
26. Fees received by depositors........ Not Applicable
27. Business of depositors............. Sponsors
28. Certain information as to
officials and affiliated
persons of depositor............. Contents of Registration Statement
29. Voting securities of depositors..... Not Applicable
30. Persons controlling depositors...... "
31. Payments by depositors for certain
services rendered to trust........ "
32. Payment by depositors for certain
other services rendered to trust.. "
33. Remuneration of employees of
depositors for certain services
rendered to trust................... "
34. Remuneration of other persons for
certain services rendered to trust.. "
IV. Distribution and Redemption of Securities
35. Distribution of trust's
securities by states.............. Public Offering--Distribution of Units
36. Suspension of sales of trust's
securities........................ Not Applicable
37. Revocation of authority
to distribute..................... "
38. (a) Method of distribution.......... Public Offering--Distribution of Units
(b) Underwriting agreements......... "
(c) Selling agreements.............. "
39. (a) Organization of principal
underwriters.................... Sponsors
(b) N.A.S.D. membership of
principal underwriters.......... "
40. Certain fees received by
principal underwriters............ Not Applicable
41. (a) Business of principal
underwriters.................... Sponsors
(b) Branch offices of principal
underwriters.................... Not Applicable
(c) Salesmen of principal
underwriters.................... "
42. Ownership of trust's
securities by certain persons..... "
43. Certain brokerage commissions
received by principal
underwriters...................... "
44. (a) Method of valuation............. Prospectus front cover; Public
Offering--Offering Price; Public
Offering-- Distribution of Units
(b) Schedule as to offering price... Not Applicable
</TABLE>
iv
415684.1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(c) Variation in offering price
to certain persons.............. Public Offering--Offering Price; Public
Offering--Distribution of Units
45. Suspension of redemption rights..... Not Applicable
46. (a) Redemption valuation............ Rights of Unit Holders--Redemption--
Computation of Redemption Price per Unit
(b) Schedule as to redemption
price................ Not Applicable
47. Maintenance of position in
underlying securities............. Public Offering--Market for Units;
Rights of Unit Holders--Redemption--
Purchase by the Sponsors of Units
Tendered for Redemption; Rights of
Unit Holders--Redemption--Computation
of Redemption Price per Unit
V. Information Concerning the Trustee or Custodian
48. Organization and regulation
of trustee........................ Trustee
49. Fees and expenses of trustee........ Rights of Unit Holders--Expenses and
Charges; Rights of Unit Holders--
Distribution of Interest and Principal
50. Trustee's lien...................... Rights of Unit Holders--Expenses and
Charges--Other Charges; Rights of Unit
Holders--Distribution of Interest and
Principal
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of
trust's securities................ Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agreement
with respect to selection or
elimination of underlying
securities...................... Prospectus front cover;
Sponsors--Responsibility
(b) Transactions involving
elimination of underlying
securities...................... Not Applicable
(c) Policy regarding substitution
or elimination of underlying
securities...................... Sponsors--Responsibility
(d) Fundamental policy not
otherwise covered............... Not Applicable
53. Tax status of trust................. Prospectus front cover; Tax
Status
VIII. Financial and Statistical Information
54. Trust's securities during
last ten years.................... Not Applicable
55. Certain information regarding
periodic payment certificates..... "
56. Certain information regarding
periodic payment certificates..... "
</TABLE>
v
415684.1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
57. Certain information regarding
periodic payment certificates..... "
58. Certain information regarding
periodic payment certificates..... "
59. Financial Statements
(Instruction 1(c) to Form S-6)...... Statement of Net Assets; Statements of
Operations; Statements of Changes in
Net Assets
</TABLE>
vi
415684.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
Prospectus, Part I 9,990 Units Dated: November 29, 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 August 30, 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 July 31, 1996. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Ratings Services, a
Division of The McGraw-Hill Companies ("Standard & Poor's").
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest income to the Trust, and, with certain exceptions, to Unit
holders is exempt from all regular Federal, New York State and New York City
income taxes, but may be subject to state and local taxes in other
jurisdictions. Capital gains, if any, are subject to tax. See Part II under
"Tax Status."
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.
420831.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 121
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 10,000,000
Number of Units: 9,990
Fractional Undivided Interest in the Trust Per Unit: 1/9,990
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $9,465,759.40
=============
Sponsors' Repurchase Price Per Unit: $ 947.52
Plus Sales Charge(1): 56.45
-------------
Public Offering Price Per Unit(2): $ 1,003.97
=============
Redemption Price Per Unit(3): $ 947.52
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 56.45
Weighted Average Maturity of Bonds in the Trust: 28.478 years
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the next day following receipt by a
Sponsor of an order for a Unit sale or purchase or by the Trustee
of a Unit tendered for redemption.
Annual Insurance Premium: $14,280
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily
valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.33
under the monthly and $.93 under the semi-annual distribution
plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying Securities.
Date of Deposit: October 6, 1995
Date of Trust Agreement: October 6, 1995
Mandatory Termination Date: December 31, 2044
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the Trust as of the date of
deposit, whichever is lower.
</TABLE>
2
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 121
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $57.34 $57.34
Less Annual Premium on Portfolio Insurance 1.43 1.43
E Less Estimated Annual Expenses 2.05 1.55
Less Organizational Costs .42 .42
--------- ---------
R Estimated Net Annual Interest Income: $53.44 $53.94
====== ======
U Estimated Interest Distribution: $ 4.45 $26.97
N Estimated Current Return Based on Public
Offering Price (4): 5.32% 5.37%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.35% 5.41%
Estimated Daily Rate of Net Interest
Accrual: $.14844 $.14983
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
- -------------------
</TABLE>
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to September 5, 1996, the expected date of
settlement, of $3.13 monthly and $16.66 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption --Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net
annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator, and with the redemption,
maturity, exchange or sale of Securities. This calculation, which
includes cash income accrual only, does not include discount accretion on
original issue discount bonds or on zero coupon bonds or premium
amortization on bonds purchased at a premium. See "Tax Status" and
"Estimated Current Return and Estimated Long-Term Return to Unit Holders"
in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes
into account the yields (including accretion of discounts and
amortization of premiums) of the individual Bonds in the Trust's
portfolio, weighted to reflect the market value and time to maturity (or,
in certain cases, to earlier call date) of such Bonds, adjusted to
reflect the Public Offering Price (including sales charge and expenses)
per Unit. See "Estimated Current Return and Estimated Long-Term Return to
Unit Holders" in Part II of this Prospectus.
3
<PAGE>
Portfolio Information
On July 31, 1996, the bid side valuation of 82.0% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount
from par and 18.0% was at a premium over par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features of the
Bonds.
Special Factors Concerning the Portfolio
On July 31, 1996, the Portfolio consisted of seven issues of Bonds issued
by entities located in New York or certain United States territories or
possessions. The following information is being supplied to inform Unit Holders
of circumstances affecting the Trust. 32.0% of the aggregate principal amount
of the Bonds in the Portfolio are payable from appropriations. 68.0% of the
aggregate principal amount of the Bonds in the Portfolio are payable from the
income of specific projects or authorities and are not supported by the
issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and the purpose of issue are as follows: Appropriations, two (32.0%);
Revenue: Health Care, two (40.0%); Higher Education, two (20.0%) and Housing,
one (8.0%). The Trust is deemed to be concentrated in the Appropriations and
Health Care Bonds categories.1 Four issues, constituting 72% of the Bonds in
the Portfolio, are original issue discount bonds. Four issues (58.0%) were
rated AAA, and one issue (19.4%) was rated BBB+ by Standard & Poor's; two
issues (22.6%) 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.
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.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 121:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 121, including the tax-exempt bond
portfolio, as of July 31, 1996, and the related statements of operations and
changes in net assets for the period from October 6, 1995 (initial date of
deposit) to July 31, 1996. These financial statements are the responsibility of
the Trustee. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of July 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 121 as of July 31, 1996, and the results of its
operations and changes in net assets for the period from October 6, 1995
(initial date of deposit) to July 31, 1996 in conformity with generally
accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
August 30, 1996
5
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
STATEMENT OF NET ASSETS
JULY 31, 1996
<CAPTION>
ASSETS:
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $9,494,970) (Note 1)........................... $9 518 240
ACCRUED INTEREST RECEIVABLE ................................................................... 160 820
ORGANIZATIONAL COSTS, net of accumulated amortization of
$3,514 (Note 1)............................................................................. 16 550
-------------
Total trust property .................................................................... 9 695 610
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES .................................................. 110 079
------------
NET ASSETS .................................................................................... $9 585 531
==========
</TABLE>
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS ...................................... $7 308 743 $2 199 571 $9 508 314
UNDISTRIBUTED NET INVESTMENT
INCOME ......................................... 50 848 26 369 77 217
------------- ------------- ------------
Total value .............................. $7 359 591 $2 225 940 $9 585 531
========== ========== ==========
UNITS OUTSTANDING .................................. 7 679 2 311 9 990
============== ============== ==============
VALUE PER UNIT ..................................... $ 958.40 $ 963.19
============ ============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
STATEMENT OF OPERATIONS
PERIOD FROM OCTOBER 6, 1995 (INITIAL DATE OF DEPOSIT)
TO JULY 31, 1996
INVESTMENT INCOME - INTEREST ............................ $458 265
--------
EXPENSES:
Trustee fees ......................................... 11 722
Evaluation fees ...................................... 610
Insurance premiums .................................. 10 512
Sponsors' advisory fees ............................. 2 202
Auditors' fees ...................................... 1 800
Amortization of organizational costs (Note 1)........ 3 514
Total expenses ...................... 30 360
---------
NET INVESTMENT INCOME ................................... 427 905
UNREALIZED MARKET APPRECIATION (Note 1)................... 23 270
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................ $451 175
========
See Notes to Financial Statements
7
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
STATEMENT OF CHANGES IN NET ASSETS
PERIOD FROM OCTOBER 6, 1995 (INITIAL DATE OF DEPOSIT)
TO JULY 31, 1996
OPERATIONS:
Net investment income................................... $ 427 905
Unrealized market appreciation (Note 1) ............... 23 270
-------------
Net increase in net assets resulting
from operations............................... 451 175
------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income ................................ (350 688)
------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 10 units ................................ (9 926)
--------------
NET INCREASE IN NET ASSETS ................................ 90 561
NET ASSETS:
Beginning of period ................................... 9 494 970
-----------
End of period ......................................... $9 585 531
==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan........................................ $36.05
Semi-annual plan.................................... $31.87
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
NOTES TO FINANCIAL STATEMENTS
===============================================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by
an independent outside evaluator. Securities transactions are recorded on the
trade date. The difference between cost and market value is reflected as
unrealized appreciation (depreciation) of investments. Realized gains (losses)
from securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2044.
If the value of the Trust falls below $2,000,000 or 20% of the value of the
Trust as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
Organizational costs
Organizational costs are being amortized over a period of five
years using the straight-line method.
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.
9
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
NOTES TO FINANCIAL STATEMENTS
(Concluded)
===============================================================================
NOTE 3 - NET ASSETS
Cost of 10,000 units at Date of Deposit $9 984 070
Less gross underwriting commission 489 100
------------
Net cost - initial offering price 9 494 970
Redemption of 10 Units (9 926)
Unrealized market appreciation of securities 23 270
Undistributed net investment income 77 217
-------------
Net assets $9 585 531
==========
10
<PAGE>
<TABLE>
===============================================================================
===============================================================================
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
===============================================================================
<CAPTION>
Redemption Features
S.F. - Sinking Fund
Port- Aggregate Date of Opt. - Optional Call
folio Rating Principal Name of Issuer and Coupon Maturity Ant. - Anticipated
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1 AAA $ 800 000 State of New York 6.450% 10/01/17 04/01/10 @ 100 S.F.
Mortgage Agency, 09/01/04 @ 102 Opt.
Homeowner Mortgage
Revenue Bonds, Series
43 (MBIA Insured)
2 AAA 1 000 000 Dormitory Authority 6.250 07/01/21 07/01/11 @ 100 S.F.
of the State of New 07/01/01 @ 102 Opt.
York, Ithaca College
Insured Revenue Bonds,
Series 1991 (MBIA
Insured)
3 AAA 2 000 000 New York State 5.900 08/15/33 08/15/05 @ 100 Ant.
Medical Care 08/15/03 @ 102 Opt.
Facilities Finance
Agency, FHA-
Insured Mortgage
Project Revenue
Bonds, 1993
Series A (MBIA
Insured)
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
1 $ 828 000 $ 813 264 $ 51 600
2 1 020 000 1 026 380 62 500
3 1 962 000 1 944 320 118 000
11
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
S.F. - Sinking Fund
Port- Aggregate Date of Opt. - Optional Call
folio Rating Principal Name of Issuer and Coupon Maturity Ant. - Anticipated
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- ---------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
4 AAA $ 2 000 000 New York State Medical 5.700% 02/15/29 08/15/05 @ 100 Ant.
Care Facilities Finance 08/15/03 @ 102 Opt.
Agency, St. Luke's-
Roosevelt Hospital
Center, FHA-Insured
Mortgage Revenue
Bonds, 1993 Series A
(MBIA Insured)
5 BBB+ 1 940 000 Dormitory Authority 5.700 05/15/22 05/15/05 @ 100 Ant.
of the State of New 05/15/03 @ 101.5 Opt.
York, Court Facility
Lease Revenue Bonds
(the City of New York
Issue), Series 1993A
6 Baa1* 1 260 000 New York State 5.250 01/01/21 01/01/17 @ 100 S.F.
Urban Development 01/01/04 @ 102 Opt.
Corporation, Correct-
ional Capital Facility
Revenue Bonds, 1993A
Refunding Series
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
4 $ 1 925 000 $ 1 945 200 $114 000
5 1 813 900 1 819 293 110 580
6 1 102 500 1 115 113 66 150
12
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 121
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Concluded)
====================================================================================================================
<CAPTION>
Redemption Features
S.F. - Sinking Fund
Port- Aggregate Date of Opt. - Optional Call
folio Rating Principal Name of Issuer and Coupon Maturity Ant. - Anticipated
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
7 Baa1* $ 1 000 000 Dormitory Authority 5.000% 07/01/20 07/01/15 @ 100 S.F.
of the State of New 07/01/03 @ 100 Opt.
York, City University
System Consolidated
Revenue Bonds Series
1993F
$10 000 000
===========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
7 $ 843 570 $ 854 670 $ 50 000
$9 494 970 $9 518 240 $572 830
========== ========== ========
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 (*), 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.
13
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
Prospectus, Part I 9,999 Units Dated: November 29, 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 August 30, 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 July 31, 1996. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Ratings Services, a
Division of The McGraw-Hill Companies ("Standard & Poor's").
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest income to the Trust, and, with certain exceptions, to Unit
holders is exempt from all regular Federal, New York State and New York City
income taxes, but may be subject to state and local taxes in other
jurisdictions. Capital gains, if any, are subject to tax. See Part II under
"Tax Status."
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.
420832.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 122
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 10,000,000
Number of Units: 9,999
Fractional Undivided Interest in the Trust Per Unit: 1/9,999
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $9,286,228.63
=============
Sponsors' Repurchase Price Per Unit: $ 928.72
Plus Sales Charge(1): 56.93
Public Offering Price Per Unit(2): $ 985.65
=================
Redemption Price Per Unit(3): $ 928.72
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 56.93
Weighted Average Maturity of Bonds in the Trust: 25.236 years
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the next
day following receipt by a Sponsor of
an order for a Unit sale or purchase or
by the Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $410
Evaluator's Fee: $.55 for each issue of Bonds in the
Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of
Bonds in the Trust, $1.33 under the
monthly and $.93 under the semi-annual
distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount
of underlying Securities.
Date of Deposit: November 1, 1995
Date of Trust Agreement: November 1, 1995
Mandatory Termination Date: December 31, 2044
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the
Trust as of the date of deposit,
whichever is lower.
</TABLE>
2
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 122
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $54.42 $54.42
Less Annual Premium on Portfolio Insurance .04 .04
E Less Estimated Annual Expenses 2.04 1.54
Less Organizational Costs .42 .42
--------- ---------
R Estimated Net Annual Interest Income: $51.92 $52.42
====== ======
U Estimated Interest Distribution: $ 4.33 $26.21
N Estimated Current Return Based on Public
Offering Price (4): 5.27% 5.32%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.32% 5.37%
Estimated Daily Rate of Net Interest
Accrual: $.14422 $.14561
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to September 5, 1996, the expected date of
settlement, of $3.03 monthly and $16.17 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net
annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator, and with the redemption,
maturity, exchange or sale of Securities. This calculation, which
includes cash income accrual only, does not include discount accretion on
original issue discount bonds or on zero coupon bonds or premium
amortization on bonds purchased at a premium. See "Tax Status" and
"Estimated Current Return and Estimated Long-Term Return to Unit Holders"
in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes
into account the yields (including accretion of discounts and
amortization of premiums) of the individual Bonds in the Trust's
portfolio, weighted to reflect the market value and time to maturity (or,
in certain cases, to earlier call date) of such Bonds, adjusted to
reflect the Public Offering Price (including sales charge and expenses)
per Unit. See "Estimated Current Return and Estimated Long-Term Return to
Unit Holders" in Part II of this Prospectus.
3
<PAGE>
Portfolio Information
On July 31, 1996, the bid side valuation of 87.5% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount
from par and 12.5% was at a premium over par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features of the
Bonds.
Special Factors Concerning the Portfolio
On July 31, 1996, the Portfolio consisted of six 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. 4.1% of the aggregate principal amount of
the Bonds in the Portfolio are general obligations of the governmental entities
issuing them and are backed by the taxing power thereof. 95.9% 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, one
(4.1%); Revenue: Health Care, two (43.7%); Higher Education, one (19.7%);
Transportation, one (20.0%) and Housing, one (12.5%). The Trust is deemed to be
concentrated in the Health Care Bonds category.1 Five issues, constituting
87.5% of the Bonds in the Portfolio are original issue discount bonds of which
one is a zero coupon bond. All issues were rated AAA by Standard & Poor'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.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 122:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 122, including the tax-exempt bond
portfolio, as of July 31, 1996, and the related statements of operations and
changes in net assets for the period from November 1, 1995 (initial date of
deposit) to July 31, 1996. These financial statements are the responsibility of
the Trustee. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of July 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 122 as of July 31, 1996, and the results of its
operations and changes in net assets for the period from November 1, 1995
(initial date of deposit) to July 31, 1996 in conformity with generally
accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
August 30, 1996
5
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
STATEMENT OF NET ASSETS
JULY 31, 1996
===============================================================================
<CAPTION>
ASSETS:
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $9,492,378) (Note 1).......................... $9 347 558
ACCRUED INTEREST RECEIVABLE ................................................................... 157 894
ORGANIZATIONAL COSTS, net of accumulated amortization of $3,172 ............................... 17 437
-------------
Total trust property .................................................................... 9 522 889
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES .................................................. 98 582
-------------
NET ASSETS .................................................................................... $9 424 307
==========
</TABLE>
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS ...................................... $6 213 166 $3 133 223 $9 346 389
UNDISTRIBUTED NET INVESTMENT
INCOME ......................................... 40 778 37 140 77 918
------------- ------------- -------------
Total value .............................. $6 253 944 $3 170 363 $9 424 307
========== ========== ==========
UNITS OUTSTANDING .................................. 6 647 3 352 9 999
============== ============== ==============
VALUE PER UNIT ..................................... $ 940.87 $ 945.81
============ ============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
STATEMENTS OF OPERATIONS
PERIOD FROM NOVEMBER 1, 1995 (INITIAL DATE OF DEPOSIT) TO JULY 31, 1996
===============================================================================
INVESTMENT INCOME - INTEREST ............................ $ 398 596
---------
EXPENSES:
Trustee fees ........................................ 10 796
Evaluation fees ..................................... 429
Insurance premiums .................................. 274
Sponsors' advisory fees ............................. 2 035
Auditors' fees ...................................... 1 800
Amortization of organizational costs (Note 1) ....... 3 172
------------
Total expenses ...................... 18 506
-----------
NET INVESTMENT INCOME ................................... 380 090
UNREALIZED MARKET DEPRECIATION (Note 1) ................. (144 820)
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................ $ 235 270
=========
See Notes to Financial Statements
7
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM NOVEMBER 1, 1995 (INITIAL DATE OF DEPOSIT) TO JULY 31, 1996
==============================================================================
OPERATIONS:
Net investment income ................................ $ 380 090
Unrealized market depreciation (Note 1) .............. (144 820)
------------
Net increase in net assets resulting
from operations ............................ 235 270
------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income ............................... (302 172)
------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 1 unit ................................. (1 169)
------------
NET DECREASE IN NET ASSETS ............................... (68 071)
NET ASSETS:
Beginning of period .................................. 9 492 378
-----------
End of period ........................................ $9 424 307
==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan ..................................... $31.58
Semi-annual plan ................................. $27.51
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
NOTES TO FINANCIAL STATEMENTS
===============================================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by
an independent outside evaluator. Securities transactions are recorded on the
trade date. The difference between cost and market value is reflected as
unrealized appreciation (depreciation) of investments. Realized gains (losses)
from securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2044.
If the value of the Trust falls below $2,000,000 or 20% of the value of the
Trust as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
Organizational costs
Organizational costs are being amortized over a period of five
years using the straight-line method.
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.
9
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
NOTES TO FINANCIAL STATEMENTS
==============================================================================
(Concluded)
==============================================================================
NOTE 3 - NET ASSETS
Cost of 10,000 units at Date of Deposit $9 981 378
Less gross underwriting commission 489 000
-----------
Net cost - initial offering price 9 492 378
Redemption of one unit (1 169)
Unrealized market depreciation of securities (144 820)
Undistributed net investment income 77 918
-----------
Net assets $9 424 307
==========
10
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
====================================================================================================================
<CAPTION>
Redemption Features
S.F. - Sinking Fund
Port- Aggregate Date of Opt. - Optional Call
folio Rating Principal Name of Issuer and Coupon Maturity Ant. - Anticipated
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<C> <C> <C> <C> <C> <C> <C>
1 AAA $ 1 250 000 State of New York 6.450% 10/01/17 04/01/10 @ 100 S.F.
Mortgage Agency, 09/01/04 @ 102 Opt.
Homeowner Mortgage
Revenue Bonds,
Series 43 (MBIA
Insured)
2 AAA 2 000 000 New York State 5.750 01/01/19 01/01/13 @ 100 S.F.
Thruway Authority, 01/01/02 @ 102 Opt.
General Revenue
Bonds, Series A
(MBIA Insured)
3 AAA 2 000 000 New York State 5.750 08/15/19 02/15/09 @ 100 Ant.
Medical Care 08/15/02 @ 102 Opt.
Facilities Finance
Agency, Hospital
and Nursing Home
FHA-Insured
Mortgage Revenue
Bonds, 1992 Series
C (MBIA Insured)
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
1 $1 303 125 $1 270 725 $ 80 625
2 1 987 160 1 975 060 115 000
3 1 980 000 1 953 820 115 000
11
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
S.F. - Sinking Fund
Port- Aggregate Date of Opt. - Optional Call
folio Rating Principal Name of Issuer and Coupon Maturity Ant. - Anticipated
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<C> <C> <C> <C> <C> <C> <C>
4 AAA $ 2 365 000 New York State 5.700% 02/15/29 08/15/05 @ 100 Ant.
Medical Care 08/15/03 @ 102 Opt.
Facilities Finance
Agency, St. Luke's-
Roosevelt Hospital
Center, FHA-Insured
Mortgage Revenue
Bonds, 1993 Series A
(MBIA Insured)
5 AAA 1 975 000 Dormitory Authority 5.000 07/01/21 07/01/17 @ 100 S.F.
of the State of New 07/01/04 @ 102 Opt.
York, Mount Sinai
School of Medicine,
Insured Revenue
Bonds Series 1994
(MBIA Insured)
6 AAA 410 000 The City of New 0.000 06/01/20 No Sinking Fund
York, General No Optional Call
Obligation Bonds,
Principal New York
City Savers, Fiscal
1991 Series B
(FSA Insured)
$10 000 000
===========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
4 $2 330 045 $2 300 199 $134 805
5 1 789 548 1 749 100 98 750
6 102 500 98 654 -
$9 492 378 $9 347 558 $544 180
========== ========== ========
12
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 122
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Concluded)
===============================================================================
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 (*), which are by
Moody's Investors Service, Inc. ("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.
13
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
Prospectus, Part I 9,994 Units Dated: November 29, 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 August 30, 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 July 31, 1996. The second part of
this Prospectus contains a general summary of the Trust and "Special Factors
Affecting New York."
The Trust is a unit investment trust formed for the purpose of obtaining
tax-exempt interest income through investment in a diversified, insured
portfolio of long-term bonds, issued by or on behalf of the State of New York
and counties, municipalities, authorities or political subdivisions thereof or
issued by certain United States territories or possessions and their public
authorities (the "Bonds"). See Part II under "The Trust." The Bonds deposited
in the portfolio of the Trust are sometimes referred to herein as the
"Securities." Insurance guaranteeing the payment of principal and interest on
the Securities while in the Trust has been obtained by the Trust from the
Insurer as set forth in Part II under "Insurance on the Bonds." Such insurance
does not guarantee the market value of the Securities or the Units offered
hereby. The payment of interest and the preservation of principal are, of
course, dependent upon the continuing ability of the issuers of the Bonds and
any other insurer to meet their obligations. As a result of the insurance on
the Bonds, the Units are rated "AAA" by Standard & Poor's Ratings Services, a
Division of The McGraw-Hill Companies ("Standard & Poor's").
In the opinion of special counsel for the Sponsors as of the Date of
Deposit, interest income to the Trust, and, with certain exceptions, to Unit
holders is exempt from all regular Federal, New York State and New York City
income taxes, but may be subject to state and local taxes in other
jurisdictions. Capital gains, if any, are subject to tax. See Part II under
"Tax Status."
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.
420834.1
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 123
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
SPONSORS: GLICKENHAUS & CO.
LEBENTHAL & CO., INC.
AGENT FOR SPONSORS: GLICKENHAUS & CO.
TRUSTEE: THE BANK OF NEW YORK
EVALUATOR: MULLER DATA CORPORATION
Aggregate Principal Amount of Bonds in the Trust: $ 10,000,000
Number of Units: 9,994
Fractional Undivided Interest in the Trust Per Unit: 1/9,994
Total Value of Securities in the Portfolio
(Based on Bid Side Evaluations of Securities): $9,109,107.76
=============
Sponsors' Repurchase Price Per Unit: $ 911.46
Plus Sales Charge(1): 57.18
-------------
Public Offering Price Per Unit(2): $ 968.64
=============
Redemption Price Per Unit(3): $ 911.46
Excess of Public Offering Price Over Redemption
Price Per Unit: $ 57.18
Weighted Average Maturity of Bonds in the Trust: 28.397 years
<TABLE>
<S> <C>
Evaluation Time: 2:00 p.m., New York Time, on the next day following receipt by a Sponsor
of an order for a Unit sale or purchase or by the Trustee of a Unit tendered for
redemption.
Annual Insurance Premium: $7,550
Evaluator's Fee: $.55 for each issue of Bonds in the Trust for each daily valuation.
Trustee's Annual Fee: For each $1,000 principal amount of Bonds in the Trust, $1.33 under the
monthly and $.93 under the semi-annual distribution plan.
Sponsors' Annual Fee: Maximum of $.25 per $1,000 face amount of underlying Securities.
Date of Deposit: December 8, 1995
Date of Trust Agreement: December 8, 1995
Mandatory Termination Date: December 31, 2044
Minimum Principal Distribution: $1.00 per Unit
Minimum Value of the Trust under which
Trust Agreement may be Terminated: $2,000,000 or 20% of the value of the Trust as of the date of deposit, whichever
is lower.
</TABLE>
2
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 123
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT AUGUST 30, 1996
(Continued)
<CAPTION>
Monthly Semi-annual
<S> <C> <C>
P Estimated Annual Interest Income: $53.64 $53.64
Less Annual Premium on Portfolio Insurance .76 .76
E Less Estimated Annual Expenses 2.05 1.55
Less Organizational Costs .43 .43
--------- ---------
R Estimated Net Annual Interest Income: $50.40 $50.90
====== ======
U Estimated Interest Distribution: $ 4.20 $25.45
N Estimated Current Return Based on Public
Offering Price (4): 5.20% 5.25%
I
Estimated Long-Term Return Based
T on Public Offering Price (5): 5.33% 5.39%
Estimated Daily Rate of Net Interest
Accrual: $.14000 $.14139
Record Dates: 15th Day of 15th Day of May
Month and November
Payment Dates: 1st Day of 1st Day of June
Month and December
</TABLE>
- -------------------
1. The sales charge is determined based on the maturities of the underlying
securities in the portfolio. See "Public Offering -- Offering Price" in
Part II of this Prospectus.
2. Plus accrued interest to September 5, 1996, the expected date of
settlement, of $2.95 monthly and $15.70 semi-annually.
3. Based solely upon the bid side evaluations of the portfolio securities.
Upon tender for redemption, the price to be paid will include accrued
interest as described in Part II under "Rights of Unit Holders --
Redemption -- Computation of Redemption Price per Unit."
4. Estimated Current Return is calculated by dividing the estimated net
annual interest income received in cash per Unit by the Public Offering
Price. Interest income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator, and with the redemption,
maturity, exchange or sale of Securities. This calculation, which
includes cash income accrual only, does not include discount accretion on
original issue discount bonds or on zero coupon bonds or premium
amortization on bonds purchased at a premium. See "Tax Status" and
"Estimated Current Return and Estimated Long-Term Return to Unit Holders"
in Part II of this Prospectus.
5. Estimated Long-Term Return is calculated by using a formula that takes
into account the yields (including accretion of discounts and
amortization of premiums) of the individual Bonds in the Trust's
portfolio, weighted to reflect the market value and time to maturity (or,
in certain cases, to earlier call date) of such Bonds, adjusted to
reflect the Public Offering Price (including sales charge and expenses)
per Unit. See "Estimated Current Return and Estimated Long-Term Return to
Unit Holders" in Part II of this Prospectus.
3
<PAGE>
Portfolio Information
On July 31, 1996, the bid side valuation of 80.0% of the aggregate
principal amount of Bonds in the Portfolio for this Trust was at a discount
from par and 20.0% was at a premium over par. See Note (B) to "Tax-Exempt Bond
Portfolio" for information concerning call and redemption features of the
Bonds.
Special Factors Concerning the Portfolio
On July 31, 1996, the Portfolio consisted of seven issues of Bonds issued
by entities located in New York or certain United States territories or
possessions. The following information is being supplied to inform Unit Holders
of circumstances affecting the Trust. 5.0% of the aggregate principal amount of
the Bonds in the Portfolio are general obligations of the governmental entities
issuing them and are backed by the taxing power thereof. 20.0% of the aggregate
principal amount of the Bonds in the Portfolio are payable from appropriations.
75.0% of the aggregate principal amount of the Bonds in the Portfolio are
payable from the income of specific projects or authorities and are not
supported by the issuers' power to levy taxes.
Although income to pay such Bonds may be derived from more than one
source, the primary sources of such income, the number of issues (and the
related dollar weighted percentage of such issues) deriving income from such
sources and the purpose of issue are as follows: General Obligation, two
(5.0%); Appropriations, one (20.0%); Revenue: Transportation, three (51.8%) and
Health Care, one (23.2%). The Trust is deemed to be concentrated in the
Transportation Bonds category.1 Six issues, constituting 80% of the Bonds in
the Portfolio, are original issue discount bonds of which two are zero coupon
bonds. Five issues (77.5%) were rated AAA, and one issue (2.5%) was rated BBB+
by Standard & Poor's; and one issue (20.0%) was 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.
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.
4
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Sponsors, Trustee and Unit Holders of Empire State Municipal Exempt Trust,
Guaranteed Series 123:
We have audited the accompanying statement of net assets of Empire State
Municipal Exempt Trust, Guaranteed Series 123, including the tax-exempt bond
portfolio, as of July 31, 1996, and the related statements of operations and
changes in net assets for the period from December 8, 1995 (initial date of
deposit) to July 31, 1996. These financial statements are the responsibility of
the Trustee. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of July 31, 1996, by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Empire State Municipal Exempt
Trust, Guaranteed Series 123 as of July 31, 1996, and the results of its
operations and changes in net assets for the period from December 8, 1995
(initial date of deposit) to July 31, 1996 in conformity with generally
accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
August 30, 1996
5
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
STATEMENT OF NET ASSETS
JULY 31, 1996
===============================================================================
<CAPTION>
ASSETS:
<S> <C>
INVESTMENTS IN SECURITIES, at market value (cost $9,566,188) (Note 1).......................... $9 186 611
ACCRUED INTEREST RECEIVABLE ................................................................... 154 001
ORGANIZATIONAL COSTS, net of accumulated amortization of $2,892 (Note 1)........................ 17 717
-------------
Total trust property .................................................................... 9 358 329
LESS - ACCRUED EXPENSES AND OTHER LIABILITIES .................................................. 99 519
-------------
NET ASSETS .................................................................................... $9 258 810
==========
</TABLE>
<TABLE>
NET ASSETS REPRESENTED BY:
<CAPTION>
Monthly Semi-annual
distribution distribution
plan plan Total
<S> <C> <C> <C>
VALUE OF FRACTIONAL UNDIVIDED
INTERESTS ...................................... $5 973 877 $3 208 788 $9 182 665
UNDISTRIBUTED NET INVESTMENT
INCOME ......................................... 38 595 37 550 76 145
------------- ------------- -------------
Total value .............................. $6 012 472 $3 246 338 $9 258 810
========== ========== ==========
UNITS OUTSTANDING .................................. 6 503 3 493 9 996
============== ============== ==============
VALUE PER UNIT ..................................... $ 924.57 $ 929.38
============ ============
</TABLE>
See Notes to Financial Statements
6
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
STATEMENTS OF OPERATIONS
PERIOD FROM DECEMBER 8, 1995 (INITIAL DATE OF DEPOSIT)
TO JULY 31, 1996
===============================================================================
INVESTMENT INCOME - INTEREST ........................... $ 337 373
---------
EXPENSES:
Trustee fees ........................................ 9 021
Evaluation fees ..................................... 323
Insurance premiums ................................. 4 887
Sponsors' advisory fees ............................ 1 660
Auditors' fees ..................................... 1 800
Amortization of organizational costs (Note 1) ....... 2 892
------------
Total expenses ..................... 20 583
-----------
NET INVESTMENT INCOME .................................. 316 790
UNREALIZED MARKET DEPRECIATION (Note 1).................. (379 577)
----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................................... $ (62 787)
==========
See Notes to Financial Statements
7
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
STATEMENTS OF CHANGES IN NET ASSETS
PERIOD FROM DECEMBER 8, 1995 (INITIAL DATE OF DEPOSIT)
TO JULY 31, 1996
==============================================================================
OPERATIONS:
Net investment income................................... $ 316 790
Unrealized market depreciation (Note 1)................. (379 577)
------------
Net decrease in net assets resulting
from operations............................... (62 787)
-------------
DISTRIBUTIONS TO UNIT HOLDERS (Note 2):
Net investment income ................................ (240 645)
------------
CAPITAL SHARE TRANSACTIONS:
Redemption of 4 units ................................. (3 946)
--------------
NET DECREASE IN NET ASSETS ................................ (307 378)
NET ASSETS:
Beginning of period ................................... 9 566 188
-----------
End of period ......................................... $9 258 810
==========
DISTRIBUTIONS PER UNIT (Note 2):
Interest:
Monthly plan........................................ $25.46
Semi-annual plan.................................... $21.47
See Notes to Financial Statements
8
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
NOTES TO FINANCIAL STATEMENTS
=============================================================================
The Trust is a unit investment trust formed under the Investment Company Act of
1940 for the purpose of obtaining tax-exempt interest income through investment
in a fixed insured portfolio of long-term bonds, issued primarily by or on
behalf of the State of New York and counties, municipalities, authorities or
political subdivisions thereof.
The Bank of New York (the "Trustee") has custody of and responsibility for the
accounting records and financial statements of the Trust and is responsible for
establishing and maintaining a system of internal control.
The Trustee is also responsible for all estimates of expenses and accruals
reflected in the Trust's financial statements. The accompanying financial
statements have been adjusted to record the unrealized appreciation
(depreciation) of investments and to record interest income and expenses on the
accrual basis.
NOTE 1 - ACCOUNTING POLICIES
Securities
Securities are stated at bid side market value as determined by
an independent outside evaluator. Securities transactions are recorded on the
trade date. The difference between cost and market value is reflected as
unrealized appreciation (depreciation) of investments. Realized gains (losses)
from securities transactions are determined on the basis of average cost of the
securities sold or redeemed.
Taxes on income
The Trust is not subject to taxes on income and, accordingly, no
provision has been made.
Termination of Trust
The mandatory termination date of the Trust is December 31, 2044.
If the value of the Trust falls below $2,000,000 or 20% of the value of the
Trust as of the date of deposit, whichever is lower, the Trust is subject to
termination as specified in the Trust Agreement.
Organizational costs
Organizational costs are being amortized over a period of five
years using the straight-line method.
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.
9
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
NOTES TO FINANCIAL STATEMENTS
===============================================================================
(Concluded)
NOTE 3 - NET ASSETS
Cost of 10,000 units at Date of Deposit $10 059 088
Less gross underwriting commission 492 900
--------------
Net cost - initial offering price 9 566 188
Redemption of four units (3 946)
Unrealized market depreciation of securities (379 577)
Undistributed net investment income 76 145
---------------
Net assets $ 9 258 810
============
10
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<C> <C> <C> <C> <C> <C> <C>
1 AAA $ 2 315 000 Dormitory Authority 5.625% 08/01/35 02/01/96 @ 100 S.F.
of the State of New 08/01/05 @ 102 Opt.
York, Ellis Hospital,
Insured Revenue
Bonds, FHA Insured,
Mortgage Hospital
Revenue Bonds,
Series 1995
2 AAA 2 000 000 Port Authority of 5.875 10/15/27 10/15/24 @ 100 S.F.
New York and New 10/15/02 @ 101 Opt.
Jersey Consolidated
Bonds, One Hundred
Second Series
(MBIA Insured)
3 AAA 1 925 000 Metropolitan 5.500 07/01/17 07/01/10 @ 100 S.F.
Transportation 07/01/02 @ 100 Opt.
Authority Commuter
Facilities Revenue
Bonds, Series 1992 A
(MBIA Insured)
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
1 $2 280 275 $2 174 155 $130 219
2 2 045 000 2 009 460 117 500
3 1 910 563 1 853 178 105 875
11
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<C> <C> <C> <C> <C> <C> <C>
4 AAA $ 1 260 000 New York State 5.750% 01/01/19 01/01/13 @ 100 S.F.
Thruway Authority 01/01/02 @ 102 Opt.
Revenue Bonds,
Series A (MBIA
Insured)
5 AAA 250 000 The City of New 0.000 06/01/20 No Sinking Fund
York, General No Optional Call
Obligation Bonds,
Principal New York
City Savers, Fiscal
1991 Series B
(FSA Insured)
6 Baa1* 2 000 000 New York State 5.500 09/15/22 03/15/19 @ 100 S.F.
Housing Finance 03/15/03 @ 102 Opt.
Agency, Service
Contracts Obligation
Revenue Bonds, 1993
Series A
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
4 $1 277 325 $1 244 288 $ 72 450
5 65 900 60 155 -
6 1 920 000 1 782 140 110 000
12
<PAGE>
<TABLE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Continued)
====================================================================================================================
<CAPTION>
Redemption Features
Port- Aggregate Date of S.F. - Sinking Fund
folio Rating Principal Name of Issuer and Coupon Maturity Opt. - Optional Call
No. (Note A) Amount Title of Bond Rate (Note B) (Note B)
- ---- -------- -------- ----------------------- --------- -------- ---------------------------
<C> <C> <C> <C> <C> <C> <C>
7 BBB+ $ 250 000 The City of New 0.000% 08/01/18 No Sinking Fund
York, General No Optional Call
Obligation Bonds,
Fiscal 1994
Series E
$10 000 000
===========
</TABLE>
Market Value Annual
Port- Cost of as of Interest
folio Bonds July 31, Income to
No. to Trust 1996 Trust
- ---- -------- ----------------- --------
7 $ 67 125 $ 63 235 -
$9 566 188 $9 186 611 $536 044
========== ========== ========
13
<PAGE>
EMPIRE STATE MUNICIPAL EXEMPT TRUST
GUARANTEED SERIES 123
TAX-EXEMPT BOND PORTFOLIO
JULY 31, 1996
(Concluded)
==============================================================================
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 (*), 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.
14
This Module replaces an earlier one
EMPIRE STATE MUNICIPAL EXEMPT TRUST
Guaranteed Series
PROSPECTUS, Part II
Note: Part II of this Prospectus may not be
distributed unless accompanied by Part I.
THE TRUST
Organization
The Trust is one of a Series of similar but separate unit investment
trusts. Each Trust was created under the laws of the State of New York pursuant
to a Trust Indenture and Agreement (the "Trust Agreement"), dated the Date of
Deposit as set forth in "Summary of Essential Financial Information" in Part I
of this Prospectus, among the Sponsors, the Trustee and the Evaluator. The Bank
of New York acts as successor Trustee of Series 1 through 22 and as Trustee of
Series 23 and subsequent Series. Muller Data Corporation acts as successor
Evaluator for Series 1 through 90 and as Evaluator for Series 91 and subsequent
Series. Glickenhaus & Co. and Lebenthal & Co., Inc. act as co-Sponsors for all
Series (the "Sponsors").
On the date of this Prospectus, each Unit represented the fractional
undivided interest in the Trust set forth in Part I of this Prospectus under
"Summary of Essential Financial Information." Thereafter, if any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual interest
in the Trust represented by each such Unit will remain essentially the same.
Units will remain outstanding until redeemed upon tender to the Trustee by any
Unit holder, which may include the Sponsors, or until the termination of the
Trust Agreement for the related Trust. See "Rights of Unit
Holders--Redemption."
On the Date of Deposit for each Trust, the Sponsors deposited with the
Trustee obligations or contracts for the purchase of such obligations (the
"Bonds" or "Securities"). Certain of the Bonds may have been purchased at
prices which resulted in 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 gain. Any gain other than any earned original issue discount
will be taxable and will not be realized until maturity, redemption or sale of
the underlying Bonds or Units.
Objectives
The objective of the Trust is to obtain tax-exempt interest income through
an investment in a fixed, insured portfolio consisting primarily of various
long-term municipal bonds. No assurance can be given that the Trust's
objectives will be achieved because these objectives are subject to the
continuing ability of the respective issuers of the bonds in the Portfolio to
meet their obligations and of the Insurer to meet its obligations under the
insurance. In addition, an investment in the Trust can be affected by interest
rate fluctuations.
The Trust has obtained insurance guaranteeing the payment of principal and
interest on the Bonds in each respective Trust from MBIA Inc. and MBIA
Insurance Corporation ("MBIA Corp.") (MBIA Inc. and MBIA Corp. are collectively
referred to herein as the "Insurer"). Insurance obtained by the Trust applies
only while Bonds are retained in the Trust. Pursuant to
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irrevocable commitments of MBIA Inc. and MBIA Corp., however, in the event of a
sale of a Bond from the Trust the Trustee has the right to obtain permanent
insurance for such Bond upon the payment of a single predetermined insurance
premium from the proceeds of the sale of such Bond. It is expected that the
Trustee will exercise the right to obtain permanent insurance for a Bond in
such Series upon instruction from the Sponsors whenever the value of that Bond
insured to its maturity less the applicable permanent insurance premium and the
related custodial fee exceeds the value of the Bond without such insurance.
Insurance relates only to the payment of principal and interest on the Bonds in
the Trust but neither covers the nonpayment of any redemption premium on the
Bonds nor guarantees the market value of the Units. Certain Bonds in the Trust
may also be insured under insurance obtained by the issuers of such Bonds or
third parties ("Pre-insured Bonds"). As a result of the insurance, Moody's
Investors Service, Inc. has assigned a rating of "Aaa" to all of the Bonds in
the Trust, as insured, and Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies ("Standard & Poor's"), has assigned a rating of "AAA"
to the Units and Bonds while in the Trust. No representation is made as to any
insurer's ability to meet its commitments. Insurance is not a substitute for
the basic credit of an issuer, but supplements the existing credit and provides
additional security therefor. A single or annual premium is paid by the issuer
or any other party for its insurance on Pre-insured Bonds, and a monthly
premium is paid by the Trust for the insurance it obtains from the Insurer on
the Bonds in the Trust that are not pre-insured by such Insurer. No premium
will be paid by the Trust on Bonds pre-insured by MBIA Inc. and MBIA Corp. See
"Insurance on the Bonds."
Portfolio
In view of the Trust's objectives, the following factors, among others,
were considered in selecting the Bonds: (1) all the Bonds are obligations of
the State of New York and counties, municipalities, authorities or political
subdivisions thereof or issued by certain United States territories or
possessions, including Puerto Rico, and their public authorities so that the
interest on them will be exempt from Federal, New York State and New York City
income tax under existing law; (2) the Bonds are varied as to purpose of issue;
(3) in the opinion of the Sponsors, the Bonds are fairly valued relative to
other bonds of comparable quality and maturity; and (4) availability of
insurance for the payment of principal and interest on the Bonds. Subsequent to
the Date of Deposit, a Bond may cease to be rated or its rating may be reduced.
Neither event requires an elimination of such Bond from the portfolio, but such
an event may be considered in the Sponsors' determination to direct the Trustee
to dispose of the Bonds. See "Sponsors--Responsibility."
An investment in Units of the Trust should be made with an understanding
of the risks entailed in investments in fixed-rate bonds, including the risk
that the value of such bonds (and, therefore, of the Units) will decline with
increases in interest rates. Inflation and recession, as well as measures
implemented to address these and other economic problems, contribute to
fluctuations in interest rates and the value of fixed-rate bonds generally. The
Sponsors cannot predict future economic policies or their 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.
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Economic Trends. Over the long term, the State of New York (the "State")
and the City of New York (the "City") face serious potential economic problems.
The City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways. The
State historically has been one of the wealthiest states in the nation. For
decades, however, the State has grown more slowly than the nation as a whole,
gradually eroding its relative economic affluence. Statewide, urban centers
have experienced significant changes involving migration of the more affluent
to the suburbs and an influx of generally less affluent residents. Regionally,
the older Northeast cities have suffered because of the relative success that
the South and the West have had in attracting people and business. The City has
also had to face greater competition as other major cities have developed
financial and business capabilities which make them less dependent on the
specialized services traditionally available almost exclusively in the City.
The State has for many years had a very high State and local tax burden
relative to other states. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and
colleges, public health systems, other social services and recreational
facilities. Despite these benefits, the burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Notwithstanding the numerous initiatives that the State and its localities
may take to encourage economic growth and achieve balanced budgets, reductions
in Federal spending could materially and adversely affect the financial
condition and budget projections of the State and its localities.
New York City. The City, with a population of approximately 7.3 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.
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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 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
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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 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
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<PAGE>
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
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
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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 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.
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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.
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.
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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 $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 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
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<PAGE>
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 the Trust will retain for any
length of time its present size and composition. The inclusion of unrated Bonds
in certain Series of the Trust may result in less flexibility in their disposal
and a loss to the Trust upon their disposition. Except as described in
footnotes to "Summary of Essential Financial Information" in Part I of this
Prospectus, interest accrues to the benefit of Unit holders commencing with the
expected date of settlement for purchase of the Units. Neither the Sponsors nor
the Trustee shall be liable in any way for any default, failure or defect in
any Security.
The following paragraphs discuss the characteristics of the Bonds in the
Trust and of certain types of issuers of the Bonds in the Trust. See "Special
Factors Concerning the Portfolio" in Part I of this Prospectus. These
paragraphs discuss, among other things, certain circumstances which may
adversely affect the ability of such issuers to make payments of principal of
and interest on Bonds held in the portfolio of the Trust or which may adversely
affect the ratings of such Bonds. Because of the insurance obtained by the
Sponsors or by the issuers, however, such changes should not adversely affect
the Trust's ultimate receipt of principal and interest, the Standard & Poor's
or Moody's ratings of the Bonds in the portfolio, or the Standard & Poor's
rating of the Units of the Trust. An investment in Units of the Trust should be
made with an understanding of the risks that such an investment may entail,
certain of which are described below. Unit holders may obtain additional
information concerning a particular Bond by requesting an official statement
from the issuer of such Bond.
General Obligation Bonds
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. The taxing
power of any governmental entity may be limited, however, by provisions of
state constitutions or laws, and an entity's credit will depend on many
factors, including potential erosion of the tax base due to population
declines, natural disasters, declines in the state's industrial base or
inability to attract new industries; economic limits on the ability to tax
without eroding the tax base; state legislative proposals or voter initiatives
to limit ad valorem real property taxes; and the extent to which the entity
relies on Federal or state aid, access to capital markets or other factors
beyond the state or entity's control.
Appropriations Bonds
Many state or local governmental entities enter into lease purchase
obligations as a means for financing the acquisition of capital projects (e.g.,
buildings or equipment, among other things). Such obligations are often made
subject to annual appropriations. Certain Series of the Trust may contain Bonds
in the portfolio that are, in whole or in part, subject to and dependent upon
(1) the governmental entity making appropriations from time to time or (2) the
continued existence of special temporary taxes which require legislative action
for their reimposition. The availability of any appropriation is subject to the
willingness of the governmental entity to continue to make such special
appropriations or to reimpose such special
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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 Series of the Trust may contain Bonds in
the portfolio that are secured by pledged revenues and additionally by the
so-called "moral obligation" of the State or a local governmental body. Should
the pledged revenues prove insufficient, the payment of such Bonds is not a
legal obligation of the State or local government, and is subject to its
willingness to appropriate funds therefor.
Revenue Bonds
Mortgage Revenue Bonds. Certain Bonds may be "mortgage revenue bonds".
Under the Internal Revenue Code of 1986, as amended (the "Code") (and under
similar provisions of the prior tax law), "mortgage revenue bonds" are
obligations the proceeds of which are used to finance owner-occupied residences
under programs which meet numerous statutory requirements relating to
residency, ownership, purchase price and target area requirements, ceiling
amounts for state and local issuers, arbitrage restrictions, and certain
information reporting, certification, and public hearing requirements. There
can be no assurance that additional federal legislation will not be introduced
or that existing legislation will not be further amended, revised, or enacted
after delivery of these Bonds or that certain required future actions will be
taken by the issuing governmental authorities, which action or failure to act
could cause interest on the Bonds to be subject to federal income tax. If any
portion of the Bond proceeds is not committed for the purpose of the issue,
Bonds in such amount could be subject to earlier mandatory redemption at par,
including issues of Zero Coupon Bonds (see "Original Issue Discount and Zero
Coupon Bonds").
Housing Bonds. Some of the aggregate principal amount of Bonds may consist
of obligations of state and local housing authorities whose revenues are
primarily derived from mortgage loans to housing projects for low to moderate
income families. Since such obligations are not general obligations of a
particular state or municipality and are generally payable primarily or solely
from rents and other fees, adverse economic developments including failure or
inability to increase rentals, fluctuations of interest rates and increasing
construction and operating costs may reduce revenues available to pay existing
obligations.
The housing bonds in the Trust, despite their optional redemption
provisions which generally do not take effect until ten years after the
original issuance dates of such Bonds (often referred to as "ten year call
protection"), do contain provisions which require the issuer to redeem such
obligations at par from unused proceeds of the issue within a stated period. In
recent periods of declining interest rates there have been increased
redemptions of housing bonds pursuant to such redemption provisions. In
addition, the housing bonds in the Trust are also subject to mandatory
redemption in part at par at any time that voluntary or involuntary prepayments
of principal on the underlying mortgages are made to the trustee
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for such Bonds or that the mortgages are sold by the bond issuer. Prepayments
of principal tend to be greater in periods of declining interest rates; it is
possible that such prepayments could be sufficient to cause a housing bond to
be redeemed substantially prior to its stated maturity date, earliest call date
or sinking fund redemption date.
Public Power Revenue Bonds. General problems of the electric utility
industry include difficulty in financing large construction programs during an
inflationary period; restrictions on operations and increased costs and delays
attributable to environmental considerations; the difficulty of the capital
markets in absorbing utility debt and equity securities; the availability of
fuel for electric generation at reasonable prices, including among other
considerations the potential rise in fuel costs and the costs associated with
conversion to alternate fuel sources such as coal; technical cost factors and
other problems associated with construction, licensing, regulation and
operation of nuclear facilities for electric generation, including among other
considerations the problems associated with the use of radioactive materials
and the disposal of radioactive waste; and the effects of energy conservation.
Certain Bonds may have been issued in connection with the financing of nuclear
generating facilities. In view of recent developments in connection with such
facilities, legislative and administrative actions have been taken and proposed
relating to the 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
third-party payors and government programs such as Medicare and Medicaid. Both
private third-party payors and government programs have undertaken cost
containment measures designed to limit payments. Furthermore, government
programs are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings and government funding restrictions, all of
which may materially decrease the rate of program payments for health care
facilities. There can be no assurance that payments under governmental programs
will remain at levels comparable to present levels or will, in the future, be
sufficient to cover the costs allocable to patients participating in such
programs. In addition, there can be no assurance that a particular hospital or
other health care facility will continue to meet the requirements for
participation in such programs.
The health care delivery system is undergoing considerable alteration and
consolidation. Consistent with that trend, the ownership or
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management of a hospital or health care facility may change, which could result
in (i) an early redemption of bonds, (ii) alteration of the facilities financed
by the Bonds or which secure the Bonds, (iii) a change in the tax exempt status
of the Bonds or (iv) an inability to produce revenues sufficient to make timely
payment of debt service on the Bonds. 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. See "Description of Portfolio" in Part A for the amount of hospital
revenue bonds contained therein.
Higher Education Revenue Bonds. Higher education revenue bonds include
debt of state and private colleges, universities and systems, and parental and
student loan obligations. The ability of universities and colleges to meet
their obligations is dependent upon various factors, including the revenues,
costs and enrollment levels of the institutions. In addition, their ability may
be affected by declines in Federal, state and alumni financial support,
fluctuations in interest rates and construction costs, increased maintenance
and energy costs, failure or inability to raise tuition or room charges and
adverse results of endowment fund investments.
Pollution Control Facility Revenue Bonds. Bonds in the pollution control
facilities category include securities issued on behalf of a private
corporation,* including utilities, to provide facilities for the treatment of
air, water and solid waste pollution. Repayment of these bonds is dependent
upon income from the specific pollution control facility and/or the financial
condition of the project corporation. See also "Private Activity Bonds."
Other Utility Revenue Bonds. Bonds in this category include securities
issued to finance natural gas supply, distribution and transmission facilities,
public water supply, treatment and distribution facilities, and 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,
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* For the purposes of the description of users of facilities, all references
to "corporations" shall be deemed to include any other nongovernmental
person or entity.
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including user fees, charges, tolls and rents. Such revenues may be adversely
affected by increased construction and maintenance costs or taxes, decreased
use, competition from alternative facilities, scarcity of fuel, reduction or
loss of rents or the impact of environmental considerations. Other
transportation bonds may be dependent primarily or solely on Federal, state or
local assistance including motor fuel and motor vehicle taxes, fees and
licenses and, therefore, may be subject to fluctuations in such assistance.
Private Activity Bonds. The portfolio of the Trust may contain other Bonds
that are "private activity bonds" (often called industrial revenue bonds
("IRBs") if issued prior to 1987), which would be primarily of two types: (1)
Bonds for a publicly owned facility that a private entity may have a right to
use or manage to some degree, such as an airport, seaport facility or water
system, and (2) Bonds for facilities deemed owned or beneficially owned by a
private entity but which were financed with tax-exempt bonds of a public
issuer, such as a manufacturing facility or a pollution control facility. In
the case of the first type, bonds are generally payable from a designated
source of revenues derived from the facility and may further receive the
benefit of the legal or moral obligation of one or more political subdivisions
or taxing jurisdictions. In most cases of project financing of the first type,
receipts or revenues of the Issuer are derived from the project or the operator
or from the unexpended proceeds of the bonds. Such revenues include user fees,
service charges, rental and lease payments, and mortgage and other loan
payments.
The second type of issue will generally finance projects which are owned
by or for the benefit of, and are operated by, corporate entities. Ordinarily,
such private activity bonds are not general obligations of governmental
entities and are not backed by the taxing power of such entities, and are
solely dependent upon the creditworthiness of the corporate user of the project
or corporate guarantor.
The private activity bonds in the Trust have generally been issued under
bond resolutions, agreements or trust indentures pursuant to which the revenues
and receipts payable under the issuer's arrangements with the users or the
corporate operator of a particular project have been assigned and pledged to
the holders of the private activity bonds. In certain cases a mortgage on the
underlying project has been assigned to the holders of the private activity
bonds or a trustee as additional security. In addition, private activity bonds
are frequently directly guaranteed by the corporate operator of the project or
by another affiliated company.
Special Tax Revenue Bonds. Bonds in this category are bonds secured
primarily or solely by receipt of certain state or local taxes, including sales
and use taxes or excise taxes. Consequently, such bonds may be subject to
fluctuations in the collection of such taxes. Such bonds do not include tax
increment bonds or special assessment bonds.
Other Revenue Bonds. Certain Series of the Trust may also contain revenue
bonds which are payable from and secured primarily or solely by revenues from
the ownership and operation of particular facilities, such as correctional
facilities, parking facilities, convention centers, arenas, museums and other
facilities owned or used by a charitable entity. Payment on bonds related to
such facilities is, therefore, primarily or solely dependent on revenues from
such projects, including user fees, charges and rents. Such revenues may be
affected adversely by increased construction and maintenance costs or taxes,
decreased use, competition from alternative facilities, reduction or loss of
rents or the impact of environmental considerations.
Certain Series of the Trust may also contain bonds that are secured by
direct obligations of the U.S. Government or, in some cases, obligations
guaranteed by the U.S. Government, placed in an escrow account
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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 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 Series of the Trust may contain original issue discount bonds
and/or zero coupon bonds. Original issue discount bonds are bonds that were
originally issued at less than the market interest rate. Zero coupon bonds are
original issue discount bonds that do not provide for the payment of current
interest. For Federal income tax purposes, original issue discount on such
bonds must be amortized over the term of such bonds. On sale or redemption, the
excess of (1) the amount realized (other than amounts treated as tax-exempt
income as described below), over (2) the tax basis of such bonds
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(properly adjusted, in the circumstances described below, for amortization of
original issue discount) will be treated as taxable income or loss. See "The
Trust--Tax Status." The Code requires holders of tax-exempt obligations issued
with original issue discount, such as the Trust, to accrue tax-exempt original
issue discount by using the constant interest method provided for the holders
of taxable obligations. In addition, the Code provides that the basis of a
tax-exempt obligation is increased by the amount of accrued tax-exempt original
issue discount. These provisions are applicable to obligations issued after
September 3, 1982 and acquired after March 1, 1984. The Trust's tax basis in a
Bond is increased by any accrued original issue discount as is a Unit holder's
tax basis in his Units. For Bonds issued after June 9, 1980 that are redeemed
prior to maturity, the difference between the Trust's basis, as adjusted, and
the amount received will be taxable gain or loss to the Unit holders. All or a
portion of any such gain may be taxable as ordinary income.
There can be no assurance that additional Federal legislation will not be
enacted or that existing legislation will not be amended hereafter with the
effect that interest on bonds becomes subject to Federal income taxation. If
the interest on the Bonds should ultimately be deemed to be taxable, the
Sponsors may instruct the Trustee to sell them, and, since they would be sold
as taxable securities, it is expected that they would have to be sold at a
substantial discount from current market prices.
Bonds Subject to Sinking Fund Provisions
Most of the Bonds in the Trust are subject to redemption prior to their
stated maturity date pursuant to sinking fund or call provisions. A sinking
fund is a reserve fund accumulated over a period of time for retirement of
debt. Sinking fund provisions are designed to redeem a significant portion of
an issue gradually over the life of the issue. Obligations to be redeemed are
generally chosen by lot. A callable debt obligation is one which is subject to
redemption prior to maturity at the option of the issuer. To the extent that
obligations in the Trust have a bid side valuation higher than their par value,
redemption of such obligations at par would result in a loss of capital to a
purchaser of Units at the public offering price. The estimated current return
of the Units might also be adversely affected if the return on the retired
Bonds is greater than the average return on the Bonds in the Trust. In general,
call provisions are more likely to be exercised when the offering side
valuation is at a premium over par than when it is at a discount from par. See
"Special Factors Concerning the Portfolio" in Part I of this Prospectus for
information for the number of bonds in the Portfolio that are original issue
discount and zero coupon bonds and "Portfolio Information" in Part I of this
Prospectus for a breakdown of the percentage of Bonds in the Trust with
offering side valuations at a premium, discount or at par. See also "Estimated
Current Return and Estimated Long Term Return". "The Portfolio" and "Summary of
Essential Financial Information" in Part I of this Prospectus contain a listing
of the sinking fund and call provisions, if any, with respect to each of the
Bonds therein.
Other Matters
An amendment to the Federal Bankruptcy Act relating to the adjustment of
indebtedness owed by any political subdivision or public agency or
instrumentality of any state, including municipalities, became effective in
1979. Among other things, this amendment facilitates the use of proceedings
under the Federal Bankruptcy Act by any such entity to restructure or otherwise
alter the terms of its obligations, including those of the type comprising the
Trust's portfolio. The Sponsors are unable to predict what effect, if any, this
legislation will have on the Trust.
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To the best knowledge of the Sponsors, there is no litigation pending as
of the date hereof in respect of any Securities which might reasonably be
expected to have a material adverse effect on the Trust, unless otherwise
stated in Part I of this Prospectus. At any time, however, litigation may be
initiated on a variety of grounds with respect to Securities in the Trust. Such
litigation as, for example, suits challenging the issuance of pollution control
revenue bonds under recently enacted environmental protection statutes, may
affect the validity of such Securities or the tax-free nature of the interest
thereon. While the outcome of such litigation can never be entirely predicted
with certainty, bond counsel have given opinions to the issuing authorities of
each Bond on the date of issuance to the effect that such Securities have been
validly issued and that the interest thereon is exempt from regular Federal
income tax. In addition, other litigation or other factors may arise from time
to time which potentially may impair the ability of issuers to meet obligations
undertaken with respect to Securities.
PUBLIC OFFERING
Offering Price
The Public Offering Price of the Units is based on the aggregate bid price
of the Bonds in the Trust (as determined by the Evaluator) plus a sales charge
determined in accordance with the schedule set forth below, which is based upon
the maturities of each Bond in the Trust. The Sponsors have implemented this
variable format as a more equitable method of assessing the sales charge for
secondary market purchases. For the purpose of computing the sales charge,
Bonds are deemed to mature on their expressed maturity dates, unless the
Evaluator evaluates the price of the Bonds to a different date, such as a call
date or a mandatory tender date, in which case the maturity will be deemed to
be such other date. This method of computing the sales charge will apply
different sales charge rates to each Bond in the Trust depending on the
maturity of each Bond in accordance with the following schedule:
Secondary Market Period
Sales Charge
Percentage
Percentage of of Net
Years to Maturity Per Bond Public Offering Price Amount Invested
0 Months to 2 Years 1.0% 1.010%
2 but less than 3 2.0% 2.091%
3 but less than 4 3.0% 3.093%
4 but less than 8 4.0% 4.167%
8 but less than 12 5.0% 5.363%
12 but less than 15 5.5% 5.820%
15 or more 5.9% 6.270%
A minimum sales charge of 1.0% of the Public Offering Price is applied to
all secondary market unit purchases. There is no reduction of the sales charge
for volume purchases in secondary market transactions.
A proportionate share of accrued and undistributed interest on the
Securities at the date of delivery of the Units to the purchaser is also added
to the Public Offering Price.
Unless Securities are in default in payment of principal or interest or in
significant risk of such default, the Evaluator will not attribute any value to
the Units due to the insurance obtained by the Trust. See also "Rights of Unit
Holders--Certificates" and "Rights of Unit Holders--Redemption" for information
relating to redemption of Units. The Evaluator
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will consider in its evaluation of Defaulted Bonds which are covered by
insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments as well as the market value of the Securities
and the market value of similar securities of issuers whose securities, if
identifiable, carry identical interest rates and maturities and are of
creditworthiness comparable to the issuer prior to the default or risk of
default. If such other securities are not identifiable, the Evaluator will
compare prices of securities with substantially identical interest rates and
maturities and of a creditworthiness of minimum investment grade. As to Series
18 and subsequent Series, the value of the insurance will be equal to the
difference between (i) the market value of Defaulted Bonds assuming the
exercise of the right to obtain Permanent Insurance (less the insurance premium
attributable to the purchase of Permanent Insurance and the related custodial
fee) and (ii) the market value of such Defaulted Bonds not covered by Permanent
Insurance. In any case the Evaluator will consider the ability of the Insurer
to meet its commitments under the Trust's insurance policy and, in the case of
Series 18 and subsequent Series, MBIA's or MBIAC's commitment to issue
Permanent Insurance. For a description of the circumstances under which a full
or partial suspension of the right of Unit holders to redeem their Units may
occur, see "Rights of Unit Holders--Redemption."
It is the present intention of the Trustee (and, in the case of Series 18
and subsequent Series, assuming the Trustee does not exercise the right to
obtain Permanent Insurance on any Defaulted Bonds), so long as the Trust
contains either some Bonds not in default or any Pre-insured Bonds, not to sell
Defaulted Bonds to effect redemptions or for any other reason but rather to
retain them in the portfolio BECAUSE VALUE ATTRIBUTABLE TO THE INSURANCE
OBTAINED BY THE TRUST CANNOT BE REALIZED UPON SALE. Insurance obtained by the
issuer of a Pre-insured Bond, or by some other party, is effective so long as
such Pre-insured Bond is outstanding and the insurer of such Bond continues to
fulfill its obligations. Therefore, any such insurance may be considered to
represent an element of market value in regard to the Pre-insured Bond, but the
exact effect, if any, of this insurance on such market value cannot be
predicted. Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will in any case continue to be
insured under the policy obtained by the Trust from the Insurer as long as the
Bond is held in the Trust.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge discussed above is
retained by or remitted to the banks. Under the Glass-Steagall Act, banks are
prohibited from underwriting Trust Units; however, the Glass-Steagall Act does
permit certain agency transactions, and banking regulators have not indicated
that these particular agency transactions are not permitted under such Act.
Market for Units
Although they are not obligated to do so, the Sponsors have maintained and
intend to continue to maintain a market for the Units and to continuously offer
to purchase Units at prices based on the aggregate bid price of the Securities.
The Sponsors' Repurchase Price shall be not less than the Redemption Price plus
accrued interest through the expected date of settlement. See "Rights of Unit
Holders--Redemption--Computation of Redemption Price per Unit." There is no
sales charge incurred when a Unit holder sells Units back to the Sponsors. Any
Units repurchased by the Sponsors may be reoffered to the public by the
Sponsors at the Public Offering Price at the time, plus accrued interest.
If the supply of Units of any Series exceeds demand, or for some other
business reason, the Sponsors may discontinue purchases of Units of such Series
at prices based on the aggregate bid price of the Securities. The
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Sponsors do not in any way guarantee the enforceability, marketability or price
of any Security in the portfolio or of the Units of the Trust. In the event
that a market is not maintained for the Units, a Unit holder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the underlying Securities. The aggregate bid price of
the Securities in the Trust may be expected to be less than the aggregate
offering price. If a Unit holder wishes to dispose of his Units, he should
inquire of the Sponsors as to current market prices prior to making a tender
for redemption to the Trustee. See "Rights of Unit Holders--Redemption" and
"Sponsors."
Employees (and their immediate families) of the Sponsors may, pursuant to
employee benefit arrangements, purchase Units of the Trust at a price equal to
the bid side evaluation of the underlying securities in the Trust, divided by
the number of Units outstanding. Such arrangements result in less selling
effort and selling expenses than sales to employee groups of other companies.
Resales or transfers of Units purchased under the employee benefit arrangements
may only be made through the Sponsors' secondary market, so long as it is being
maintained.
Distribution of Units
The Sponsors are the sole underwriters of the Units. It is the Sponsors'
intention to effect a public distribution of the Units solely through their own
organizations. Units may, however, be sold to dealers who are members of the
National Association of Securities Dealers, Inc. at a discount. Such discount
is subject to change from time to time by the Agent for the Sponsors. Sales
will be made only with respect to whole Units, and the Sponsors reserve the
right to reject, in whole or in part, any order for the purchase of Units. It
is the Sponsors' intention to continue to qualify Units of the Trust for sale
where such qualification is necessary. In maintaining a market for the Units
(see "Public Offering--Market for Units"), the Sponsors will realize profits or
sustain losses in the amount of any difference between the price at which they
buy Units and the price at which they resell such Units (the Public Offering
Price described in the currently effective Prospectus which includes the sales
charge set forth in Part I of this Prospectus under "Summary of Essential
Financial Information") or the price at which they may redeem such Units (based
upon the aggregate bid side evaluation of the Securities), as the case may be,
and to the extent that they earn sales charges on resales.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN TO UNIT HOLDERS
Units of the Trust are offered on a "dollar price" basis. In contrast,
tax-exempt bonds customarily are offered on a "yield price" basis. Therefore,
the rate of return on each Unit is measured in terms of both Estimated Current
Return and Estimated Long-Term Return. Estimated Current Return based on the
Public Offering Price per Unit and Estimated Long-Term Return per Unit and
information regarding estimated monthly and semi-annual distributions of
interest to Unit holders are set forth under "Summary of Essential Financial
Information" in Part I of this Prospectus.
Estimated Current Return is computed by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. Estimated Net Interest
Income per Unit will vary with changes in fees and expenses of the Trustee and
the Evaluator and with principal prepayment, redemption, maturity, exchange or
sale of Bonds. The Public Offering Price per Unit will vary with changes in the
offering price of the Bonds. Estimated Current Return takes into account only
the interest payable on the Bonds and does not involve a computation of yield
to maturity or to an earlier redemption date nor does it reflect any
amortization of premium or discount from par value in the Bond's
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<PAGE>
purchase price. Moreover, because interest rates on bonds purchased at a
premium are generally higher than current interest rates on newly issued bonds
of a similar type with comparable ratings, the Estimated Current Return per
Unit may be affected adversely if such Bonds are redeemed prior to their
maturity. Therefore, there is no assurance that the Estimated Current Return as
set forth under "Summary of Essential Financial Information" in Part I of this
Prospectus will be realized in the future.
Estimated Long-Term Return is calculated using a formula that (i) takes
into consideration, and determines and factors in the relative weightings of,
the market values, yields (taking into account the amortization of premiums and
the accretion of discounts) and estimated retirements of all the Bonds in the
portfolio and (ii) takes into account the expenses and sales charge associated
with each Unit of the Trust. The Estimated Long-Term Return assumes that each
Bond is retired on its pricing life date (i.e., that date which produces the
lowest dollar price when yield price calculations are done for each optional
call date and the maturity date of a callable security). If the Bond is retired
on any optional call or maturity date other than the pricing life date, the
yield to the holder of that Bond will be greater than the initial quoted yield.
Since the market values and estimated retirements of the Bonds, the expenses of
the Trust and the Net Annual Interest Income and Public Offering Price per Unit
may change, there is no assurance that the Estimated Long-Term Return as set
forth under "Summary of Essential Financial Information" in Part I of this
Prospectus will be realized in the future.
INSURANCE ON THE BONDS
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in the Trust has been obtained from the Insurer by the
Trust. The Insurer has issued a policy of insurance covering each of the Bonds
in the Trust, including Pre-insured Bonds. As to each Trust, the Insurer shall
not have any liability under the policy with respect to any Bonds which do not
constitute part of the Trust. In determining to insure the Bonds, the Insurer
has applied its own respective standards which generally correspond to the
standards it has established for determining the insurability of new issues of
municipal bonds.
By the terms of its policy, the Insurer unconditionally guarantees to the
Trust the payment, when due, required of the issuer of the Bonds of an amount
equal to the principal of (either at the stated maturity or by any advancement
of maturity pursuant to a mandatory sinking fund payment) and interest on the
Bonds as such payments shall become due but not paid. Except as provided below
with respect to small issue industrial development Bonds and pollution control
revenue Bonds, in the event of any acceleration of the due date of principal by
reason of mandatory or optional redemption (other than mandatory sinking fund
redemption), default or otherwise, the payments guaranteed will be made in such
amounts and at such times as would have been due had there not been an
acceleration. The Insurer will be responsible for such payments less any
amounts received by the Trust from any trustee for the Bond issuers or from any
other source. The policy issued by the Insurer does not guarantee payment on an
accelerated basis, the payment of any redemption premium or the value of the
Units. The MBIA and MBIAC policies also do not insure against nonpayment of
principal of or interest on the Bonds resulting from the insolvency, negligence
or any other act or omission of the trustee or other paying agent for the
Bonds. With respect to small issue industrial development Bonds and pollution
control revenue Bonds, however, MBIA Inc. and MBIA Corp., respectively,
guarantee the full and complete payments required to be made by or on behalf of
an issuer of such Bonds if there occurs pursuant to the terms of the Bonds an
event which results in the loss of the tax-exempt status of interest on such
Bonds, including principal, interest or premium payments payable thereon, if
any, as and when required to be made by or on behalf of the issuer pursuant to
the terms of such Bonds. No assurance can be
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<PAGE>
given that the policy issued by the Insurer would insure the payment of
principal or interest on Bonds which is not required to be paid by the issuer
thereof because the Bonds were not validly issued. At the respective times of
issuance of the Bonds, opinions relating to the validity thereof were rendered
by bond counsel to the respective issuing authorities.
The insurance policy relating to the Trust is non-cancelable and will
continue in force so long as the Trust is in existence and the Securities
described in the policy continue to be held in and owned by the Trust. Failure
to pay premiums on the policy obtained by the Trust will not result in the
cancellation of insurance but will force the Insurer to take action against the
Trustee to recover premium payments due it. The Trustee in turn will be
entitled to recover such payments from the Trust.
The policy issued by the Insurer shall terminate as to any Bond which has
been redeemed from or sold by the Trustee on the date of such redemption or on
the settlement date of such sale, and the Insurer shall not have any liability
under the policy as to any such Bond thereafter. If the date of such redemption
or the settlement date of such sale occurs between a record date and a date of
payment of any such Bonds, any MBIA Inc. or MBIA Corp. policy will terminate as
to such Bond on the business day next succeeding such date of payment. The
termination of a MBIA Inc. or MBIA Corp. policy as to any Bond shall not affect
MBIA Inc.'s or MBIA Corp.'s obligations regarding any other Bond in such Trust
or any other Trust which has obtained a MBIA Inc. or MBIA Corp. insurance
policy. The policy issued by the Insurer will terminate as to all Bonds on the
date on which the last of the Bonds matures, is redeemed or is sold by the
Trust.
Pursuant to an irrevocable commitment of the Insurer, the Trustee upon the
sale of a Bond in the Trust has the right to obtain permanent insurance with
respect to such Bond (i.e., insurance to maturity of the Bonds) (the "Permanent
Insurance") upon the payment of a single predetermined insurance premium from
the proceeds of the sale of such Bond. Accordingly, any Bond in such Series of
the Trust is eligible to be sold on an insured basis. It is expected that the
Trustee will exercise the right to obtain Permanent Insurance for a Bond in the
Trust upon instruction from the Sponsors only if upon such exercise the Trust
would receive net proceeds (sale of Bond proceeds less the insurance premium
attributable to the Permanent Insurance and the related custodial fee) from
such sale in excess of the sale proceeds if such Bond was sold on an uninsured
basis.
The Permanent Insurance premium with respect to each Bond is determined
based upon the insurability of each Bond as of the Date of Deposit and will not
be increased or decreased for any change in the creditworthiness of such Bond
unless such Bond is in default as to payment of principal and/or interest. In
such event, the Permanent Insurance premium shall be subject to an increase
predetermined at the Date of Deposit and payable from the proceeds of the sale
of such Bond.
Except as indicated below, insurance obtained by the Trust has no effect
on the price or redemption value of Units thereof. It is the present intention
of the Evaluator to attribute a value to the insurance obtained by the Trust
(including the right to obtain Permanent Insurance) for the purpose of
computing the price or redemption value of Units thereof only if the Bonds
covered by such insurance are in default in payment of principal or interest
or, in the Sponsors' opinion, in significant risk of such default ("Defaulted
Bonds"). The value of the insurance will be equal to the difference between (1)
the market value of a Bond which is in default in payment of principal or
interest or a significant risk of default assuming the exercise of the right to
obtain Permanent Insurance (less the insurance premium attributable to the
purchase of Permanent Insurance and the related custodial fee) and (2) the
market value of such Bonds not covered by Permanent Insurance. Insurance
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<PAGE>
obtained by the issuer of a Bond or by parties other than the Trust is
effective so long as such Pre-insured Bond is outstanding and the insurer of
such Pre-insured Bond continues to fulfill its obligations.
Regardless of whether the insurer of a Pre-insured Bond continues to
fulfill its obligations, however, such Bond will continue to be insured under
the policy obtained by the Trust from MBIA or MBIAC as long as the Bond is held
in the Trust. Insurance obtained by the issuer of a Bond or by other parties
may be considered to represent an element of market value in regard to the
Bonds thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted.
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.
Municipal Bond Insurance Association ("MBIA", also known as the
"Association") is an association of five insurance companies which joined
together to insure severally (and not jointly) new issues of municipal bonds.
Each insurance company comprising MBIA will be severally and not jointly
obligated under the MBIA policy in the following respective percentages: The
Aetna Casualty and Surety Company, 33%; Fireman's Fund Insurance Company, 30%;
The Travelers Indemnity Company, 15%; Aetna Insurance Company*, 12%; and The
Continental Insurance Company, 10%. As a several obligor, each such insurance
company will be obligated only to the extent of its percentage of any claim
under the MBIA policy and will not be obligated to pay any unpaid obligation of
any other member of MBIA. Each insurance company's participation is backed by
all of its assets. However, each insurance company is a multiline insurer
involved in several lines of insurance other than municipal bond insurance, and
the assets of each insurance company also secure all of its other insurance
policy and surety bond obligations.
Some of the members of the Association are among the shareholders of MBIA,
Inc. MBIA, Inc. is the parent of MBIA Insurance Corporation (formerly known as
Municipal Bond Investors Assurance Corporation) ("MBIA Corp.") and is the
principal operating subsidiary of MBIA Inc., a New York Stock Exchange listed
company. MBIA Corp. commenced municipal bond insurance operations on January 5,
1987. MBIA Corp. is a separate and distinct entity from the Association. MBIA
Corp. has no liability to the bondholders for the obligations of the
Association.
The following table sets forth certain financial information with respect
to the five insurance companies comprising MBIA. The statistics, which have
been furnished by MBIA, are as reported by the insurance companies to the New
York State Insurance Department and are determined in accordance with statutory
accounting principals. No representation is made herein as to the accuracy or
adequacy of such information or as to the absence of material
- --------
* Now known as Cigna Property and Casualty Company.
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<PAGE>
adverse changes in such information subsequent to the date thereof. In
addition, these numbers are subject to revision by the New York State Insurance
Department which, if revised, could either increase or decrease the amounts.
MUNICIPAL BOND INSURANCE ASSOCIATION ("MBIA")
FIVE MEMBER COMPANIES ASSETS, LIABILITIES
AND POLICYHOLDERS' SURPLUS
AS OF MARCH 31, 1995
(000's omitted)
New York New York New York
Statutory Statutory Policyholder's
Assets Liabilities Surplus
The Aetna Casualty & Surety Company $10,225,604 $ 8,312,158 $1,913,446
Fireman's Fund Insurance Company 7,126,217 5,116,059 2,010,158
The Travelers Indemnity Company 10,461,356 8,654,130 1,807,226
Cigna Property and Casualty Company 4,260,177 3,637,513 622,664
(Formerly Aetna Insurance Company)
The Continental Insurance Company 3,060,583 2,380,723 679,860
----------- ----------- ----------
TOTAL $35,133,937 $28,100,583 $7,033,354
MBIA Corp. is domiciled in the State of New York and licensed to do
business in and subject to regulation under the laws of all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands of the United States and the
Territory of Guam. MBIA Corp. has two European branches, one in the Republic of
France and the other in the Kingdom of Spain.
As of June 30, 1996, MBIA Corp. had admitted assets of $4.2 billion
(unaudited), total liabilities of $2.8 billion (unaudited), and total capital
and surplus of $1.4 billion (unaudited) prepared in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1995, MBIA Corp. 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).
As of the Evaluation Date, the claims-paying ability of MBIA Corp. has
been rated "AAA" by Standard & Poor's and "Aaa" by Moody's.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the date thereof. The Sponsors are not aware that the
information herein is inaccurate or incomplete as of the date hereof.
The contract of insurance relating to the Trust and the negotiations in
respect thereof and certain agreements relating to Permanent Insurance
represent the only significant relationship between the Insurer and the Trust.
Otherwise, neither the Insurer nor any associate thereof has any material
business relationship, direct or indirect, with the Trust or the Sponsors,
except that the Sponsors may from time to time in the normal course of their
business participate as underwriters or as managers or as members of
underwriting syndicates in the distribution of new issues of municipal bonds
for which a policy of insurance guaranteeing the payment of interest and
principal has been obtained from the Insurer, and except that James A.
Lebenthal, Chairman of the Board of Directors of Lebenthal & Co., Inc., is a
director of MBIA Inc. Although all issues contained in the portfolio of the
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<PAGE>
Trust are individually insured, neither the Trust, the Units nor the portfolio
is insured directly or indirectly by the Insurer.
A purpose of the insurance on the Bonds in the portfolio obtained by the
Trust is to obtain a higher yield on the Trust portfolio than would be
available if all the Securities in such portfolio had Standard & Poor's "AAA"
rating and/or Moody's "Aaa" rating but were uninsured and yet at the same time
to have the protection of insurance of payment of interest and principal on the
Securities. There is, of course, no certainty that this result will be
achieved. Any Pre-insured Bonds in the Trust (all of which are rated "AAA" by
Standard & Poor's and/or "Aaa" by Moody's, respectively) may or may not have a
higher yield than uninsured bonds rated "AAA" by Standard & Poor's and/or "Aaa"
by Moody's, respectively.
Because the Securities are insured by the Insurer as to the payment of
principal and interest, Moody's has assigned a rating of "Aaa" to all of the
Bonds in the Trust, as insured, and Standard & Poor's has assigned its "AAA"
investment rating to the Units and Bonds in the Trust. See "Tax Exempt Bond
Portfolio" in Part I of this Prospectus. These ratings apply to the Bonds only
while they are held in the Trust. The obtaining of these ratings by the Trust
should not be construed as an approval of the offering of the Units by Standard
& Poor's or Moody's or as a guarantee of the market value of the Trust or of
the Units. These ratings are not a recommendation to buy, hold or sell and do
not take into account the extent to which Trust expenses or portfolio asset
sales for less than the Trust's acquisition price will reduce payment to the
Unit holders of the interest or principal.
TAX STATUS (See also "Tax Status" in Part I of this Prospectus)
Interest income on the Bonds contained in the Trust portfolio is, in the
opinion of bond counsel to the issuing governmental authorities, which opinion
was rendered at the time of original issuance of the Bonds, excludible from
gross income under the Internal Revenue Code of 1954, as amended (the "1954
Code"), or the Internal Revenue Code of 1986, as amended (the "Code"),
depending upon the date of issuance of the Bonds in any particular Series. See
"The Trust--Portfolio."
Gain (or loss) realized on a sale, maturity or redemption of the Bonds or
on a sale or redemption of a Unit is, however, includible in gross income as
capital gain (or loss) for Federal, state and local income tax purposes,
assuming that the Unit is held as a capital asset. Such gain (or loss) does not
include any amount received in respect of accrued interest. In addition, such
gain (or loss) may be long- or short-term, depending on the holding period of
the Units. Bonds selling at a market discount tend to increase in market value
as they approach maturity when the principal amount is payable, thus increasing
the potential for taxable gain (or reducing the potential for loss) on their
redemption, maturity or sale. Gain on the disposition of a Bond purchased at a
market discount generally will be treated as ordinary income, rather than
capital gain, to the extent of accrued market discount. The deductibility of
capital losses is limited to the amount of capital gain; in addition, up to
$3,000 of capital losses of non-corporate Unit holders may be deducted against
ordinary income. Since the proceeds from sales of Bonds, under certain
circumstances, may not be distributed pro-rata, a Unit holder's taxable income
for any year may exceed the actual cash distributions to the Unit holder in
that year.
Among other things, the Code provides for the following: (1) interest on
certain private activity bonds issued after August 7, 1986 is included in the
calculation of the individual's alternative minimum tax (currently taxed at a
rate of up to 28%); none of the Bonds in the Trust is a private activity bond,
the interest on which is subject to the alternative minimum tax; (2) interest
on certain private activity bonds issued after
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<PAGE>
August 7, 1986 is included in the calculation of the corporate alternative
minimum tax and 75% of the amount by which adjusted current earnings (including
interest on all tax-exempt bonds, such as the Bonds) exceed alternative minimum
taxable income, as modified for this calculation, will be included in
alternative minimum taxable income. Interest on the Bonds is includible in the
adjusted current earnings of a corporation for purposes of such alternative
minimum tax. The Code does not otherwise require corporations, and does not
require taxpayers other than corporations, including individuals, to treat
interest on the Bonds as an item of tax preference in computing an alternative
minimum tax; (3) subject to certain exceptions, no financial institution is
allowed a deduction for that portion of the institutions's interest expense
allocable to tax-exempt interest on tax-exempt bonds acquired after August 7,
1986; (4) the amount of the deduction allowed to property and casualty
insurance companies for underwriting loss is decreased by an amount determined
with regard to tax-exempt interest income and the deductible portion of
dividends received by such companies; (5) all taxpayers are required to report
for informational purposes on their Federal income tax returns the amount of
tax-exempt interest they receive; (6) an issuer must meet certain requirements
on a continuing basis in order for interest on a tax-exempt bond to be
tax-exempt, with failure to meet such requirements resulting in the loss of tax
exemption; and (7) a branch profits tax on U.S. branches of foreign
corporations is implemented which, because of the manner in which the branch
profits tax is calculated, may have the effect of subjecting the U.S. branch of
a foreign corporation to Federal income tax on the interest on bonds otherwise
exempt from such tax.
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 the Trust,
opinions relating to the validity of the Bonds and the exemption of interest
thereon from regular Federal income tax were or (with respect to "when, as and
if issued" Bonds) were to be rendered by bond counsel to the issuing
governmental authorities. Neither the Sponsors nor their special counsel have
made any review of proceedings relating to the issuance of such Bonds or the
basis for bond counsel's opinions.
In the case of certain Bonds which may be included in the Trust, the
opinions of bond counsel indicate that, although interest on such Bonds is
generally exempt from Federal income tax, such Bonds are "industrial
development bonds" under the 1954 Code or are "private activity bonds" as that
term is defined in the Code (the following discussion also applies to Bonds
that are "industrial development bonds" as they are defined in the 1954 Code in
terms similar to those under which private activity bonds are defined in the
Code and are generally subject to the same limitations). Interest on certain
qualified small issue private activity bonds is exempt from all present Federal
income taxation only so long as the "principal user" of the bond-financed
facility and any "related person" remain within the capital expenditure
limitations imposed by Section 144(a)(4) of the Code and only so long as the
aggregate private activity bond limits of Section 144(a)(10) of the Code
(Sections 103(b)(6)(D) and 103(b)(15) of the 1954 Code, respectively)
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<PAGE>
are met. In addition, interest on private activity bonds will not be exempt
from Federal income tax for any period during which such bonds are held by a
"substantial user" of the facilities financed by the proceeds of such bonds (or
a "related person" to such a "substantial user"). Interest attributable to such
Bonds, if received by a Unit holder who is such a "substantial user" or
"related person," will be taxable (i.e., not tax-exempt) to the same extent as
if such Bonds were held directly as owner.
In addition, a Bond can lose its tax-exempt status as a result of other
subsequent but unforeseeable events such as prohibited "arbitrage" activities
by the issuer of the Bond or the failure of the Bond to continue to satisfy the
conditions required for the exemption of interest thereon from regular federal
income tax. No investigation has been made as to the current or future owners
or users of the facilities financed by the bonds, the amount of such persons'
outstanding tax-exempt private activities bonds, or the facilities themselves,
and no assurance can be given that future events will not affect the tax-exempt
status of the Bonds. Investors should consult their tax advisors for advice
with respect to the effect of these provisions on their particular tax
situation.
Under Section 265 of the Code, if borrowed funds are used by a Unit holder
to purchase or carry Units of the Trust, interest on such indebtedness will not
be deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to the
purchase of Units. Similar rules are applicable for purposes of state and local
taxation. Also, under Section 291 of the Code, certain financial institutions
that acquired Units on or before August 7, 1986 may be subject to a reduction
in the amount of interest expense that would otherwise be allowable as a
deduction for Federal income tax purposes. Subject to certain exceptions under
Section 265 of the Code, no deduction is allowed to a financial institution for
that portion of the institution's interest expense allocable to tax-exempt
interest on Units acquired after August 7, 1986. Investors with questions
regarding this issue should consult their tax advisors.
The Trust may contain Bonds issued with original issue discount. The Code
requires holders of tax-exempt obligations issued with original issue discount,
such as the Trust, to accrue tax-exempt original issue discount by using the
constant interest method provided for the holders of taxable obligations and to
increase the basis of a tax-exempt obligation by the amount of accrued
tax-exempt original issue discount. These provisions are applicable to
obligations issued after September 3, 1982 and acquired after March 1, 1984.
The Trust's tax basis in a Bond is increased by any accrued original issue
discount as is a Unit holder's tax basis in his Units. For Bonds issued on or
after June 9, 1980 that are redeemed prior to maturity, the difference between
the Trust's basis, as adjusted, and the amount received will be taxable gain or
loss to the Unit holders.
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.
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<PAGE>
The exemption of interest on municipal obligations for Federal income tax
purposes does not necessarily result in exemption under the income tax laws of
any state or local government. Interest income derived from the Bonds is not
excluded from net income in determining New York State or New York City
franchise taxes on corporations or financial institutions. The laws of such
states and local governments vary with respect to the taxation of such
obligations.
From time to time proposals have been introduced before Congress, the
purpose of which is to restrict or eliminate the Federal income tax exemption
for interest on debt obligations similar to the Bonds in the Trust, and it can
be expected that similar proposals may be introduced in the future. The
Sponsors cannot predict whether additional legislation, if any, in respect of
the Federal income tax status of interest on debt obligations may be enacted
and what the effect of such legislation would be on Bonds in the Trust. In
addition, the enactment of a "flat tax" or other legislation that significantly
alters the federal income tax system may have a material adverse effect on the
value of Units. If the interest on any Bonds in the Trust should ultimately be
deemed to be taxable, the Sponsors may instruct the Trustee to sell such Bonds,
and, since they would be sold as taxable securities, it is expected that they
would be sold at a substantial discount from current market prices.
In South Carolina v. Baker, the U.S. Supreme Court held that the federal
government may constitutionally require states to register bonds they issue and
subject the interest on such bonds to federal income tax if not registered, and
that there is no constitutional prohibition against the federal government's
taxing the interest earned on state or other municipal bonds. The Supreme Court
decision affirms the authority of the federal government to regulate and
control bonds such as the Bonds in the Trust and to tax interest on such bonds
in the future. The decision does not, however, affect the current exemption
from taxation of the interest earned on the Bonds in the Trust in accordance
with Section 103 of the Code.
RIGHTS OF UNIT HOLDERS
Certificates
Ownership of Units is evidenced by registered certificates executed by the
Trustee and the Sponsors. The Trustee is authorized to treat as the record
owner of Units that person who is registered as such owner on the books of the
Trustee. Certificates are transferable by presentation and surrender to the
Trustee properly endorsed and accompanied by a written instrument or
instruments of transfer.
Certificates may be issued in denominations of one Unit or any multiple
thereof. A Unit holder may be required to pay $2.00 per certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Unit holder must furnish
indemnity satisfactory to the Trustee and must pay such expenses as the Trustee
may incur. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distribution of Interest and Principal
While interest will be distributed semi-annually or monthly, depending on
the method of distribution chosen, principal, including capital gains, will be
distributed only semi-annually; provided, however, that, other than for
purposes of redemption, no distribution need be made from the Principal Account
if the balance therein is less than $1.00 per Unit then
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outstanding, and that, if at any time the pro rata share represented by the
Units of cash in the Principal Account exceeds $10.00 as of a Monthly Record
Date, the Trustee shall, on the next succeeding Monthly Distribution Date,
distribute the Unit holder's pro rata share of the balance of the Principal
Account. Interest (semi-annually or monthly) and principal, including capital
gains, if any (semi-annually), received by the Trust will be distributed on
each Distribution Date to Unit holders of record of the Trust as of the
preceding Record Date who are entitled to such distributions at that time under
the plan of distribution chosen. All distributions will be net of applicable
expenses and funds required for the redemption of Units. See "Summary of
Essential Financial Information" in Part I of this Prospectus, "The
Trust--Expenses and Charges" and "Rights of Unit Holders--Redemption" in Part
II.
The Trustee will credit to the Interest Account for the Trust all interest
received by the Trust, including that part of the proceeds of any disposition
of Securities which represents accrued interest. Other receipts of the Trust
will be credited to the Principal Account for the Trust. The pro rata share of
the Interest Account of the Trust and the pro rata share of cash in the
Principal Account of the Trust represented by each Unit thereof will be
computed by the Trustee each month as of the Record Date. See "Summary of
Essential Financial Information" in Part I of this Prospectus. Proceeds
received from the disposition of any of the Securities subsequent to a Record
Date and prior to the next succeeding Distribution Date will be held in the
Principal Account for the Trust and will not be distributed until the second
succeeding Distribution Date. Because interest on the Securities is not
received by the Trust at a constant rate throughout the year, any particular
interest distribution may be more or less than the amount credited to the
Interest Account of the Trust as of the Record Date. Persons who purchase Units
between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date following their purchase of Units
under the applicable plan of distribution. No distribution need be made from
the Principal Account if the balance therein is less than an amount sufficient
to distribute $1.00 per Unit.
The difference between the estimated net interest accrued to the first
Record Date and to the related Distribution Date is an asset of the respective
Unit holder and will be realized in subsequent distributions or upon the
earlier of the sale of such Units or the maturity, redemption or sale of
Securities in the Trust.
The plan of distribution selected by a Unit holder will remain in effect
until changed. Unit holders purchasing Units in the secondary market will
initially receive distributions in accordance with the election of the prior
owner. Each April, the Trustee will furnish each Unit holder a card to be
returned together with the Certificate by May 15 of such year if the Unit
holder desires to change his plan of distribution, and the change will become
effective on May 16 of such year for the ensuing twelve months. For a
discussion of redemption of Units, see "Rights of Unit
Holders--Redemption--Tender of Units."
As of the fifteenth day of each month the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust as of the
first day of such month. See "The Trust--Expenses and Charges." The Trustee
also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of
the Trust. Amounts so withdrawn shall not be considered a part of the Trust's
assets until such time as the Trustee shall return all or any part of such
amounts to the appropriate account. In addition, the Trustee may withdraw from
the Interest Account and the Principal Account such amounts as may be necessary
to cover redemption of Units by the Trustee. See "Rights of Unit
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Holders--Redemption." Funds which are available for future distributions,
payments of expenses and redemptions are in accounts which are non-interest
bearing to the Unit holders and are available for use by the Trustee pursuant
to normal banking procedures.
Because interest on Securities in the Trust is payable at varying
intervals, usually in semi-annual installments, the interest accruing to the
Trust will not be equal to the amount of money received and available monthly
for distribution from the Interest Account to Unit holders choosing the monthly
payment plan. Therefore, on each monthly Distribution Date, the amount of
interest actually deposited in the Interest Account and available for
distribution may be slightly more or less than the monthly interest
distribution made. In addition, because of the varying interest payment dates
of the Securities constituting the Trust portfolio, accrued interest at any
point in time will be greater than the amount of interest actually received by
the Trust and distributed to Unit holders. Therefore, there will usually remain
an item of accrued interest that is added to the value of the Units. If a Unit
holder sells all or a portion of his Units, he will be entitled to receive his
proportionate share of the accrued interest from the purchaser of his Units.
Similarly, if a Unit holder redeems all or a portion of his Units, the
Redemption Price per Unit which he is entitled to receive from the Trustee will
also include accrued interest on the Securities. Thus, the accrued interest
attributable to a Unit will not be entirely recovered until the Unit holder
either redeems or sells such Unit or until the Trust is terminated. See "Rights
of Unit Holders--Redemption--Computation of Redemption Price per Unit."
Expenses and Charges
Initial Expenses
All the expenses of creating and establishing the Trust for Series 118 and
prior Series have been borne by the Sponsors, including the cost of the initial
preparation, printing and execution of the Trust Agreement and the certificates
for Units, legal expenses, advertising and selling expenses, expenses of the
Trustee and other out-of-pocket expenses.
All or a portion of the expenses incurred in creating and establishing the
Trust for Series 119 and subsequent Series, including the cost of the initial
preparation and execution of the Trust Agreement, the initial fees and expenses
of the Trustee, legal expenses and other actual out-of-pocket expenses, have
been paid by the Trust and will be amortized over a five year period. All
advertising and selling expenses, as well as any organizational expenses not
paid by the Trust, will be borne by the Sponsors at no cost to the Trust.
Fees
The Trustee's, Sponsor's and Evaluator's fees are set forth under "Summary
of Essential Financial Information" in Part I of this Prospectus. The Sponsors'
fee, if any, which is earned for portfolio supervisory services, is based on
the face amount of Securities in the Trust at December 1 of each year. The
Sponsors' fee, which is not to exceed the maximum amount set forth in the
"Summary of Essential Financial Information" in Part I of this Prospectus, may
exceed the actual costs of providing portfolio supervisory services for a
particular Series, but at no time will the total amount received by the
Sponsors for portfolio supervisory services rendered to all Series of Empire
State Municipal Exempt Trust in any calendar year exceed the aggregate cost to
them of supplying such services in such year.
The Trustee will receive for its ordinary recurring services to the Trust
an annual fee in the amount set forth in the "Summary of Essential
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Financial Information" in Part I of this Prospectus. There is no minimum fee
and, except as hereinafter set forth, no maximum fee. For a discussion of
certain benefits derived by the Trustee from the Trust's funds, see "Rights of
Unit Holders--Distribution of Interest and Principal." For a discussion of the
services performed by the Trustee pursuant to its obligations under the Trust
Agreement, reference is made to the material set forth under "Rights of Unit
Holders."
The Trustee's and Evaluator's fees are payable monthly on or before each
Distribution Date and the Sponsors' annual fee is payable annually on December
1, each from the Interest Account to the extent funds are available and then
from the Principal Account. These fees may be increased without approval of the
Unit holders by amounts not exceeding proportionate increases in consumer
prices for services as measured by the United States Department of Labor's
Consumer Price Index entitled "All Services Less Rent." If the balances in the
Principal and Interest Accounts are insufficient to provide for amounts payable
by the Trust, or amounts payable to the Trustee which are secured by its prior
lien on the Trust, the Trustee is permitted to sell Bonds to pay such amounts.
Insurance Premiums
The cost of the insurance obtained by the Trust as set forth under
"Summary of Essential Financial Information" in Part I of this Prospectus is
based on the aggregate amount of Bonds in the Trust as of the date of such
information. The premium, which is an obligation of each respective Trust, is
payable monthly by the Trustee on behalf of the Trust. As Securities in the
portfolio of the Trust mature, are redeemed by their respective issuers or are
sold by the Trustee, the amount of the premium will be reduced in respect of
those Securities no longer owned by and held in the Trust. The Trust does not
incur any premium expense for any insurance which has been obtained by an
issuer of a Pre-insured Bond, since the premium or premiums for such insurance
have been paid by such issuer or other party; Pre-insured Bonds, however, are
additionally insured by the Trust. No premium will be paid by the Trust on
Bonds which are also MBIAC Pre-insured Bonds or MBIA Pre-insured Bonds. The
premium payable for Permanent Insurance and the related custodial fee will be
paid solely from the proceeds of the sale of a Bond from the Trust in the event
that the Trustee exercises the right to obtain Permanent Insurance on such
Bond.
Other Charges
The following additional charges are or may be incurred by the Trust: all
expenses (including audit and counsel fees) of the Trustee incurred in
connection with its activities under the Trust Agreement, including annual
audit expenses by independent public accountants selected by the Sponsors (so
long as the Sponsors maintain a secondary market, the Sponsors will bear any
audit expense which exceeds 50 cents per Unit), the expenses and costs of any
action undertaken by the Trustee to protect the Trust and the rights and
interests of the Unit holders; fees of the Trustee for any extraordinary
services performed under the Trust Agreement; indemnification of the Trustee
for any loss or liability accruing to it without willful misconduct, bad faith
or gross negligence on its part, arising out of or in connection with its
acceptance or administration of the Trust; and all taxes and other governmental
charges imposed upon the Securities or any part of the Trust (no such taxes or
charges are being levied or made or, to the knowledge of the Sponsors,
contemplated). The above expenses, including the Trustee's fee, when paid by or
owing to the Trustee, are secured by a lien on the Trust. In addition, the
Trustee is empowered to sell Securities in order to make funds available to pay
all expenses.
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Reports and Records
The Trustee shall furnish Unit holders of the Trust in connection with
each distribution a statement of the amount of interest, if any, and the amount
of other receipts, if any, which are being distributed, expressed in each case
as a dollar amount per Unit. Within a reasonable time after the end of each
calendar year, the Trustee will furnish to each person who at any time during
the calendar year was a Unit holder of record a statement providing the
following information: (1) as to the Interest Account: interest received
(including amounts representing interest received upon any disposition of
Securities and any earned original issue discount), and, if the issuers of the
Securities are located in different states or territories, the percentage of
such interest by such states or territories, deductions for payment of
applicable taxes and for fees and expenses of the Trust (including insurance
costs), redemptions of Units and the balance remaining after such distributions
and deductions, expressed both as a total dollar amount and as a dollar amount
representing the pro rata share of each Unit outstanding on the last business
day of such calendar year; (2) as to the Principal Account: the dates of
disposition of any Securities and the net proceeds received therefrom
(including any unearned original issue discount but excluding any portion
representing interest, with respect to the Trust the premium attributable to
the Trustee's exercise of the right to obtain Permanent Insurance and any
related custodial fee), deductions for payments of applicable taxes and for
fees and expenses of the Trust, redemptions of Units, the amount of any "when
issued" interest treated as a return of capital and the balance remaining after
such distributions and deductions, expressed both as a total dollar amount and
as a dollar amount representing the pro rata share of each Unit outstanding on
the last business day of such calendar year; (3) a list of the Securities held
and the number of Units outstanding on the last business day of such calendar
year; (4) the Redemption price per Unit based upon the last computation thereof
made during such calendar year; and (5) amounts actually distributed during
such calendar year from the Interest Account and from the Principal Account,
separately stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
The Trustee shall keep available for inspection by Unit holders, at all
reasonable times during usual business hours, books of record and account of
its transactions as Trustee including records of the names and addresses of
Unit holders, certificates issued or held, a current list of Securities in the
portfolio of the Trust and a copy of the Trust Agreement.
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
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acceptable to the Trustee. In certain instances the Trustee may require
additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or
certificates of corporate authority.
By the third business day following such tender, the Unit holder will be
entitled to receive in cash an amount for each Unit tendered equal to the
Redemption Price per Unit computed as of the Evaluation Time set forth in Part
I of this Prospectus under "Summary of Essential Financial Information" as of
the next subsequent Evaluation Time. See "Redemption--Computation of Redemption
Price per Unit." The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that as regards Units received after the
Evaluation Time on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading or the next day on which there
is a sufficient degree of trading in Units of the Trust, and such Units will be
deemed to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day. For information relating to the purchase
by the Sponsors of Units tendered to the Trustee for redemption at prices in
excess of the Redemption Price, see "Redemption--Purchase by the Sponsors of
Units Tendered for Redemption."
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal Account.
All other amounts paid on redemption shall be withdrawn from the Principal
Account. The Trustee is empowered to sell Securities in order to make funds
available for redemption. Such sales, if required, could result in a sale of
Securities by the Trustee at a loss. To the extent Securities are sold, the
size and diversity of the Trust will be reduced.
If the Trustee exercises the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an insured basis. In the event
that the Trustee does not exercise the right to obtain Permanent Insurance on a
Bond, such Bond will be sold from the Trust on an uninsured basis since the
insurance obtained by the Trust covers the timely payment of principal and
interest when due on the Bonds only while the Bonds are held in and owned by
the Trust. If the Trustee does not exercise the right to obtain Permanent
Insurance on a Defaulted Bond, to the extent that Bonds which are current in
payment of interest are sold from the Trust portfolio in order to meet
redemption requests and Defaulted Bonds are retained in the portfolio in order
to preserve the related insurance protection applicable to said Bonds, the
overall value of the Bonds remaining in the Trust will tend to diminish. See
"Sponsors--Responsibility" for the effect of selling Defaulted Bonds to meet
redemption requests.
The Trustee reserves the right to suspend the right of redemption and to
postpone the date of payment of the Redemption Price per Unit for any period
during which the New York Stock Exchange is closed, other than weekend and
holiday closings, or during which trading on that Exchange is restricted or
during which (as determined by the Securities and Exchange Commission by rule
or regulation) an emergency exists as a result of which disposal or evaluation
of the underlying Bonds is not reasonably practicable, or for such other
periods as the Securities and Exchange Commission has by order permitted.
Because insurance obtained by the Trust terminates as to Bonds which are
sold by the Trustee, and because the insurance obtained by the Trust does not
have a realizable cash value which can be used by the Trustee to meet
redemptions of Units (assuming, in the case of Series 18 and subsequent Series,
that the Trustee does not exercise the right to obtain Permanent Insurance on
Defaulted Bonds), under certain circumstances the Sponsors may apply to the
Securities and Exchange Commission for an order permitting a full or partial
suspension of the right of Unit holders to redeem their Units if a
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significant portion of the Bonds in the portfolio is in default in payment of
principal or interest or in significant risk of such default. No assurances can
be given that the Securities and Exchange Commission will permit the Sponsors
to suspend the rights of Unit holders to redeem their Units, and, without the
suspension of such redemption rights when faced with excessive redemptions, the
Sponsors may not be able to preserve the benefits of the Trust's insurance on
Defaulted Bonds.
Computation of Redemption Price Per Unit
The Redemption Price per Unit is determined by the Trustee on the basis of
the bid prices of the Securities in the Trust, as of the Evaluation Time stated
under "Summary of Essential Financial Information" in Part I of this Prospectus
on the day any such determination is made. The Redemption Price per Unit is
each Unit's pro rata share, determined by the Trustee, of (1) the aggregate
value of the Securities in the Trust (determined by the Evaluator as set forth
below), except for those cases in which the value of insurance has been
included, (2) cash on hand in the Trust, and (3) accrued and unpaid interest on
the Securities as of the date of computation, less (a) amounts representing
taxes or governmental charges payable out of the Trust, (b) the accrued
expenses of the Trust, and (c) cash held for distribution to Unit holders of
record as of a date prior to the evaluation. The Evaluator may determine the
value of the Securities in the Trust (i) on the basis of current bid prices for
the Securities, (ii) if bid prices are not available for any Securities, on the
basis of current bid prices for comparable bonds, (iii) by appraisal, or (iv)
by any combination of the above. In determining the Redemption Price per Unit,
no value will be assigned to the portfolio insurance obtained by the Trust on
the Bonds in the Trust unless such Bonds are in default in payment of principal
or interest or in significant risk of such default. On the other hand,
Pre-insured Bonds in the Trust are entitled at all times to the benefits of
insurance obtained by their respective issuers so long as the Pre-insured Bonds
are outstanding and the insurer continues to fulfill its obligations, and such
benefits are reflected and included in the market value of Pre-insured Bonds.
For a description of the situations in which the Evaluator may value the
insurance obtained by the Trust, see "Public Offering--Market for Units."
Purchase by the Sponsors of Units Tendered for Redemption
The Trust Agreement requires that the Trustee notify the Sponsors of any
tender of Units for redemption. So long as the Sponsors are maintaining a bid
in the secondary market, the Sponsors, prior to the close of business on the
second succeeding business day, will purchase any Units tendered to the Trustee
for redemption at the price so bid by making payment therefor to the Unit
holder in an amount not less than the Redemption Price on the date of tender
not later than the day on which the Units would otherwise have been redeemed by
the Trustee. See "Public Offering--Market for Units." Units held by the
Sponsors may be tendered to the Trustee for redemption as any other Units,
provided that the Sponsors shall not receive for Units purchased as set forth
above a higher price than they paid, plus accrued interest.
The offering price of any Units resold by the Sponsors will be the Public
Offering Price determined in the manner provided in this Prospectus. See
"Public Offering-- Offering Price." Any profit resulting from the resale of
such Units will belong to the Sponsors which likewise will bear any loss
resulting from a lower offering or redemption price subsequent to their
acquisition of such Units.
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Exchange Option
The Sponsors of the Series of Empire State Municipal Exempt Trust
(including the Series of Municipal Exempt Trust, the predecessor trust to
Empire State Municipal Exempt Trust) (the "Trust") are offering Unit holders of
those Series of the Trust for which the Sponsors are maintaining a secondary
market an option to exchange a Unit of any Series of the Trust for a Unit of a
different Series of the Trust being offered by the Sponsors (other than in the
initial offering period) at a Public Offering Price generally based on the bid
prices of the underlying Securities divided by the number of Units outstanding
(see "Public Offering--Market for Units") plus a fixed sales charge of $15 per
Unit (in lieu of the normal sales charge). However, a Unit holder must have
held his Unit for a period of at least six months in order to exercise the
exchange option or agree to pay a sales charge based on the greater of $15 per
Unit or an amount which together with the initial sales charge paid in
connection with the acquisition of Units being exchanged equals the normal
sales charge of the Series into which the investment is being converted,
determined as of the date of the exchange. Such exchanges will be effected in
whole Units only. Any excess proceeds from the Units being surrendered will be
returned, and the Unit holder will not be permitted to advance any new money in
order to complete an exchange. The Sponsors reserve the right to modify,
suspend or terminate this plan at any time without further notice to the Unit
holders. In the event that the exchange option is not available to a Unit
holder at the time he wishes to exercise it, the Unit holder will be
immediately notified and no action will be taken with respect to his Units
without further instructions from the Unit holder.
Unit holders are urged to consult their tax advisors as to the tax
consequences of exchanging Units.
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AUTOMATIC ACCUMULATION ACCOUNT
The Sponsors have entered into an arrangement (the "Plan") with Empire
Builder Tax Free Bond Fund (the "Empire Builder") which permits Unit holders of
the Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Empire Builder. The Empire Builder is an open-end,
non-diversified investment company whose investment objective is to seek as
high a level of current income exempt from Federal income tax, New York State
and New York City income taxes as is believed to be consistent with
preservation of capital. It is the policy of the Empire Builder to invest
primarily in debt securities the interest income from which is exempt from such
taxes.
The Empire Builder has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Empire Builder will
be of "investment grade" quality - that is, at the time of purchase by the
Empire Builder, such bonds either will be rated not lower than the four highest
ratings of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, AA, A,
or BBB) or will be unrated bonds which at the time of purchase are judged by
the Empire Builder's investment advisor to be of comparable quality to bonds
rated within such four highest grades. It is a fundamental policy of the Empire
Builder that under normal market conditions at least 90% of the income
distributed to its shareholders will be exempt from Federal income tax, New
York State and New York City personal income taxes. However, during times of
adverse market conditions when the Empire Builder is investing for temporary
defensive purposes in obligations other than New York tax-exempt bonds, more
than 10% of the Empire Builder's income distributions could be subject to
Federal income tax, New York State income tax and/or New York City income tax,
as described in the current prospectus relating to the Empire Builder (the
"Empire Builder Prospectus"). Glickenhaus & Co. ("Glickenhaus"), a sponsor of
the Trust, acts as the investment advisor and distributor for the Empire
Builder.
Each Unit holder may request from The Bank of New York (the "Plan Agent")
a copy of the Empire Builder Prospectus describing the Empire Builder and a
form by which such Unit holder may elect to become a participant
("Participant") in the Plan. Thereafter, as directed by such person,
distributions on the Participant's Units will, on the applicable Distribution
Date, automatically be applied as of that date by the Trustee to purchase
shares (or fractions thereof) of the Empire Builder at a net asset value as
computed as of the close of trading on the New York Stock Exchange on such
date, as described in the Empire Builder Prospectus. Unless otherwise
indicated, new Participants in the Empire Builder Plan will be deemed to have
elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each such Participant by the Plan Agent indicating
distributions and shares (or fractions thereof) of the Empire Builder purchased
on his behalf. A Participant may at any time prior to ten days preceding the
next succeeding distribution date, by so notifying the Plan Agent in writing,
elect to terminate his participation in the Plan and receive future
distributions on his Units in cash. There will be no charge or other penalty
for such termination. The Sponsors, the Trustee, the Empire Builder and
Glickenhaus, as investment advisor for Empire Builder each will have the right
to terminate this Plan at any time for any reason. The reinvestment of
distributions from the Trust through the Plan will not affect the income tax
status of such distributions. For more complete information about investing in
the Empire Builder through the Plan, including charges and expenses, request a
copy of the Empire Builder Prospectus from The Bank of New York, Unit
Investment Trust, P.O. Box 972, New York, New York 10269-0067. Read it
carefully before you decide to participate.
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[ALTERNATE PAGE]
AUTOMATIC ACCUMULATION ACCOUNT
For Unit holders of the Trust who are clients of Lebenthal & Co., Inc.,
the Sponsors have entered into an arrangement (the "Plan") with Lebenthal New
York Municipal Bond Fund (the "Bond Fund") which permits Unit holders of the
Trust to elect to have distributions from Units in the Trust automatically
reinvested in shares of the Bond Fund. The Bond Fund is an open-end,
non-diversified investment company whose investment objective is to maximize
current income exempt from regular Federal income tax, and from New York State
and New York City income taxes, consistent with preservation of capital and
with consideration given to opportunities for capital gain. It is the policy of
the Bond Fund to invest primarily in long term investment grade tax-exempt
securities the interest income from which is exempt from such taxes.
The Bond Fund has an investment objective which differs in certain
respects from that of the Trust. The bonds purchased by the Bond Fund will be
of "investment grade" quality -- that is, at the time of purchase by the Bond
Fund, such bonds either will be rated not lower than the four highest ratings
of either Moody's (Aaa, Aa, A or Baa) or Standard & Poor's (AAA, A, A or BBB)
or will be unrated bonds which at the time of purchase are judged by the Bond
Fund's investment advisor to be of comparable quality to bonds rated within
such four highest grades. It is a fundamental policy of the Bond Fund that
under normal market conditions at least 80% of the income distributed to its
shareholders will be exempt from regular Federal income tax, and from New York
State and New York City personal income taxes. However, during times of adverse
market conditions, more than 20% of the Bond Fund's income distributions could
be subject to Federal income tax, New York State and/or New York City income
taxes, as described in the current prospectus relating to the Bond Fund (the
"Bond Fund Prospectus"). Lebenthal & Co., Inc., a sponsor of the Trust, acts as
the manager and distributor for the Bond Fund.
Each Unit holder may request from The Bank of New York (the "Plan Agent")
a copy of the Bond Fund Prospectus describing the Bond Fund and a form by which
such Unit holder may elect to become a participant ("Participant") in the Plan.
Thereafter, as directed by such person, distributions on the Participant's Unit
will, on the applicable Distribution Date, automatically be applied as of that
date by the Trustee to purchase shares (or fractions thereof) of the Bond Fund
at a net asset value as computed as of the close of trading on the New York
Stock Exchange on such date, as described in the Bond Fund Prospectus. Unless
otherwise indicated, new Participants in the Bond Fund Plan will be deemed to
have elected the monthly distribution plan with respect to their Units.
Confirmations of all transactions undertaken for each Participant in the Plan
will be mailed to each Participant by the Plan Agent indicating distributions
and shares (or fractions thereof) of the Bond Fund purchased on his behalf. A
Participant may at any time prior to ten days preceding the next succeeding
distribution date, by so notifying the Plan Agent in writing, elect to
terminate his participation in the Plan and receive future distributions on his
Units in cash. There will be no charge or other penalty for such termination.
The Sponsors, the Trustee, the Bond Fund and Lebenthal & Co. Inc., as manager
for the Bond Fund, each will have the right to terminate this Plan at any time
for any reason. The reinvestment of distributions from the Trust through the
Plan will not affect the income tax status of such distributions. For more
complete information about investing in the Bond Fund through the Plan,
including charges and expenses, request a copy of the Bond Fund Prospectus from
The Bank of New York, Unit Investment Trust, P.O. Box 972, New York, New York
10269-0067. Read it carefully before you decide to participate.
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SPONSORS
Glickenhaus and Lebenthal are the Sponsors for Empire State Municipal
Exempt Trust, Series 10 and all subsequent Series, including all Guaranteed
Series.
Glickenhaus, a New York limited partnership, is engaged in the
underwriting and securities brokerage business and in the investment advisory
business. It is a member of the New York Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. and is an associate member of the
American Stock Exchange. Glickenhaus acts as a sponsor for successive Series of
The Glickenhaus Value Portfolios and The Municipal Insured National Trusts, and
for the prior series of Empire State Municipal Exempt Trust, including those
sold under the name of Municipal Exempt Trust, New York Exempt Series 1, New
York Series 2 and New York Series 3. Glickenhaus, in addition to participating
as a member of various selling groups of other investment companies, executes
orders on behalf of investment companies for the purchase and sale of
securities of such companies and sells securities to such companies in its
capacity as a broker or dealer in securities. The principal offices of
Glickenhaus are located at 6 East 43rd Street, New York, New York 10017.
Lebenthal, a New York corporation originally organized as a New York
partnership in 1925, has been buying and selling municipal bonds for its own
account as a dealer for over 67 years; Lebenthal also buys and sells securities
as an agent and participates as an underwriter in public offerings of municipal
bonds. It acted as a sponsor for Empire State Tax Exempt Bond Trust, Series 8
and successive Series of The Municipal Insured National Trust through Series
28. Lebenthal is registered as a broker/dealer with the Securities and Exchange
Commission and various state securities regulatory agencies and is a member of
the National Association of Securities Dealers, Inc. and Securities Investors
Protection Corp. The principal offices of Lebenthal are located at 120
Broadway, New York, New York 10271.
Limitations on Liability
The Sponsors are jointly and severally liable for the performance of their
obligations arising from their responsibilities under the Trust Agreement, but
will be under no liability to the Unit holders for taking any action or
refraining from any action in good faith or for errors in judgment; nor will
they be responsible in any way for depreciation or loss incurred by reason of
the sale of any Bonds, except in cases of their willful misconduct, bad faith
or gross negligence. See "The Trust--Portfolio" and "Sponsors--Responsibility."
Responsibility
The Trustee shall sell, for the purpose of redeeming Units tendered by any
Unit holder, and for the payment of expenses for which funds may not be
available, such of the Bonds in a list furnished by the Sponsors as the Trustee
in its sole discretion may deem necessary. In the event that the Trustee does
not exercise the right to obtain Permanent Insurance on a Defaulted Bond or
Bonds, to the extent that Bonds are sold which are current in payment of
principal and interest in order to meet redemption requests and Defaulted Bonds
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Bonds, the overall value of the Bonds remaining
in the Trust's portfolio will tend to diminish. As to Series 18 and subsequent
Series, in the event that the Trustee does not exercise the right to obtain
Permanent Insurance on a Defaulted Bond or Bonds, except as described below and
in certain other unusual circumstances for which it is determined by the
Trustee to be in the best interests of the Unit holders or if there is no
alternative, the Trustee is not empowered to sell Defaulted
- 36 -
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<PAGE>
Bonds for which value has been attributed for the insurance obtained by the
Trust. Because of such restrictions on the Trustee, under certain circumstances
the Sponsors may seek a full or partial suspension of the right of Unit holders
to redeem their Units. See "Rights of Unit Holders--Redemption." The Sponsors
are empowered, but not obligated, to direct the Trustee to dispose of Bonds in
the event of advance refunding. It is the responsibility of the Sponsors to
instruct the Trustee to reject any offer made by an issuer of any of the
Securities to issue new obligations in exchange and substitution for any
Securities pursuant to a refunding or refinancing plan, except that the
Sponsors may instruct the Trustee to accept such an offer or to take any other
action with respect thereto as the Sponsors may deem proper if the issuer is in
default with respect to such Securities or in the judgment of the Sponsors the
issuer will probably default with respect to such Securities in the foreseeable
future.
Any obligations so received in exchange or substitution will be held by
the Trustee subject to the terms and conditions of the Trust Agreement to the
same extent as Securities originally deposited thereunder. Within five days
after the deposit of obligations in exchange or substitution for underlying
Securities, the Trustee is required to give notice thereof to each Unit holder,
identifying the obligations eliminated and the Securities substituted therefor.
Except as stated in this and the preceding paragraph, the acquisition by the
Trust of any securities other than the Securities initially deposited is
prohibited.
If any default in the payment of principal or interest on any Bond occurs
and no provision for payment is made therefor either pursuant to the portfolio
insurance with respect to the Trust or otherwise within 30 days, the Trustee is
required to notify the Sponsors thereof. If the Sponsors fail to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsors of such default, the Trustee may in its discretion sell
the Defaulted Bond and not be liable for any depreciation or loss thereby
incurred. See "The Trust--Insurance on the Bonds."
The Sponsors may direct the Trustee to dispose of Bonds upon default in
the payment of principal or interest, institution of certain legal proceedings
or the existence of certain other impediments to the payment of Bonds, default
under other documents which may adversely affect debt service, default in the
payment of principal or interest on other obligations of the same issuer,
decline in projected income pledged for debt service on revenue Bonds, or
decline in price or the occurrence of other market factors, including advance
refunding, so that in the opinion of the Sponsors the retention of such Bonds
in a Trust would be detrimental to the interest of the Unit holders. The
proceeds from any such sales will be credited to the Principal Account of the
affected Trust for distribution to the Unit holders.
Notwithstanding the foregoing, in connection with final distributions to
Unit holders, if the Trustee does not exercise the right to obtain Permanent
Insurance on any Defaulted Bond, because the portfolio insurance obtained by
the Trust is applicable only while Bonds so insured are held by the Trust, the
price to be received by the Trust upon the disposition of any such Defaulted
Bond will not reflect any value based on such insurance. Therefore, in
connection with any liquidation with respect to a Trust, it 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-
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<PAGE>
insured Bonds after the date of termination. All proceeds received, less
applicable expenses, from insurance on Defaulted Bonds not disposed of at the
date of termination will ultimately be distributed to Unit holders of record as
of such date of termination as soon as practicable after the date such
Defaulted Bonds become due and applicable insurance proceeds have been received
by the Trustee. See "Summary of Essential Financial Information" in Part I of
this Prospectus.
Agent for Sponsors
The Sponsor named as Agent for Sponsors under "Summary of Essential
Information" in Part I of this Prospectus has been appointed by the other
Sponsor as agent for purposes of taking action under the Trust Agreement. In
those Trusts for which there is a sole Sponsor, references herein to the Agent
for Sponsors shall be deemed to refer to such sole Sponsor. If the Sponsors are
unable to agree with respect to action to be taken jointly by them under the
Trust Agreement and they cannot agree as to which Sponsor shall act as sole
Sponsor, then the Agent for Sponsors shall act as sole Sponsor. If one of the
Sponsors fails to perform its duties under the Trust Agreement or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, that Sponsor is automatically discharged under the Trust Agreement
and the other Sponsor acts as the Sponsors.
Resignation
Any Sponsor may resign at any time provided that at the time of such
resignation one remaining Sponsor maintains a net worth of $1,000,000 and all
the remaining Sponsors are agreeable to such resignation. Concurrent with or
subsequent to such resignation, a new Sponsor may be appointed by the remaining
Sponsors and the Trustee to assume the duties of the resigning Sponsor. If, at
any time, only one Sponsor is acting under the Trust Agreement and that Sponsor
shall resign or fail to perform any of its duties thereunder or becomes
incapable of acting or becomes bankrupt or its affairs are taken over by public
authorities, then the Trustee may appoint a successor sponsor or terminate the
Trust Agreement and liquidate the Trust.
Financial Information
At September 30, 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
- 38 -
C/M: 279831.6
<PAGE>
under such laws to exercise corporate trust powers, and must have at all times
an aggregate capital, surplus and undivided profits of not less than $5,000,000
and its principal office and place of business in the Borough of Manhattan, New
York City. The duties of the Trustee are primarily ministerial in nature. The
Trustee did not participate in the selection of Securities for the portfolio of
any Series of the Trust.
Limitations on Liability
The Trustee shall not be liable or responsible in any way for depreciation
or loss incurred by reason of the disposition of any moneys, Securities or
certificates or in respect of any evaluation or for any action taken in good
faith reliance on prima facie properly executed documents except in cases of
its willful misconduct, bad faith, gross negligence or reckless disregard for
its obligations and duties. In addition, the Trustee shall not be personally
liable for any taxes or other governmental charges imposed upon or in respect
of the Trust which the Trustee may be required to pay under current or future
law of the United States or any other taxing authority having jurisdiction. See
"The Trust--Portfolio."
Responsibility
For information relating to the responsibilities of the Trustee under the
Trust Agreement, reference is made to the material set forth under "Rights of
Unit Holders," "Sponsors--Responsibility" and "Sponsors--Resignation."
Resignation
By executing an instrument in writing and filing the same with the
Sponsors, the Trustee and any successor may resign. In such an event the
Sponsors are obligated to appoint a successor trustee as soon as possible. If
the Trustee becomes incapable of acting or becomes bankrupt or its affairs are
taken over by public authorities, or, in the case of Series 11 and subsequent
Series, if the Sponsors deem it to be in the best interest of the Unit holders,
the Sponsors may remove the Trustee and appoint a successor as provided in the
Trust Agreement. Such resignation or removal shall become effective upon the
acceptance of appointment by the successor trustee. If, upon resignation or
removal of a trustee, no successor has been appointed and has accepted the
appointment within thirty days after notification, the retiring trustee may
apply to a court of competent jurisdiction for the appointment of a successor.
The resignation or removal of a trustee becomes effective only when the
successor trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
EVALUATOR
The Evaluator is Muller Data Corporation, a New York corporation, with
main offices at 395 Hudson Street, New York, New York 10014. Muller Data
Corporation is a wholly owned subsidiary of Thomson Publishing Corporation, a
Delaware corporation.
Limitations on Liability
The Trustee and the Sponsors may rely on any evaluation furnished by the
Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in good
faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee, the
Sponsors or the Unit holders for errors in judgement. This provision shall
- 39 -
C/M: 279831.6
<PAGE>
not protect the Evaluator in cases of its willful misconduct, bad faith, gross
negligence or reckless disregard of its obligations and duties.
Responsibility
The Trust Agreement requires the Evaluator to evaluate the Securities on
the basis of their bid prices on each business day after the initial offering
period, when any Unit is tendered for redemption and on any other day such
evaluation is desired by the Trustee or is requested by the Sponsors. For
information relating to the responsibility of the Evaluator to evaluate the
Securities on the basis of their offering prices, see "Public
Offering--Offering Price."
Resignation
The Evaluator may resign or may be removed by the Sponsors and the
Trustee, and the Sponsors and the Trustee are to use their best efforts to
appoint a satisfactory successor. Such resignation or removal shall become
effective upon the acceptance of appointment by the successor evaluator. If
upon resignation of the Evaluator no successor has accepted appointment within
thirty days after notice of resignation, the Evaluator may apply to a court of
competent jurisdiction for the appointment of a successor.
AMENDMENT AND TERMINATION OF THE TRUST AGREEMENT
The Sponsors and the Trustee have the power to amend the Trust Agreement
without the consent of any of the Unit holders when such an amendment is (1) to
cure any ambiguity or to correct or supplement any provision of the Trust
Agreement which may be defective or inconsistent with any other provision
contained therein, or (2) to make such other provisions as shall not adversely
affect the interest of the Unit holders; and the Sponsors and the Trustee may
amend the Trust Agreement with the consent of the holders of certificates
evidencing 66-2/3% of the Units then outstanding, provided that no such
amendment will reduce the interest in a Trust of any Unit holder without the
consent of such Unit holder or reduce the percentage of Units required to
consent to any such amendment without the consent of all the Unit holders. In
no event shall the Trust Agreement be amended to increase the number of Units
issuable thereunder or to permit the deposit or acquisition of securities
either in addition to or in substitution for any of the Bonds initially
deposited in the Trust, except in accordance with the provisions of the Trust
Agreement. In the event of any amendment, the Trustee is obligated to notify
promptly all Unit holders of the substance of such amendment.
The Trust shall terminate upon the maturity, redemption, sale or other
disposition, as the case may be, of the last of the Securities. The Trustee
shall notify all Unit holders when the value of the Trust as shown by any
evaluation is less than $2,000,000 or less than 20% of the value of the Trust
as of the Date of Deposit, whichever is lower, at which time the Trust may be
terminated (i) by the consent of the holders of 66-2/3% of the Units or (ii) by
the Trustee; provided, however, that upon affirmative written notice of their
opportunity to object to such termination and to the Sponsors and the holders
of at least 33-1/3% of the Units do not instruct the Trustee not to terminate
the Trust. In no event, however, may the Trust continue beyond the Mandatory
Termination Date set forth in Part I of this Prospectus under "Summary of
Essential Financial Information"; provided, however, that prior to the
Mandatory Termination Date the Trustee shall not dispose of any Bonds if the
retention of such Bonds, until due, shall be deemed to be in the best interest
of the Unit holders of the affected Trust. In the event of termination, written
notice thereof will be sent by the Trustee to all Unit holders. Within a
reasonable period after termination, the Trustee will sell any remaining
Securities and, after paying all expenses and charges incurred
- 40 -
C/M: 279831.6
<PAGE>
by the Trust, will distribute to each Unit holder, upon surrender for
cancellation of his certificate for Units, his pro rata share of the balances
remaining in the Interest and Principal Accounts of the Trust.
LEGAL OPINIONS
Certain legal matters have been passed upon by Hall, McNicol, Hamilton &
Clark, The News Building, 220 East 42nd Street, New York, New York 10017, as
counsel for the Sponsors as to Series 1 through 8, by Brown & Wood, One World
Trade Center, New York, New York 10048, as special counsel for the Sponsors as
to Series 9 through 64 and by Battle Fowler LLP, 75 East 55th Street, New York,
New York 10022 as special counsel for the Sponsors as to Series 65 and
subsequent Series of Empire State Municipal Exempt Trust, Guaranteed Series.
Kroll & Tract, 520 Madison Avenue, New York, New York 10022, acts as counsel
for the Trustee.
AUDITORS
The financial statements of the Trust included in Part I of this
Prospectus for the periods ended July 31, 1996 and July 31, 1995 have been
audited by Goldstein Golub Kessler & Company, P.C., independent certified
public accountants, and for the period ended July 31, 1994 have been audited by
BDO Seidman, LLP, independent certified public accountants, as stated in their
reports with respect thereto, and are included therein in reliance upon such
reports given upon the authority of these firms as experts in accounting and
auditing.
DESCRIPTION OF BOND RATINGS
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
obligation. This assessment of creditworthiness may take into consideration
obligors such as guarantors, insurers or lessees. The bond rating is not a
recommendation to purchase, sell or hold a security, inasmuch as it does not
comment as to market price or suitability for a particular investor.
The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. Standard & Poor's does not perform an audit in connection
with any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes in,
or unavailability of, such information or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
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<PAGE>
AAA: Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal
is extremely strong.
AA: Bonds rated "AA" have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A: Bonds rated "A" have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB: Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
BB, B, CCC, CC: Bonds rated "BB," "B," "CCC" and "CC" are regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "CC" the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, the ratings from "AA" to "B" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of, or the risk of default 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
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<PAGE>
generally referred to as "gilt edge." Interest payments are protected by a
large or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa: Bonds which are rated "Aa" are judged to be of high quality by
all standards. Together with the "Aaa" group they comprise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in "Aaa"
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in "Aaa" securities.
A: Bonds which are rated "A" possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa: Bonds which are rated "Baa" are considered as medium grade
obligations; i.e, they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba: Bonds which are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
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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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------
This Prospectus contains information concerning the
Trust and the Sponsors, but does not contain all the
information set forth in the registration statements EMPIRE STATE
and exhibits relating thereto, which the Trust has filed MUNICIPAL EXEMPT TRUST
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. GUARANTEED SERIES
- -------------------------------------------------------
PROSPECTUS, PART II
INDEX
- -------------------------------------------------------
Page Sponsors:
THE TRUST.............................................. 1
GLICKENHAUS & CO.
PUBLIC OFFERING........................................ 17 6 East 43rd Street
New York, New York 10017
ESTIMATED CURRENT RETURN (212)E953-7532
AND ESTIMATED LONG-TERM
RETURN TO UNIT HOLDERS................................. 19
LEBENTHAL & CO., INC.
INSURANCE ON THE BONDS................................. 20 120 Broadway
New York, New York 10271
TAX STATUS............................................. 24 (212)425-6116
RIGHTS OF UNIT HOLDERS................................. 27
AUTOMATIC ACCUMULATION ACCOUNT......................... 35
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>
C/M: 279831.6
PART II
ADDITIONAL INFORMATION NOT REQUIRED
IN PROSPECTUS
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statements on Form S-6
comprises the following papers and documents:
The facing sheet on Form S-6.
The Cross-Reference Sheet.
The Prospectus.
Signatures.
Written Consent of the following persons:
Consents of Independent Auditors.
Consent of Counsel (previously filed)
Consent of the Evaluator including Confirmation of Ratings (included in
Exhibit 99.5.1).
The following exhibits:
*99.5.1 -- Consent of the Evaluator including Confirmation of Ratings
and Affirmation Letter of Standard & Poor's.
99.6.1 -- Copies of Powers of Attorney of General Partners of
Glickenhaus & Co. (filed as Exhibit 6.1 to Form S-6
Registration Statement No. 33-64155 of Glickenhaus Value
Portfolios, The 1996 Equity Collection on November 13, 1995,
and incorporated herein by reference).
99.6.2 -- Copies of Powers of Attorney of Directors and certain
officers of Lebenthal & Co., Inc. (filed as Exhibit 6.2 to
Amendment No. 1 to Form S-6 Registration Statement No.
33-55385 of Empire State Municipal Exempt Trust, Guaranteed
Series 109 on November 2, 1994, and incorporated herein by
reference).
*27 -- Financial Data Schedule (for EDGAR filing only).
- --------
* Being filed by this Amendment.
II-1
415684.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 121,
Guaranteed Series 122 and Guaranteed Series 123 certify that they have met all
of the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933. The registrants have duly caused this Post-Effective Amendment to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
25th day of November, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 121, GUARANTEED SERIES 122 AND
GUARANTEED SERIES 123
(Registrants)
GLICKENHAUS & CO.
(Depositor)
By: /s/ BRIAN C. LAUX
------------------------
Brian C. Laux
(Authorized Signatory)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Name Title Date
ALFRED FEINMAN* General Partner )
) November 25, 1996
SETH M. GLICKENHAUS* General Partner )
Chief Investment Officer )
)
STEVEN B. GREEN* Chief Financial Officer ) By:/s/ BRIAN C. LAUX
) -----------------
) Brian C. Laux
) Attorney-in-Fact*
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.1 to
Registration Statement No. 33-64155 on November 13, 1995.
II-4
415684.1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrants, Empire State Municipal Exempt Trust, Guaranteed Series 121,
Guaranteed Series 122 and Guaranteed Series 123 certify that they have met all
of the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933. The registrants have duly caused this Post-Effective Amendment to the
Registration Statement to be signed on their behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
25th day of November, 1996.
EMPIRE STATE MUNICIPAL EXEMPT TRUST,
GUARANTEED SERIES 121, GUARANTEED SERIES 122 AND
GUARANTEED SERIES 123
(Registrants)
LEBENTHAL & CO., INC.
(Depositor)
By: /s/ D. WARREN KAUFMAN
------------------------
D. Warren Kaufman
(Attorney-in-Fact)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons, in the capacities and on the dates indicated.
Name Title Date
H. GERARD BISSINGER, II* Director )
) November 25, 1996
JEFFREY M. JAMES* Director )
)
/s/ D. WARREN KAUFMAN Director )
D. Warren Kaufman )
)
ALEXANDRA LEBENTHAL* Director, President ) By: /s/ D. WARREN KAUFMAN
) ---------------------
) D. Warren Kaufman
) Attorney-in-Fact*
JAMES A. LEBENTHAL* Director, Chief )
Executive Officer )
)
DUNCAN K. SMITH* Director )
- ---------------
* Executed copies of Powers of Attorney were filed as Exhibit 6.2 to
Amendment No. 1 to Registration Statement No. 33-55385 on November 2,
1994.
II-5
415684.1
<PAGE>
CONSENT OF COUNSEL
The consent of Battle Fowler LLP to the use of their name in the
Prospectus included in the Registration Statement is contained in their opinion
filed previously.
CONSENT OF INDEPENDENT AUDITORS
The Sponsors and Trustee of
EMPIRE STATE MUNICIPAL EXEMPT TRUST GUARANTEED SERIES 121,
GUARANTEED SERIES 122 AND GUARANTEED SERIES 123
We hereby consent to the use in Post-Effective Amendment No. 1 to
Registration Statement No. 33-62409 of our opinions dated August 30, 1996
relating to the financial statements of Empire State Municipal Exempt Trust,
Guaranteed Series 121, Guaranteed Series 122 and Guaranteed Series 123 and to
the reference to our firm under the heading "Auditors" in the Prospectus which
is a part of such Registration Statement.
GOLDSTEIN GOLUB KESSLER
& COMPANY, P.C.
New York, New York
November 29, 1996
II-6
415684.1
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<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948786
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 121
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<PERIOD-START> OCT-06-1995
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000948787
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 122
<S> <C>
<PERIOD-TYPE> YEAR
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001000803
<NAME> EMPIRE STATE MUNICIPAL EXEMPT TRUST, GUARANTEED SERIES 123
<S> <C>
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<PERIOD-START> DEC-08-1995
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<INVESTMENTS-AT-COST> 9566188
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<ACCUMULATED-NII-CURRENT> 76145
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (379577)
<NET-ASSETS> 9258810
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<INTEREST-INCOME> 337373
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<EXPENSES-NET> 20583
<NET-INVESTMENT-INCOME> 316790
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<APPREC-INCREASE-CURRENT> (379577)
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<DISTRIBUTIONS-OF-INCOME> 240645
<DISTRIBUTIONS-OF-GAINS> 0
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<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
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<PER-SHARE-GAIN-APPREC> 0
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<RETURNS-OF-CAPITAL> 0
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</TABLE>
Muller Data Corporation
A Thomson Financial Services Company
November 20, 1996
Glickenhaus & Co., Inc.
6 East 43rd Street
New York, New York 10017
Lebenthal & Co., Inc.
120 Broadway
New York, New York 10271
RE: EMPIRE STATE MUNICIPAL EXEMPT TRUSTS
Guaranteed Series 121, 122 & 123: Post - Effective Amendment No. 1
Gentlemen:
We have examined the post-effective Amendment to the Registration Statement,
File No. 33-62409, for the referenced Trusts and acknowledge that Muller Data
Corporation is currently acting as the evaluator for the Empire State Municipal
Exempt Trusts Guaranteed Series 121, 122 and 123. Subsequently, we hereby
consent to the reference of Muller Data Corporation as Trust evaluator in the
post-effective Amendment.
In addition, we confirm that the ratings of the bonds comprising the portfolios
of the Trusts, as indicated in the Amendment to the Registration Statement, are
the ratings currently indicated in our Muniview data base.
You are hereby authorized to file a copy of this letter with the Securities and
Exchange Commission.
Sincerely,
- ---------------
Mario S. Buscemi
Chief Operating Officer
395 Hudson Street, New York, NY 10014-3662 Telephone (212) 897-3800
<PAGE>
Managed Fund Ratings
25 Broadway
New York, NY 10004-1064
Tel 212 208 8000
Fax 212 208 8034
Standard & Poor's
A Division of The McGraw-Hill
Companies
November 12, 1996
Glickenhaus & Company
6 East 43rd Street
New York, NY 10017
Re: ESMET Guaranteed Series 121; ESMET Guaranteed Series 122; ESMET Guaranteed
Series 123
It is our understanding that you are filing with the Securities and
Exchange Commission a Post Effective Amendment to the above captioned trusts,
SEC file number 33-62409.
Since the portfolios are composed solely of securities covered by bond
insurance policies that insure against default in the payment of principal and
interest on the securities and such policies have been issued by one or more
insurance companies which have been assigned `AAA' claims paying ability
ratings by Standard & Poor's, we reaffirm the assignment of a `AAA' rating to
the units of the trusts and a `AAA' rating to the securities contained in the
trusts. Please note that securities covered by bond insurance policies that
insure such securities only as long as they remain in the trusts are rated
`AAA' only as long as they remain in the trusts.
Standard & Poor's will maintain surveillance on the `AAA' rating until
December 30, 1997. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the trusts.
You have permission to use the name of Standard & Poor's Ratings Services,
a division of The McGraw-Hill Companies, Inc. and the above-assigned ratings in
connection with your dissemination of information relating to these units,
provided that it is understood that the ratings are not "market" ratings nor
recommendations to buy, hold, or sell the units of the trusts or the securities
in the trusts. Further, it should be understood that the rating on the units
does not take into account the extent to which fund expenses or portfolio asset
sales for less than the fund's purchase price will reduce payment to the unit
holders of the interest and principal required to be paid on the portfolio
assets. Standard & Poor's reserves the right to advise its own clients,
subscribers, and the public of the ratings. Standard & Poor's relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings.
Standard & Poor's does not independently verify the truth or accuracy of any
such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. in
connection with the rating assigned to the units in the amendment referred to
above. However, this letter should not be construed as a consent by us, within
the meaning of Section 7 of the Securities Act of 1933, to the use of the name
of Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. in connection with the ratings assigned to the securities contained in the
trusts. You are hereby authorized to file a copy of this letter with the
Securities and Exchange Commission.
Please be certain to send a copy of your final prospectus as soon as it
becomes available. Should we not receive it within a reasonable time after the
closing or should it not conform to the representations made to us, we reserve
the right to withdraw the rating.
Sincerely,
Sanford B. Bragg
Managing Director
