File No. 2-65439
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 16
TO
FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
(Exact Name of Trust)
LEGG MASON WOOD WALKER, INCORPORATED
(Exact Name of Depositor)
111 South Calvert Street
Baltimore, Maryland 21202
(Complete address of Depositor's principal executive offices)
LEGG MASON WOOD WALKER, INCORPORATED CHAPMAN AND CUTLER
Attention: Marie K. Karpinski Attention: Mark J. Kneedy
111 South Calvert Street 111 West Monroe Street
Baltimore, Maryland 21202 Chicago, Illinois 60603
(Name and complete address of agents for service)
XXX Check if it is proposed that this filing will become effective on
January 31, 1996 pursuant to Rule 485.
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT
OF REGISTRATION STATEMENT
This Post-Effective Amendment of Registration Statement comprises the
following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
The Maryland Tax-Exempt Trust, Series 2 certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485 under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment of its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Baltimore and State of Maryland on the 31st day
of January, 1996.
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
(Registrant)
By LEGG MASON WOOD WALKER, INCORPORATED
(Depositor)
By (F. Barry Bilson Signature)
Attest (Susan T. Lind Signature)
(SEAL)
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment of Registration Statement has been signed below by the
following persons in the capacities and on the date indicated:
Signature Title Date
Raymond A. Mason Chairman of the Board ) January 31, 1996
)
James W. Brinkley President and Director )
)
Edmund J. Cashman, Jr. Senior Executive Vice President )(H M Lowman signature)
and Director ) Attorney-in-fact*
)
Charles A. Bacigalupo Senior Vice President, Secretary )
and Director )
)
Horace M. Lowman, Jr. Senior Vice President and )
Assistant Secretary )
(John F. Curley, Jr. signature)
John F. Curley, Jr. Vice Chairman of the Board
(Richard J. Himelfarb signature)
Richard J. Himelfarb Executive Vice President and Director
S-2
<PAGE>
Signature Title Date
January 31, 1996
(Edward A. Taber III signature)
Edward A. Taber III Executive Vice President and
Director
(Robert G. Sabelhaus signature)
Robert G. Sabelhaus Executive Vice President and
Director
(Mark I. Preston signature)
Mark I. Preston Senior Vice President and Director
(William B. Jones, Jr. signature)
William B. Jones, Jr. Senior Vice President and Director
(Thomas M. Daly, Jr. signature)
Thomas M. Daly, Jr. Senior Vice President and Director
(F. Barry Bilson Signature)
F. Barry Bilson Senior Vice President and Director
(Douglas C. Petty, Jr. signature)
Douglas C. Petty, Jr. Senior Vice President and Director
Carl Hohnbaum Senior Vice President and Director
William F. Haneman, Jr. Senior Vice President and Director
Thomas E. Hill Senior Vice President and Director
Robert G. Donovan Senior Vice President and Director
(Marvin H. McIntyre signature)
Marvin H. McIntyre Senior Vice President and Director
* An executed copy of each of the related powers of attorney was filed with the
Securities and Exchange Commission in connection with the Registration State-
ment for Series 2 of The Maryland Tax-Exempt Trust (File No. 2-62967) and all
of such powers are hereby incorporated herein by this reference.
S-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion of our report dated November 16,
1995, on audits of the statements of assets and liabilities and the related
portfolio of The Maryland Tax-Exempt Trust, Series 2 as of September 30, 1995,
and the related statements of operations and changes in net assets for each of
the three years in the period then ended in the Registration Statement of the
Trust on Post-Effective Amendment No. 16 to the Form S-6 Registration No.
2-65439 to be filed with the Securities and Exchange Commission.
We also consent to the reference to our Firm as experts in
accounting and auditing under the caption "Auditors" contained in Part II of the
Prospectus.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
January 30, 1996
S-4
<PAGE>
THIS IS PART ONE OF A TWO-PART PROSPECTUS
DATED JANUARY 31, 1996 - IT MAY NOT BE
DISTRIBUTED WITHOUT PART TWO
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
In the opinion of Counsel, interest income to the Fund and to
Certificate-holders, with certain exceptions, is exempt under existing law from
all Federal income taxes and Maryland personal income taxes, but may be subject
to other state and local taxes. Capital gains, if any, are subject to tax (see
"Tax Status" in Part Two).
THE FUND
The Maryland Tax-Exempt Trust, Series 2 (the "Fund") is comprised of a portfolio
of interest-bearing obligations issued by or on behalf of municipalities and
other governmental authorities of the State of Maryland and/or issued by certain
United States territories or possessions and their public authorities, the
interest on which, in the opinion of recognized bond counsel to the issuing
government authority, is exempt from all Federal income and Maryland personal
income taxes under existing law. Each Unit represents a 1/4,000 undivided
interest in the principal and net income of the Fund.
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss resulting
from the sale of Units will accrue to the Sponsor. No proceeds from the sale of
Units will be received by the Fund.
Please 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.
LEGG MASON WOOD WALKER, INCORPORATED
Sponsor
<PAGE>
THIS IS PART ONE OF A TWO-PART PROSPECTUS
DATED JANUARY 31, 1996 - IT MAY NOT BE
DISTRIBUTED WITHOUT PART TWO
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
PUBLIC OFFERING PRICE
The Public Offering Price of the Units is equal to the aggregate bid price of
the Securities in the portfolio of the Fund plus interest accrued to the date of
settlement divided by the number of Units outstanding. Additionally, a sales
charge of 4% of the Public Offering Price (4.167% of the amount invested) is
included. At September 30, 1995, the Public Offering Price was $439.64 plus
accrued interest to date of settlement (three business days after such date) of
$.23 for a total of $439.87 (see "Market for Units" in Part Two).
ESTIMATED CURRENT RETURNS
Estimated Current Returns to Certificateholders under the monthly, quarterly and
semi-annual distribution plans were 5.954%, 6.004% and 6.043% per annum,
respectively, on September 30, 1995. Estimated Current Returns are calculated by
dividing the net annual interest income per Unit by the Public Offering Price
plus accrued interest. Net annual 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 the underlying bonds; the Public
Offering Price will vary with changes in the bid price of the underlying bonds;
therefore, there is no assurance that the Estimated Current Returns stated above
will be realized in the future (see "Annual Unit Income" in Part Two).
2
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
as of September 30, 1995
Sponsor: Legg Mason Wood Walker, Incorporated
Trustee: The Bank of New York
Evaluator: Securities Evaluation Service, Inc. (1)
GENERAL INFORMATION
<TABLE>
<S> <C> <C>
Principal Amount of Bonds in the Fund $1,545,000
Number of Units 4,000
Fractional Undivided Interest in the Fund per Unit 1/4,000
Public Offering Price:
Aggregate Bid Price of Bonds in Portfolio 1,634,242
Aggregate Bid Price of Bonds Per Unit 408.56
Accrued Interest Per Unit 13.49
Sales Charge 4.167% (4% of Public Offering Price) 17.59
Public Offering Price Per Unit (2) 439.64
Redemption Price Per Unit (2) 422.05
Minimum Value of the Fund under which Trust $1,000,000
Agreement may be terminated
Minimum Principal Distribution $1.00 per Unit
Date of Deposit November 7, 1979
Mandatory Termination Date December 31, 2028
Annual Evaluation Fee (1) $.40 per $1,000 principal amount of securities
until March 31, 1994. Since April 1, 1994,
$.35 per $1,000 principal amount of securities.
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made as of
3:00 P.M. Eastern time on days of trading on the New York Stock Exchange next
following receipt by Legg Mason Wood Walker, Incorporated, of an order for a
sale or purchase of Units or receipt by The Bank of New York, of Units tendered
for redemption.
(1) Legg Mason Wood Walker, Incorporated was the evaluator for the Fund
until March 31, 1994. Since April 1, 1994, the evaluation of the Fund
has been performed by Securities Evaluation Service, Inc.
(2) Plus accrued interest to the date of settlement (three business days
after purchase) of $.23.
Continued
3
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION, Continued
as of September 30, 1995
SPECIAL INFORMATION BASED ON VARIOUS DISTRIBUTION PLANS
<TABLE>
<CAPTION>
Monthly Quarterly Semi-Annual
Amounts reflect adjustments
from original Prospectus
<S> <C> <C> <C>
Calculation of Estimated Net
Annual Unit Income:
Estimated Annual Interest
Income per Unit $27.91 $27.91 $27.91
Less: Estimated Annual
Expenses per Unit 1.72 1.50 1.33
------ ------ ------
Estimated Net Annual Interest
Income per Unit $26.19 $26.41 $26.58
====== ====== ======
Calculation of Interest Distri-
butions per Unit:
Estimated Net Annual Interest
Income per Unit $26.19 $26.41 $26.58
Divided by 12, 4 and 2, res-
pectively $ 2.18 $ 6.60 $13.29
Estimated Daily Rate of Net
Interest Accrual per Unit $.07275 $.07336 $.07384
Estimated Current Return Based
on Public Offering Price
plus accrued interest 5.954% 6.004% 6.043%
</TABLE>
Record and Computation Dates First day of the month as follows:
Monthly-each month; Quarterly-March,
June, September and December;
Semi-Annual-June and December
Distribution Dates Fifteenth day of the month as follows:
Monthly-each month; Quarterly-March,
June, September and December;
Semi-Annual-June and December
Trustee's Annual Fee $1.26, $1.00 and $0.71 per $1,000
Principal Amount of Securities,
respectively, for those portions of
the Fund under the monthly, quarterly
and semi-annual distribution plans.
4
<PAGE>
PORTFOLIO
The Fund consists of 8 issues which are payable from the income
of a specific project or authority and are not supported by the issuer's power
to levy taxes. The portfolio of the Fund is divided by purpose of issue (and
percentage of principal amount to total Fund) as follows: Hospitals, 4(48%);
Housing, 2(47%); and Pollution Control, 2(5%). (See "The Fund" in Part Two).
As indicated, approximately 48% of the aggregate principal amount
of the Securities consists of hospital revenue bonds. Ratings of hospital
revenue bonds are often based upon feasibility studies which contain projections
of occupancy levels, revenues and costs. Additionally, a major portion of
hospital revenues typically is derived from Federal or state programs such as
Medicaid reimbursement upon which many hospitals rely heavily. Hospitals are
subject to regulation of rates and other areas by the Maryland Health Services
Cost Review Commission. There has been a trend toward increased cost for medical
malpractice and liability insurance and the reduction or elimination of the
availability of such insurance for physicians and health care facilities. Future
legislation or changes in the areas noted above, among other things, would
affect all hospitals to varying degrees and, accordingly, an adverse change in
these areas may affect the ability of such issuers to make payment of principal
and interest on bonds held in the portfolio of the Fund.
Approximately 47% of the aggregate principal amount of the
Securities in the Fund are obligations of issuers whose revenues are primarily
derived from mortgage loans to housing projects for low to moderate income
families. In view of this, an investment in the Fund should be made with an
understanding of the characteristics of such issuers and the risks which such an
investment may entail. The ability of such issuers to make debt service payments
will be affected by events and conditions affecting financed projects,
including, among other things, the achievement and maintenance of sufficient
occupancy levels and adequate rental income, increases in taxes, utility costs
and other operating expenses, the managerial ability of project managers,
changes in laws and governmental regulations, the appropriation of subsidies,
and social and economic trends affecting the localities in which the projects
are located. Tenants may be limited by high rent levels and income limitations
imposed under Federal and state programs. In addition, certain Securities were
issued for the purpose of acquiring notes secured by mortgages on single family
residences and involve other risks such as extraordinary mandatory redemption
prior to scheduled maturities.
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Certificateholders, Sponsor and Trustee of The
Maryland Tax-Exempt Trust, Series 2:
We have audited the accompanying statement of assets and
liabilities of The Maryland Tax-Exempt Trust, Series 2, including the related
portfolio, as of September 30, 1995, and the related statements of operations
and changes in net assets for each of the three years in the period then ended.
These financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments and cash held by the trustee as
of September 30, 1995. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of The Maryland
Tax-Exempt Trust, Series 2 as of September 30, 1995, and the results of its
operations and changes in its net assets for each of the three years in the
period then ended, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
November 16, 1995
6
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
STATEMENT OF ASSETS AND LIABILITIES
as of September 30, 1995
<TABLE>
<S> <C>
ASSETS:
Tax-exempt securities at market value (cost
$1,356,019) $1,634,242
Accrued interest 37,029
Cash 19,865
----------
Total assets 1,691,136
LIABILITIES:
Accrued evaluation fees 1,254
Accrued audit fees 1,675
Total liabilities 2,929
Net assets $1,688,207
ANALYSIS OF NET ASSETS
Accumulated paid-in capital (4,000 units of fractional
undivided interest) 1,356,019
Undistributed net investment income 53,965
Unrealized appreciation of bonds since date of
deposit 278,223
Net asset value to certificateholders $1,688,207
Net asset value per unit (4,000 units outstanding) $ 422.05
==========
</TABLE>
See accompanying notes.
7
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
PORTFOLIO
as of September 30, 1995
<TABLE>
<CAPTION>
Aggregate Principal Market Value Annual Interest
as of Name of Issuer and Interest Maturity Redemption Cost as of Income to
September 30, 1995 Title of Security Rate Date Feature (1) Basis September 30, 1995 the Fund
- ------------------ -------------------- -------- --------- ----------- ----- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$450,000 Baltimore City Housing Corp.
Maryland Mortgage Revenue
Bonds, Series 1978, Green-
hill Housing-Sec. 8,
Assisted Elderly Project 7.75% 10/01/2009 1990 @ 100S.F. $396,090 $452,020 $34,876
30,000 Baltimore City, Pollution Con-
trol Revenue (Allied
Chemical Corp. Project) 7.00 12/01/1999 1985 @ 100S.F. 28,500 31,141 2,100
275,000 Community Development
Administration of the
State of Maryland, Housing
Mortgage Revenue Bonds, 7.00 01/01/2020 1989 @ 103
1979 Series A 1999 @ 100S.F. 215,099 277,503 19,250
15,000 Maryland Health & Higher Educa-
tional Facilities Authority
Revenue Bonds, Greater
Baltimore Medical Center 6.90 07/01/2000 1989 @ 102
Issue, Series A 1991 @ 100S.F. 13,344 15,993 1,035
205,000 Maryland Health & Higher Educa-
tional Facilities Authority
Revenue Bonds, Howard County
General Hospital Issue, 8.00 01/01/2009 1989 @ 103
Series A 1993 @ 100S.F. 188,846 241,238 16,400
</TABLE>
Continued
8
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
PORTFOLIO, Continued
as of September 30, 1995
<TABLE>
<CAPTION>
Aggregate Principal Market Value Annual Interest
as of Name of Issuer and Interest Maturity Redemption Cost as of Income to
September 30, 1995 Title of Security Rate Date Feature (1) Basis September 30, 1995 the Fund
- ------------------ -------------------- -------- -------- ----------- ----- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 Maryland Health & Higher Educa-
tional Facilities Authority
Revenue Bonds, North Charles
General Hospital Issue,
Series A 6.60% 7/01/2007 1992 @ 100S.F. $ 16,426 $ 21,541 $ 1,320
505,000 Maryland Health & Higher Educa-
tional Facilities Authority
Revenue Bonds, The Johns
Hopkins Hospital Redevelop- 6.625 7/01/2008 1989 @ 102
ment Issue, 1979 Series 1992 @ 100S.F. 454,500 549,718 33,456
45,000 Upper Potomac River Commission,
Pollution Control Revenue
Bonds (Westvaco Corporation
Project), 1976 Series 7.125 5/01/2001 1992 @ 100S.F. 43,214 45,088 3,206
---------- ---------- ---------- --------
$1,545,000 $1,356,019 $1,634,242 $111,643
========== ========== ========== ========
</TABLE>
See accompanying notes.
9
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
NOTE TO PORTFOLIO
(1) Shown under this heading is the year in which each issue of bonds
initially is callable and the call price for that year. Unless
otherwise indicated, each issue of bonds continues to be callable
at declining prices thereafter (but not below par value). "S.F."
indicates a sinking fund is established with respect to an issue of
bonds. Redemption pursuant to call provisions may occur at times
when the redeemed bonds have an offering side valuation which
represents a premium over par. To the extent that the bonds were
deposited in the Fund at a price higher than the price at which
they are redeemed, this represents a loss of capital when compared
with the original Public Offering Price of Units. Conversely, to
the extent that the bonds were acquired at a price lower than the
redemption price, this represents an increase in capital when
compared with the original Public Offering Price of the Units.
Distributions will generally be reduced by the amount of the income
which would otherwise have been paid with respect to redeemed
bonds. The estimated current return in this event may be affected
by such redemptions. For the Federal tax effect on
Certificateholders of such redemptions and resultant distributions,
see "Tax Status" and "Annual Unit Income" in Part Two.
See accompanying notes.
10
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
STATEMENT OF OPERATIONS
for the years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investment income:
Interest income $111,704 $138,082 $172,734
-------- -------- --------
Expenses:
Trustee fees and expenses 2,984 3,719 4,057
Audit fees 2,000 1,750 2,000
Evaluation fees 541 772 970
-------- -------- --------
Total expenses 5,525 6,241 7,027
-------- -------- --------
Net investment income 106,179 131,841 165,707
-------- -------- --------
Net realized and unrealized gain
(loss) on investments:
Net realized gain 1,448 46,620 6,044
Net unrealized gain (loss)
on investments 44,800 (88,089) 11,285
-------- -------- --------
Net realized and unrealized gain
(loss) on investments 46,248 (41,469) 17,329
-------- -------- --------
Increase in net assets resulting
from operations $152,427 $ 90,372 $183,036
======== ======== ========
</TABLE>
See accompanying notes.
11
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
STATEMENT OF CHANGES IN NET ASSETS
for the years ended September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
From operations:
Net investment income $106,179 $ 131,841 $ 165,707
Net realized gain 1,448 46,620 6,044
Net unrealized gain (loss)
on investments 44,800 (88,089) 11,285
-------- ---------- ----------
Increase in net assets
resulting from
operations 152,427 90,372 183,036
Distributions to certificate-
holders from:
Net investment income (107,327) (141,884) (168,753)
Proceeds from redemption
of securities: (15,000) (695,120) (244,480)
--------- ---------- ----------
Increase (decrease) in net assets 30,100 (746,632) (230,197)
Net asset value to certificate-
holders:
Beginning of year 1,658,107 2,404,739 2,634,936
---------- ---------- ----------
End of year (including
undistributed net
investment income of
$53,965, $55,113 and
$65,156 for 1995, 1994
and 1993, respectively) $1,688,207 $1,658,107 $2,404,739
========== ========== ==========
</TABLE>
See accompanying notes.
12
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The investment objectives of The Maryland Tax-Exempt Trust, Series 2
(the "Fund") as well as the nature and purpose of its investment
activities are set forth in Part II of this Prospectus.
A. Security Valuation:
Tax Exempt Securities are stated at bid prices as determined by an
evaluation performed by Securities Evaluation Service, Inc. as of
September 30, 1995.
B. Security Cost:
The original cost to the Fund was based on a determination by
Interactive Data Services, Inc. of the offering prices of the
securities on the date of deposit, November 7, 1979.
C. Investment Income:
Income from investments is recorded as earned on the accrual basis.
Bond premiums and discounts are not amortized for financial
statement purposes. Fluctuations in the market price of the Fund's
securities are recorded as increases or decreases in unrealized
appreciation or depreciation.
D. Income Taxes:
The Fund is not taxable as a corporation for Federal income tax
purposes. Interest on portfolio securities, which is exempt from
Federal income tax under the Internal Revenue Code, will retain its
status as tax-exempt interest, for Federal income tax purposes, when
distributed to a Certificateholder.
2. Fund Sponsor and Redemption:
Although it is not obligated to do so, Legg Mason Wood
Walker, Incorporated, the Fund Sponsor, maintains a market for the
Units of the Fund and continuously offers to purchase Units at prices
subject to change at any time, based upon the aggregate bid
price of the bonds in the portfolio of the Fund, plus interest
accrued to the date of settlement. The Sponsor may discontinue
purchases of Units if the supply of Units exceeds demand or for
other business reasons. In the event that a market is not
maintained for the Units, a certificateholder may tender his Units
to the Trustee for redemption at the redemption price, as set
forth in Part II of the Prospectus.
Continued
13
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
NOTES TO FINANCIAL STATEMENTS, Continued
2. Fund Sponsor and Redemption, continued:
The Fund Sponsor does not charge the Fund an advisory fee and receives no
fee from the Fund for services performed except for a minimum evaluation
fee of $.40 per $1,000 principal amount of securities annually for
regularly evaluating the portfolio up through March 31, 1994. In addition,
the Fund Sponsor has agreed to reimburse the Fund for audit fees in excess
of $.50 per unit.
3. Unit Cost to Investors:
The unit cost to original investors was based on the aggregate offering
price of the bonds (per Unit) on the date of an investor's purchase, plus
a sales charge of 4.167% of the aggregate offering price of the bonds
which was equivalent to 4% of the public offering price. The secondary
market unit cost to investors is based on the aggregate bid price of the
bonds (per Unit) on the date of an investor's purchase, plus accrued
interest income and a sales charge of 4.167% of the aggregate bid price of
the bonds which is 4% of the public offering price.
4. Per Unit Information:
<TABLE>
<CAPTION>
For the Years Ended September 30
1995 1994 1993
<S> <C> <C> <C>
Investment income $ 27.92 $ 34.52 $ 43.18
Expenses (1.38) (1.56) (1.75)
------- ------- --------
Net investment income 26.54 32.96 41.43
Net realized and
unrealized gain (loss)
on investments 11.56 (10.37) 4.33
Distributions of net investment
income (average) (1) (26.83) (35.46) (42.19)
Distributions of proceeds from
redemption of securities (3.75) (173.78) (61.12)
------- ------- --------
Increase (decrease) in net assets 7.52 (186.65) (57.55)
Net asset value:
Beginning of year 414.53 601.18 658.73
------- ------- --------
End of year (4,000 units
outstanding) $422.05 $414.53 $601.18
======= ======= =======
</TABLE>
(1) Certificateholders may elect to receive distributions of net
investment income on a monthly, quarterly, or semi-annual
basis.
Continued
14
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST, SERIES 2
NOTES TO FINANCIAL STATEMENTS
4. Per Unit Information, continued:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Annual distributions by
frequency of payment:
Monthly $26.16 $33.51 $41.48
Quarterly $26.42 $33.84 $41.89
Semi-annual $26.69 $37.41 $42.77
</TABLE>
15
<PAGE>
THE MARYLAND TAX-EXEMPT TRUST
CONTENTS PAGE
The Fund 4
Market for Units 8
Expenses and Charges 9
Annual Unit Income 9
Tax Status 10
Issue and Transfer of Certificates 14
Distribution of Interest and Principal 14
Reports to Certificateholders 15
Redemption of Units 16
Purchase of Units by Sponsor 17
Removal of Securities from the Fund 17
The Sponsor 18
The Trustee 19
Limitations on Liabilities of Sponsor and Trustee 20
Amendment or Termination of the Indenture 20
Legal Opinions 20
Auditors 21
THIS PART TWO MUST BE ACCOMPANIED BY PART ONE
This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to sell, or a solicitation of an offer to buy, securities in any
jurisdiction to any person to whom it is not lawful to make such offer in such
jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statements and exhibits relating thereto, which this Fund has filed
with the Securities and Exchange Commission, Washington, D.C., under the
Securities Act of 1933 and the Investment Company Act of 1940 and to which
reference is hereby made.
<PAGE>
THIS IS PART TWO OF A TWO-PART PROSPECTUS
DATED JANUARY 31, 1996-IT MAY NOT BE DISTRIBUTED WITHOUT PART ONE
THE MARYLAND TAX-EXEMPT TRUST
THE FUND. The Maryland Tax-Exempt Trust (the "Fund") currently
consists of several unit investment trusts. Each series of the Fund owns a
portfolio of interest-bearing obligations (the "Bonds" or "Securities"), all of
which have been issued by or on behalf of municipalities and other governmental
authorities located in the State of Maryland or issued by certain United States
territories or possessions and their public authorities, the interest on which
is, in the opinion of recognized bond counsel to the respective issuing
governmental authorities, exempt from all Federal income taxes and from Maryland
personal income taxes under existing law. The objectives of the Fund are
tax-exempt income and conservation of capital through an investment in a
portfolio of tax-exempt bonds. There is, of course, no assurance that these
objectives will be achieved. The payment of interest and the preservation of
principal are dependent upon the continuing ability of the issuers and/or
obligors of Securities to meet their respective obligations. The Securities
Portfolio, essential information based thereon and financial statements,
including a report of independent accountants relating to the series of the Fund
offered hereby, are contained in Part One to which reference should be made for
such information.
IN THE OPINION OF COUNSEL, INTEREST INCOME TO EACH SERIES OF THE FUND AND TO THE
RESPECTIVE CERTIFICATEHOLDERS THEREOF, WITH CERTAIN EXCEPTIONS, IS EXCLUDABLE
UNDER EXISTING LAW FROM GROSS INCOME FOR FEDERAL INCOME TAXES AND FROM MARYLAND
PERSONAL INCOME TAXES, BUT MAY BE SUBJECT TO OTHER STATE AND LOCAL TAXES.
CAPITAL GAINS, IF ANY, ARE SUBJECT TO TAX.
Distributions. Distributions of interest received by the Fund, prorated
on an annual basis, are made monthly, quarterly or semi-annually as the
Certificateholder has elected. Distributions of funds from the Principal Amount,
if any, are made semi-annually.
Offering. The Units offered hereby are issued and outstanding Units
which have been reacquired by the Sponsor either by purchase from the Trustee of
Units tendered for redemption or by purchase in the open market. The price paid
in each instance was not less than the aggregate bid price of the Securities per
Unit, plus interest accrued to the date of settlement, determined as provided
herein under "Market for Units". Any profit or loss resulting from the sale of
Units will accrue to the Sponsor or other dealers selling the Units and no
proceeds from any such sale will be received by the Fund.
The Public Offering Price of the Units is equal to the aggregate bid
price of the Securities in the portfolio of the series of the Fund represented
by the Units being offered divided by the number of Units outstanding, plus a
sales charge equal to 4% of the Public Offering Price (equivalent to 4.167% of
the net amount invested) for Series 1,2 and 3, and 5% of the Public Offering
Price (equivalent to 5.263% of the net amount invested) for Series 4, plus
accrued interest to the date of settlement.
Market. The Sponsor, Legg Mason Wood Walker, Incorporated, although not
obligated to do so, intends to maintain a secondary market for Units in all
series of the Fund at prices based upon the aggregate bid price of the
Securities in the related portfolio. In the absence of such a market, a
Certificateholder will be able to dispose of Units only by redemption at prices
based upon the bid prices of the underlying Securities (see "Redemption of
Units").
--------------------------
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Both Parts of the Prospectus Should be Retained for
Future Reference.
--------------------------
Units of the Trust are not deposits or obligations of, or guaranteed
by, any bank, and Units are not federally insured or otherwise protected by the
Federal Deposit Insurance Corporation and involve investment risk including loss
of principal.
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.
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THE MARYLAND TAX-EXEMPT TRUST
THE FUND
The Fund consists of a series of trusts, all similar but separate with
a different series number. Each series of the Fund is a unit investment trust
created under the laws of the State of New York pursuant to a Trust Indenture
and Agreement (the "Indenture"), dated the Date of Deposit, with Legg Mason Wood
Walker, Incorporated, as Sponsor and Evaluator, and The Bank of New York, as
Trustee.
The Fund may be an appropriate investment vehicle for investors who
desire to participate in a portfolio of Maryland tax-exempt fixed income
securities with greater diversification than they might be able to acquire
individually. In addition, bonds of the type deposited in the Fund are often
not available in small amounts.
Each Unit represents an undivided interest in its respective series of
the Fund. To the extent that any Units are redeemed by the Trustee, the
fractional undivided interest in the Fund represented by each unredeemed Unit
will increase, although the actual interest in the Fund represented by such
fraction will remain unchanged. Units will remain outstanding until redeemed
upon tender to the Trustee by Certificateholders, which may include the Sponsor,
or until the termination of the Indenture.
Each series of the Fund consists of a portfolio of interest-bearing
obligations issued by or on behalf of the State of Maryland and territories or
possessions of the United States, and political subdivisions and authorities
thereof, the interest on which is, in the opinion of recognized bond counsel to
the issuing authorities, excludable from gross income for Federal income tax
under existing law as well as from all Maryland personal income taxes under
existing law, but may be subject to other state and local taxes.
The objectives of the Fund and each series thereof are income exempt
from both Federal income tax and Maryland personal income taxes and conservation
of capital through an investment in a portfolio of interest-bearing obligations
rated, at the date the particular series of the Fund was established, "BBB" or
better by Standard & Poor's Ratings Services, a division of the McGraw-Hill
Companies, Inc. ("Standard & Poor's") or by the Fitch Investors Service, Inc.
("Fitch") or "Baa" or better by Moody's Investors Service, Inc. ("Moody's"),
including in each instance provisional or conditional ratings, respectively, and
issued by or on behalf of the State of Maryland or authorities or political
subdivisions thereof or issued by certain United States territories or
possessions and their public authorities, the interest on which is, in the
opinion of recognized bond counsel to the issuing governmental authorities,
exempt from both Federal income tax and Maryland personal income taxes under
existing law.
In selecting Bonds for the Fund, the following facts, among others,
were considered by the Sponsor: (i) either the Standard & Poor's or the Fitch
rating of the Bonds was in no case less than "BBB", or the Moody's rating of
the Bonds was in no case less than "Baa", including provisional or conditional
ratings, respectively, or if not rated, the Bonds had, in the opinion of the
Sponsor, credit characteristics sufficiently similar to the credit
characteristics of interest-bearing tax-exempt obligations that were so rated as
to be acceptable for acquisition by the Fund (see "Description of Bond
Ratings"), (ii) the prices of the Bonds relative to other bonds of comparable
quality and maturity, and (iii) the diversification of Bonds as to purpose of
issue and location of issuer. A Bond which meets either the Standard & Poor's
or Fitch rating of "BBB" or Moody's rating of "Baa" would be eligible to be
included in the Fund portfolio even if that particular Bond received a lower
rating in the Portfolio in Part One. Subsequent to the Date of Deposit, a Bond
may cease to be rated or its rating may be reduced below the minimum required as
of the Date of Deposit. Neither event requires the elimination of such Bond
from the Portfolio, but may be considered in the Sponsor's determination as to
whether or not to direct the Trustee to dispose of the Bond.
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Certain bonds in certain series of the Fund are general obligations of
a governmental entity and are backed by the taxing power of such entity. The
remaining Bonds are payable directly or indirectly from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
General obligation bonds are secured by the issuer's pledge of its faith, credit
and taxing power for the payment of principal and interest. Revenue bonds, on
the other hand, are payable only from the revenues derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise tax or other specific revenue source. There are, of course,
variations in the security of the different Bonds in the Fund, both within a
particular classification and between classifications, depending on numerous
factors. To the extent that the obligor of any Bond fails to pay interest and
principal thereon, the interest income to the particular series of the Fund and
the aggregate principal amount payable to such series upon maturity of any such
Bond would not be received by such series from the Bond issuer.
Certain of the Bonds in each series of the Fund are hospital revenue
bonds. Ratings of bonds issued for health care facilities are often based on
feasibility studies that contain projections of occupancy levels, revenues, and
expenses. A facility's gross receipts and net income available for debt
service will be affected by future events and conditions including, among other
things, demand for services and the ability of the facility to provide the
services required, physicians' confidence in the facility, management
capabilities, economic developments in the service area, competition, efforts by
insurers and governmental agencies to limit rates, legislation establishing
state rate-setting agencies, expenses, the cost and possible unavailability of
malpractice insurance, the funding of Medicare, Medicaid and other similar third
party payor programs, and government regulation. Federal legislation requires a
system of prospective Medicare reimbursement which may restrict the flow of
revenues to hospitals and other facilities which are reimbursed for services
provided under the Medicare program. Future legislation or changes in the areas
noted above, among other things, would affect all hospitals to varying degrees
and, accordingly, any adverse changes in these areas may adversely affect the
ability of such issuers to make payment of principal and interest on Securities
held in the portfolio of the Fund. Such adverse changes also may adversely
affect the ratings of the Securities held in the portfolio of the Fund.
Hospitals and other health care facilities are subject to claims and legal
actions by patients and others in the ordinary course of business. Although
these claims are generally covered by insurance, there can be no assurance that
a claim will not exceed the insurance coverage of a health care facility or that
insurance coverage will be available to a facility. In addition, a substantial
increase in the cost of insurance could adversely affect the results of
operations of a hospital or other health care facility. Certain hospital bonds
may provide for redemption at par at any time upon the sale by the issuer of the
hospital facilities to a non-affiliated entity or in other circumstances. For
example, certain hospitals may have the right to call bonds at par if the
hospital may legally be required because of the bonds to perform procedures
against specified religious principles. Certain FHA-insured bonds may provide
that all or a portion of those bonds, otherwise callable at a premium, can be
called at par in certain circumstances. If a hospital defaults upon a bond
obligation, the realization of Medicare and Medicaid receivables may be
uncertain and, if the bond obligation is secured by the hospital facilities,
legal restrictions on the ability to foreclose upon the facilities and the
limited alternative uses to which a hospital can be put may reduce severely its
collateral value.
Certain of the Bonds in various series of the Fund consist of single
family mortgage revenue bonds, which are issued for the purpose of acquiring
from originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid prior to
their final maturities as a result of events such as sale of the mortgaged
premises, default, condemnation or casualty loss. Because these Bonds are
subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such Bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. The redemption price of such issues may be more or less than the
offering price of such Bonds. Extraordinary mandatory redemption without
premium could also
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result from the failure of the originating financial institutions to make
mortgage loans in sufficient amounts within a specified time period or, in some
cases, from the sale by the Bond issuer of the mortgage loans. Failure of the
originating financial institutions to make mortgage loans would be due
principally to the interest rates on mortgage loans funded from other sources
becoming competitive with the interest rates on the mortgage loans funded with
the proceeds of the single family mortgage revenue bonds. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. Single family mortgage revenue bonds issued after December 31,
1980 were issued under Section 103A of the Internal Revenue Code, which Section
contains certain ongoing requirements relating to the use of the proceeds of
such Bonds in order for the interest on such Bonds to retain its tax-exempt
status. In each case, the issuer of the Bonds has covenanted to comply with
applicable ongoing requirements and bond counsel to such issuer has issued an
opinion that the interest on the Bonds is exempt from Federal income tax under
existing laws and regulations. There can be no assurances that the ongoing
requirements will be met. The failure to meet these requirements could cause
the interest on the Bonds to become taxable, possibly retroactively from the
date of issuance.
Certain of the Bonds in various series of the Fund may be obligations
of issuers whose revenues are primarily derived from mortgage loans to housing
projects for low to moderate income families. The ability of such issuers to
make debt service payments will be affected by events and conditions affecting
financed projects, including, among other things, the achievement and
maintenance of sufficient occupancy levels and adequate rental income, increases
in taxes, employment and income conditions prevailing in local labor markets,
utility costs and other operating expenses, the managerial ability of project
managers, changes in laws and governmental regulations, the appropriation of
subsidies and social economic trends affecting the localities in which the
projects are located. The occupancy of housing projects may be adversely
affected by high rent levels and income limitations imposed under Federal and
state programs. Like single family mortgage revenue bonds, multi-family mortgage
revenue bonds are subject to redemption and call features, including
extraordinary mandatory redemption features, upon prepayment, sale or
non-origination of mortgage loans as well as upon the occurrence of other
events. Certain issuers of single or multi-family housing bonds have considered
various ways to redeem bonds they have issued prior to the stated first
redemption dates for such bonds. In connection with the housing Bonds held by
various series of the Fund, the sponsor has not had any direct communications
with any of the issuers thereof, but at the initial Date of Deposit it was not
aware that any of the respective issuers of such Bonds were actively considering
the redemption of such Bonds prior to their respective stated initial call
dates. However, there can be no assurance that an issuer of a Bond in the Funds
will not attempt to so redeem a Bond in the Fund.
Certain of the Bonds in various series of the Fund may be obligations
of issuers which are payable from and secured by revenues derived from the
ownership and operation of airports, public transit systems and ports. The
major portion of an airport's gross operating income is generally derived from
fees received from airlines pursuant to use agreements which consist of annual
payments for airport use, occupancy of certain terminal space, service fees and
leases. Airport operating income may therefore be affected by the ability of
the airlines to meet their obligations under the use agreements. The air
transport industry is experiencing significant variations in earnings and
traffic, due to increased competition, excess capacity, increased costs,
deregulation, traffic constraints and other factors, and several airlines are
experiencing severe financial difficulties. In particular, facilities with use
agreements involving airlines experiencing financial difficulty may experience a
reduction in revenue due to the possible inability of these airlines to meet
their use agreement obligations because of such financial difficulties and
possible bankruptcy. The Sponsor cannot predict what effect these industry
conditions may have on airport revenues which are dependent for payment on the
financial condition of the airlines and their usage of the particular airport
facility. Bonds that are secured primarily by the revenue collected by a public
transit system typically are additionally secured by a pledge of sales tax
receipts collected at the state or local level, or of other
6
<PAGE>
governmental financial assistance. Transit system net revenues will be affected
by variations in utilization, which in turn may be affected by the degree of
local governmental subsidization, demographic and population shifts, and
competition from other forms of transportation; and by increased costs,
including costs resulting from previous deferrals of maintenance. Port
authorities derive their revenues primarily from fees imposed on ships using the
facilities. The rate of utilization of such facilities may fluctuate depending
on the local economy and on competition from competing forms of transportation
such as air, rail and trucks.
Because certain of the Bonds in a portfolio may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds arising as a result thereof will be
distributed to Certificateholders and will not be reinvested, no assurance can
be given that any series of the Fund will retain for any length of time the size
and composition which existed at the date of the information in Part One.
Moreover, neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any Bond.
Most of the Bonds in each series of the Fund 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. A callable Bond is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is a
method by which a bond issue is redeemed, at or before maturity, by the proceeds
of a new bond issue. 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. The exercise of redemption or call provisions will
(except to the extent that the proceeds of the called Bonds are used to pay for
Unit redemptions) result in the distribution of principal and may result in a
reduction in the amount of subsequent interest distributions and it may also
offset the current return on Units of the Fund. The Portfolio in Part One
contains a listing of the sinking fund and call provisions, if any, with respect
to each of the Securities. Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events including, but not
limited to, a final determination that the interest on the Bonds is taxable; the
substantial damage or destruction by fire or other casualty of the project for
which the proceeds of the Bonds were used; an exercise by a local, state or
Federal governmental unit of its power of eminent domain to take all or
substantially all of the project for which the proceeds of the Bonds were used;
changes in the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation of the
project for which the proceeds of the Bonds were used uneconomic; changes in law
or an administrative or judicial decree which renders the performance of the
agreement under which the proceeds of the Bonds were made available to finance
the project impossible or which creates unreasonable burdens or which imposes
excessive liabilities, such as taxes, not imposed on the date the Bonds are
issued on the issuer of the Bonds or the user of the proceeds of the Bonds; an
administrative or judicial decree which requires the cessation of a substantial
part of the operations of the project financed with the proceeds of the Bonds;
an overestimate of the costs of the project to be financed with the proceeds of
the Bonds resulting in excess proceeds of the Bonds which may be applied to
redeem Bonds; or an underestimate of a source of funds securing the Bonds
resulting in excess funds which may be applied to redeem Bonds. The Sponsor is
unable to predict all of the circumstances which may result in such redemption
of an issue of Bonds.
To the best knowledge of the Sponsor, 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 upon the Fund. At any time, litigation may be
initiated on a variety of grounds with respect to Securities in the Fund. Such
litigation may affect the validity of such Bonds or the tax-free nature of the
interest thereon. While the outcome of litigation of such nature can never be
entirely predicted, the Fund has received opinions of bond counsel to the
issuing authorities of each Bond on the date of issuance to the effect that such
Bonds have been validly issued and that the interest thereon is exempt from
Federal and Maryland income tax. In addition, other factors may arise from time
to time which potentially may impair the ability of issuers to meet obligations
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<PAGE>
undertaken with respect to the Bonds.
Market for Units
Although it is not obligated to do so, the Sponsor intends to maintain a
market for the Units and continuously to offer to purchase Units at prices,
subject to change at any time, based upon the aggregate bid price of the
Securities in the portfolio of the Fund plus interest accrued to the date of
settlement. All expenses incurred in maintaining a secondary market, other than
the fees of the Evaluator, the costs of the Trustee in transferring and
recording the ownership of Units, and auditor's fees up to $.50 per Unit, will
be borne by the Sponsor. If the supply of Units exceeds demand, or if some
other business reason exists, the Sponsor may discontinue purchases of Units.
In the event that a market is not maintained for the Units and no other
purchaser can be found, a Certificateholder desiring to dispose of his Units may
be able to do so by tendering such Units to the Trustee for redemption at the
Redemption Price, which is based upon the aggregate bid price of the Securities
in the portfolio of the Fund. The aggregate bid prices of the underlying
Securities in the Fund are expected to be less than the related aggregate
offering prices. See "Redemption of Units". A Certificateholder who wishes to
dispose of his Units should inquire of his broker as to current market prices in
order to determine whether there is in existence any price in excess of the
Redemption Price and, if so, the amount thereof.
The price at which Units are offered is calculated by adding to the
Sponsor's determination of the aggregate bid price of the Securities in the
Fund an amount equal to 4.167% of such price for Series 1, 2 and 3 and 5.263% of
such price for Series 4 and dividing the sum so attained by the number of Units
then outstanding in the series to which the evaluation relates. The computation
produces a gross underwriting profit equal to 4% of the Public Offering Price
for Series 1,2 and 3, and 5% of the Public Offering Price for Series 4. Interest
accrued to the date of settlement (three business days after purchase) will be
added to the Public Offering Price of Units.
Accrued interest is the accumulation of unpaid interest on a bond from the
last day on which interest thereon was paid. Interest on Securities in the Fund
is actually paid semi-annually to the Fund. However, interest on the Securities
in the Fund is accounted for daily on an accrual basis. Because of this, the
Fund always has an amount of interest accrued but not yet collected by the
Trustee because of non-collected coupons. For this reason, the Public Offering
Price of Units will have added to it the proportionate share of accrued and
undistributed interest to date of settlement. If a Certificateholder sells or
redeems all or a portion of his Units or if the Fund is liquidated, he will
receive at that time his proportionate share of the accrued interest computed to
the settlement date in the case of sale or liquidation and to the date of tender
in the case of redemption.
In maintaining a market for the Units, the Sponsor will also realize
profits or sustain losses in the amount of any difference between the price at
which Units are purchased (based on the bid prices of the Securities in the
Fund) and the price at which Units are resold (which price includes a sales
charge of 4% or 4.167% of the net amount invested for Series 1, 2 and 3, and a
sales charge of 5% or 5.263% of the net amount invested for Series 4) or
redeemed (based on the bid prices of the Securities in the Fund). The secondary
market public offering price of Units may be greater or less than the cost of
such Units to the Sponsor.
The aggregate price of the Securities in the Fund is determined by the
Evaluator, on the basis of bid prices, (1) on the basis of current market
prices for the Securities obtained from dealers or brokers who customarily deal
in bonds comparable to those held by the Fund; (2) if such prices are not
available for any of the Securities, on the basis of current market prices for
comparable bonds; (3) by causing the value of the Securities to be determined by
others engaged in the practice of evaluating, quoting or appraising comparable
Bonds; or (4) by any combination of the above.
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Sales may be made to dealers who are members of the National Association of
Securities Dealers, Inc. Such dealers will be allowed a concession of 2.5% per
unit from the public offering price. The Sponsor reserves the right to change
the amount of concession to dealers from time to time.
The Sponsor will appraise or cause to be appraised daily the value of the
underlying Securities as of 3:00 P.M. Eastern time on days the New York Stock
Exchange is open. For transactions occurring after 3:00 P.M. Eastern time on
days of trading on the New York Stock Exchange, the Public Offering Price will
be computed as of 3:00 P.M. Eastern time on the next day that such Exchange is
open for trading. The price so determined will be the basis for purchases or
sales of outstanding Units during the period of time any such price is
effective.
Expenses and Charges
The Sponsor will not charge the Fund an advisory fee and will receive no
fee from the Fund for services performed except that the Sponsor shall receive a
minimum fee of $.40 per $1,000 principal amount of the underlying Securities
annually from each series of the Fund for regularly evaluating the respective
portfolios. All costs incurred initially in the creation and establishment of
the Fund have been borne by the Sponsor. The annual fees of the Trustee for
ordinary recurring services to each series of the Fund are computed at the
following amounts per annum per $1,000 principal amount of underlying Bonds for
those portions of the Fund representing monthly, quarterly or semi-annual
distribution plans, respectively:
Monthly Quarterly Semi-Annual
Series 1: $1.23 $ .96 $.68
Series 2: 1.26 1.00 .71
Series 3: 1.13 .88 .60
Series 4: 1.17 .89 .60
The Trustee's fees are payable monthly on or before each Distribution
Date from the Interest Account to the extent that funds are available, and then
from the Principal Account. Since the Trustee has the use of the funds being
held in the Principal and Interest Accounts for future distributions, payment of
expenses and redemptions, and since such Accounts are non-interest-bearing to
Certificateholders, the Trustee benefits thereby. All fees may be increased
without approval of the Certificateholders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department of Labor.
The following additional charges are or may be incurred by the Fund:
all expenses (including legal and auditing expenses) of the Trustee incurred in
connection with its responsibilities under the Indenture, except in the event of
negligence, bad faith or willful misconduct on its part; the expenses and costs
of any action undertaken by the Trustee to protect the Fund and the rights and
interest of the Certificateholders; fees of the Trustee for any extraordinary
services performed under the Indenture; all taxes and other governmental charges
imposed upon the Bonds or any part of the Fund (no such taxes or charges are
being levied or made or, to the knowledge of the Sponsor, contemplated) and
expenditures incurred in contacting Certificateholders upon termination of the
Fund. The above expenses and the Trustee's annual fees, when paid or owing to
the Trustee, are secured by a lien on the Fund. In addition, the Trustee is
empowered to sell Bonds in order to make funds available to pay all these
amounts if funds are not otherwise available in the Interest and Principal
Accounts.
Annual Unit Income
Tax-exempt bonds are customarily offered to investors on a "yield
price" basis (as contrasted to a
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"dollar price" basis) at the lesser of the yield as computed to maturity of the
bonds or to an earlier redemption date. Since Units of the Fund are offered on
a dollar price basis, the estimated rate of return on an investment in Units of
the Fund is stated in terms of "Estimated Current Return", computed by dividing
the Estimated Annual Unit Income by the Public Offering Price (plus accrued
interest). If the price of the Securities is less than $1,000, the yield to
maturity will be greater than the Estimated Current Return; if the price of the
Securities is greater than $1,000, the yield to maturity will be less than the
Estimated Current Return. Any change to either the Estimated Annual Unit Income
or the Public Offering Price (plus accrued interest) will result in a change in
the Estimated Current Return. The Public Offering Price will vary in accordance
with fluctuations in the prices of the underlying Securities and the Estimated
Net Annual Unit Income will change as Securities are redeemed, paid, sold or
exchanged in certain refundings, or as the expenses of the Fund change.
Consequently, there is no guarantee that the present Estimated Current Return
for the Fund will be realized in the future.
Record Dates for the distribution of interest under the monthly plan of
distribution are the first day of each month with the Distribution Dates being
approximately two weeks after the related Record Date. It is anticipated that an
amount equal to approximately one-twelfth of the amount of net annual interest
income per unit will be distributed on or shortly after each Distribution Date
to Certificateholders of record on the preceding Record Date.
Record Dates for quarterly distributions are the first day of March,
June, September and December and Record Dates for semi-annual distributions are
the first day of June and December. The Distribution Dates for distributions of
interest under the quarterly and semi-annual distribution plans are
approximately two weeks after the related Record Date. All Certificateholders
will receive any distributions from the Principal Account as of the Distribution
Dates relating to the Record Dates for the months of June and December of each
year.
Tax Status
In the opinion of Chapman and Cutler, Counsel for the Sponsor, under
existing law:
(1) The Fund is not an association taxable as a corporation for Federal
income tax purposes. Interest and accrued original issue discount on Securities
which is excludable from gross income under the Internal Revenue Code of 1986,
as amended (the "Code"), will retain its status when received by the Fund and
when distributed to Certificateholders; however such interest may be taken into
account in computing the alternative minimum tax, an additional tax on branches
of foreign corporations and the environmental tax (the "Superfund Tax"), as
noted below.
(2) Each Certificateholder is considered to be the owner of a pro rata
portion of the Fund under subpart E, subchapter J of chapter 1 of the Code and
will have a taxable event when the Fund disposes of a Security or when the
Certificateholder redeems or sells his Units. Certificateholders must reduce
the tax basis of their Units for their share of accrued interest received by the
Fund, if any, on Securities delivered after the Certificateholders pay for their
Units to the extent that such interest accrued on such Securities during the
period from the Certificateholders' settlement date to the date such Securities
are delivered to the Trust and consequently, such Certificateholders may have an
increase in taxable gain or reduction in capital loss upon the disposition of
such Units. Gain or loss upon the sale or redemption of Units is measured by
comparing the proceeds of such sale or redemption with the adjusted basis of the
Units. If the Trustee disposes of Securities (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Certificateholder. The amount of any such gain or loss is measured by comparing
the Certificateholder's pro rata share of the total proceeds from such
disposition with the Certificateholder's basis for his or her fractional
interest in the asset disposed of. In the case of a Certificateholder who
purchases Units, such
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basis (before adjustment for earned original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units among each
of the Fund assets ratably according to value as of the valuation date nearest
the date of acquisition of the Units. The tax basis requirements of the Code
relating to amortization of bond premium may, under some circumstances, result
in the Certificateholder realizing a taxable gain when his Units are sold or
redeemed for an amount less than or equal to his original cost.
(3) Any proceeds paid under individual policies obtained by issuers of
Securities which represent maturing interest on defaulted obligations held by
the Trustee will be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid by the issuer of
the defaulted obligations provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer of the defaulted
obligations, rather than the insurer, will pay debt service on the defaulted
obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Security, depending on the date
the Security was issued. In addition, special rules apply if the purchase price
of a Security exceeds the original issue price plus the amount of original issue
discount which would have previously accrued based upon its issue price (its
"adjusted issue price") to prior owners. The application of these rules will
also vary depending on the value of the Security on the date a Certificateholder
acquires his Units and the price the Certificateholder pays for his Units.
Investors with questions regarding these Code sections should consult with their
tax advisers.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued), subject to a statutory
de minimis rule. Market discount can arise based on the price a Fund pays for
Securities or the price a Certificateholder pays for his or her Units. Under
the Tax Act, accretion of market discount is taxable as ordinary income; under
prior law the accretion had been treated as capital gain. Market discount that
accretes while a Fund holds a Security would be recognized as ordinary income by
the Certificateholders when principal payments are received on the Security,
upon sale or at redemption (including early redemption), or upon the sale or
redemption of his or her Units, unless a Certificateholder elects to include
market discount in taxable income as it accrues. The market discount rules are
complex and Certificateholders should consult their tax advisers regarding these
rules and their application.
In the case of certain corporations, the alternative minimum tax and
the Superfund Tax for taxable years beginning after December 31, 1986 depend
upon the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the Superfund
Tax of a corporation (other than an S Corporation, Regulated Investment Company,
Real Estate Investment Trust, or REMIC) is an amount equal to 75% of the excess
of such corporation's "adjusted current earnings" over an amount equal to its
alternative minimum taxable income (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current earnings"
includes all tax-exempt interest, including interest on the Securities in the
Fund. Under the provisions of Section 884 of the Code, a branch profits tax is
levied on the "effectively connected earnings and profits" of certain foreign
corporations which include tax-exempt interest on the Securities in the Fund.
Certificateholders should consult their tax advisers with respect to the
particular tax consequences to them resulting from purchasing Units of the
Trust, including the corporate alternative minimum tax, the Superfund Tax and
the branch profits tax imposed by Section 884 of the Code.
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Counsel for the Sponsor has also advised that, under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or carry Units
of the Fund is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase or
improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units would generally not be able to deduct
any of the interest expense attributable to ownership of such Units. Investors
with questions regarding these issues should consult with their tax advisers.
Section 86 of the Code provides, in general, that fifty percent of
Social Security benefits are includable in gross income to the extent that the
sum of "modified adjusted gross income" plus fifty percent of the Social
Security benefits received exceeds a "base amount". The base amount is $25,000
for unmarried taxpayers, $32,000 for married taxpayers filing a joint return and
zero for married taxpayers who do not live apart at all times during the taxable
year and who file separate returns. Modified adjusted gross income is adjusted
gross income determined without regard to certain otherwise allowable deductions
and exclusions from gross income and by including tax exempt interest. To the
extent that Social Security benefits are includable in gross income, they will
be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus 50%
of Social Security benefits received exceeds an "adjusted base amount". The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax- exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount must include fifty percent
or eighty-five percent, respectively, of his Social Security benefits in gross
income whether or not he receives any tax-exempt interest. A taxpayer whose
modified adjusted gross income (after inclusion of tax-exempt interest) does not
exceed the base amount need not include any Social Security benefits in gross
income.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35 percent, effective for long-term capital gains
realized in taxable years beginning on or after January 1, 1993. For taxpayers
other than corporations, net capital gains are subject to a maximum marginal
stated tax rate of 28 percent. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital gains are
taxed. Under the Code taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year.
In the case of certain of the Securities in the Fund, the opinions of
bond counsel indicate that interest on such Securities received by a
"substantial user" of the facilities being financed with the proceeds of these
Securities, or persons related thereto, for periods while such Securities are
held by such a user or related person, will not be excludable from Federal gross
income, although interest on such Securities received by others would be
excludable from Federal gross income. "Substantial user" and "related person"
are defined under the Code and U.S. Treasury Regulations. Any person who
believes that he or she may be a "substantial user" or a "related person" as so
defined should contact his or her tax adviser.
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At the respective times of issuance of the Securities, opinions
relating to the validity thereof and to the exclusion of interest thereon from
Federal and Maryland income taxes were rendered by bond counsel to the
respective issuing authorities. Neither the Sponsor nor Chapman and Cutler have
made any special review for the Fund of the proceedings relating to the issuance
of the Securities or of the basis for such opinions.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers who
may be deemed to have incurred (or continued) indebtedness to purchase or carry
tax-exempt obligations. Prospective investors should consult their tax advisors
as to the applicability of any such collateral consequences.
For a discussion of the state tax status of income earned on Units of
the Fund, see below. Except as noted herein, the exemption of interest on State
and local obligations for Federal income tax purposes discussed above does not
necessarily result in exemption under the income or other tax laws of any State
or City.
At the time of the closing, Special Counsel to the Fund for Maryland
tax matters rendered an opinion under then existing law substantially to the
effect that: (1) For Maryland State and local income tax purposes, the Fund
will not be recognized as an association taxable as a corporation, but rather as
a fiduciary whose income will not be subject to Maryland State and local income
taxation. (2) To the extent that interest derived from the Fund by a
Certificateholder with respect to the obligations of the State of Maryland and
its political subdivisions is excludable from Federal gross income, such
interest will not be subject to Maryland State or local income taxes. Interest
paid to a "financial institution" will be subject to the Maryland State
franchise tax on financial institutions. (3) In the case of taxpayers who are
individuals, Maryland presently imposes an income tax on items of tax preference
with reference to such items as defined in the Internal Revenue Code, as amended
from time to time, for purposes of calculating the federal alternative minimum
tax. For taxable years beginning after December 31, 1986, interest paid on
certain private activity bonds constitutes a tax preference item for the purpose
of calculating the federal alternative minimum tax. Accordingly, if the Fund
holds such bonds, 50% of the interest on such bonds in excess of a threshold
amount is taxable in Maryland. (4) Capital gain will be included in the
Maryland taxable base of Certificateholders for Maryland State and local income
taxation purposes. However, Maryland defines the taxable net income of
individuals as Federal adjusted gross income with certain modifications.
Likewise, the Maryland taxable net income of corporations is Federal taxable
income with certain modifications. There is available to Maryland income
taxpayers a modification which allows those taxpayers to subtract from the
Maryland taxable base the gain included in Federal adjusted gross income or
Federal taxable income, as the case may be, which is realized from the
disposition of Securities by the Fund. Consequently, by making that
modification, a Certificateholder who is entitled to make the subtraction
modification will not be subject to Maryland State or local income tax with
respect to gain realized upon the disposition of Securities by the Fund. Profit
realized by a "financial institution" from the sale or exchange of Bonds will be
subject to the Maryland Franchise Tax. (5) Gain realized by a
Certificateholder from the redemption, sale or other disposition of a Unit is
subject to Maryland State and local income taxation.
At the time of the closing, Special Counsel to the Fund for New York
tax matters rendered an opinion under then existing law substantially to the
effect that: (1) the Fund is not an association taxable as a corporation under
New York law; (2) the income of the Fund will be treated as the income of the
Certificateholders under the income tax laws of the State and City of New York ;
and (3) individuals who are not residents of the State of New York are not
subject to the income tax laws thereof with respect to any interest or gain
derived from the Fund or any gain from the sale or other disposition of the
certificates except
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to the extent that such interest or gain is from property employed in a
business, trade, profession or occupation carried on in the State of New York.
It should be noted that the exemption of interest on municipal bonds
for Federal and Maryland income tax purposes does not necessarily result in an
exemption under the income tax laws of any state or local government outside
Maryland. The laws of the several states vary with respect to the taxation of
municipal bonds, and Certificateholders are advised to consult with local
counsel regarding such taxation.
All statements in the Prospectus concerning exemption from Federal,
Maryland or other taxes are the opinion of counsel and are to be so construed.
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 Securities in the Fund, and it
can be expected that similar proposals may be introduced in the future. The
Fund cannot predict what additional legislation, if any, in respect of the tax
status of interest on debt obligations may be proposed by the present
Administration or by members of Congress, nor can it predict which proposals, if
any, might be enacted or whether any legislation, if enacted, would apply to the
Securities in the Fund.
Issue and Transfer of Certificates
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. Ownership
of Units is evidenced by registered certificates executed by the Trustee and the
Sponsor. Certificates are transferable by presentation and surrender to the
Trustee properly endorsed or accompanied by a written instrument or instruments
of transfer. Certificates to be redeemed must be properly endorsed or
accompanied by a written instrument or instruments of transfer. A
Certificateholder must sign exactly as his name appears on the face of the
certificate with the signature guaranteed by a participant in the Securities
Transfer Agents Medallion Program ("STAMP") or such other signature guaranty
program in addition to, or in substitution for, STAMP, as may be accepted by 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.
Certificates will be issued in fully registered form, transferable only
on the books of the Trustee in denominations of one Unit or any multiple
thereof, numbered serially for purposes of identification. Certificates for
Units will bear an appropriate notation on their face indicating which plan of
distribution has been selected in respect thereof. When a change is made, the
existing certificate must be surrendered to the Trustee and a new certificate
issued to reflect the then effective plan of distribution. There will be no
charge for this service.
Although no such charge is now made or contemplated, a
Certificateholder may be required to pay $2.00 to the Trustee per certificate
reissued or transferred, and to pay any governmental charge that may be imposed
in connection with each such transfer or exchange. For new certificates issued
to replace destroyed, stolen or lost certificates, the Certificateholder may be
required to furnish indemnity satisfactory to the Trustee and pay such expenses
as the Trustee may incur. Mutilated certificates must be surrendered to the
Trustee for replacement.
Distribution of Interest and Principal
Interest from the Fund will be distributed on or shortly after the
fifteenth day of each month on a pro rata basis to Certificateholders of record
as of the preceding Record Date who are entitled to distributions
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<PAGE>
at that time under the plan of distribution chosen. All distributions will be
net of applicable expenses.
The pro rata share of cash in the Principal Account will be computed as
of June 1 and December 1 and distributions to the Certificateholders as of the
applicable Record Date will be made approximately two weeks thereafter.
Proceeds received from the disposition of any of the Bonds after a Record Date
and prior to the following Distribution Date will be held in the Principal
Account and not distributed until the second following Distribution Date. The
Trustee is not required to pay interest on funds held in the Principal or
Interest Account (but may itself earn interest thereon and therefore benefit
from the use of such funds), nor make a distribution from the Principal Account
unless the amount available for distribution shall equal at least $1.00 per
Unit.
The Trustee will credit to the Interest Account all interest received
by the Fund, including that part of the proceeds of any disposition of
Securities which represents accrued interest. Other receipts will be credited
to the Principal Account. The distribution to the Certificateholders as of each
applicable Record Date will be made on the following Distribution Date or
shortly thereafter and shall consist of an amount substantially equal to such
portion of the holder's pro rata share of the estimated annual income to the
Interest Account after deducting estimated expenses as is consistent with the
distribution plan chosen. Because interest payments are not received by the Fund
at a constant rate throughout the year, such interest distribution may be more
or less than the amount credited to the Interest Account as of the Record Date.
For the purposes of minimizing fluctuations in the distributions from the
Interest Account, the Trustee is authorized to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts. The
Trustee shall be reimbursed, without interest, for any such advances from funds
in the Interest Account on the ensuing Record Date. Persons who purchase Units
between a Record Date and a Distribution Date will receive their first
distribution on the second Distribution Date after the purchase, under the
applicable plan of distribution.
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 Fund. 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 Fund. Amounts so withdrawn
shall not be considered a part of the Fund's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
accounts. 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.
The plan of distribution selected by a Certificateholder will remain in
effect until changed. Certificateholders purchasing Units in the secondary
market will initially receive distributions in accordance with the election of
the prior owner. Each November, the Trustee will furnish each Certificateholder
a card to be returned to the Trustee not later than December 1 of such year.
Certificateholders desiring to change the plan of distribution in which they are
participating may do so by indicating on the card and by returning it and their
certificates to the Trustee. Certificates should only be sent by registered
mail to minimize the possibility of their being lost or stolen. If the card and
certificate are properly returned to the Trustee, the change will become
effective on December 2 for the ensuing year. If notification is not given to
the Trustee, the Certificateholder will be deemed to have elected to continue
with the same plan for the following twelve months.
Reports to Certificateholders
The Trustee shall furnish Certificateholders 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
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<PAGE>
in each case as a dollar amount per Unit. For as long as the Trustee deems it
to be in the best interests of the Certificateholders, the accounts of the Fund
shall be audited, not less frequently than annually, by independent certified
public accountants and the report of such accountants shall be furnished by the
Trustee to Certificateholders upon request. 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 Certificateholder of record, a statement
(1) as to the Interest Account: interest received (including amounts
representing interest received upon any disposition of Securities), deductions
for payment of applicable taxes and for fees and expenses of the Fund,
redemption of Units, if any, 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 (excluding
any portion representing accrued interest), deductions for payment of applicable
taxes and for fees and expenses of the Trustee, 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; (3) a list
of 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.
In order to comply with Federal and Maryland tax reporting
requirements, Certificateholders will be furnished, upon request to the Trustee,
evaluations of the Bonds furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in
respect of all plans of distribution so that Certificateholders may be informed
regarding the results of other plans of distribution.
Redemption of Units
A Certificateholder may redeem all or a portion of his Units by tender
to the Trustee at its corporate trust office at 101 Barclay Street, 20th Floor,
New York, New York 10286, of the certificates representing the Units to be
redeemed, duly endorsed or accompanied by proper instruments of transfer with
signature guaranteed (or by providing satisfactory indemnity, as in connection
with lost, stolen or destroyed certificates), and payment of applicable
governmental charges, if any. Thus, redemption of Units cannot be effected
until certificates representing such Units have been delivered by the person
seeking redemption or satisfactory indemnity has been provided. No redemption
fee will be charged. On the third business day following such tender, the
Certificateholder will be entitled to receive in cash an amount for each Unit
equal to the Redemption Price per Unit next computed after receipt by the
Trustee of such tender of Units. 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 3:00 P.M. Eastern time on days of trading on the New York Stock
Exchange, the date of tender is the next day on which such Exchange is open for
trading 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. Units so
redeemed shall be cancelled.
Under regulations issued by the Internal Revenue Service, the Trustee
will be required to withhold a specified percentage of the principal amount of a
Unit redemption if the Trustee has not been furnished the redeeming
Certificateholder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal Revenue
Service and may be recovered by the Certificateholder only when filing a return.
Under normal circumstances the Trustee obtains the Certificateholder's tax
identification number from the selling broker. However, at any time a
Certificateholder
16
<PAGE>
elects to tender Units for redemption, such Certificateholder should provide a
tax identification number to the Trustee in order to avoid this possible
"back-up withholding" in the event the Trustee has not been previously provided
such number.
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 Redemption Price per Unit will be determined on the basis of the
bid price of the Securities in the Fund, as of 3:00 P.M. Eastern time on days of
trading on the New York Stock Exchange on the date any such determination is
made. The Redemption Price per Unit is the pro rata share of each Unit
determined by the Evaluator on the basis of (1) the cash on hand in the Fund or
monies in the process of being collected, (2) the value of the Securities in the
Fund based on the bid prices of the Securities, and (3) interest accrued
thereon, less (a) amounts representing taxes or other governmental charges
payable out of the Fund and (b) the accrued expenses of the Fund. The Evaluator
may determine the value of the Securities in the Fund (1) on the basis of
current bid prices of the Securities obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Fund, (2) on the basis
of bid prices for bonds comparable to any Securities for which bid prices are
not available, (3) by causing the value of the Securities to be determined by
others engaged in the practice of evaluating, quoting or appraising comparable
Bonds, or (4) by any combination of the above.
The Trustee is empowered to sell Securities in order to make funds
available for redemption. To the extent that Securities are sold, the size and
diversity of the Fund will be reduced. Such sales may be required at a time
when Securities would not otherwise be sold and might result in lower prices
than might otherwise be realized.
The right of redemption may be suspended and payment postponed for any
period during which the New York Stock Exchange is closed, other than for
customary weekend and holiday closings, or during which the Securities and
Exchange Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which disposal or evaluation of the Securities
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission may by order permit.
Purchase of Units by Sponsor
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's bid in the secondary market at that time equals or
exceeds the Redemption Price per Unit, it may purchase such Units at the
Sponsor's market price (see "Market for Units") by notifying the agent for the
Trustee before the close of business on the second succeeding business day and
by making payment therefor to the Certificateholder not later than the day on
which the Units would otherwise have been redeemed by the agent for the Trustee.
Units held by the Sponsor may be tendered to the Trustee for redemption as any
other Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then currently effective
prospectus describing such Units. Any profit resulting from the resale of such
Units will belong to the Sponsor who likewise will bear any loss resulting from
a lower offering or redemption price subsequent to its acquisition of such
Units.
Removal of Securities from the Fund
The Sponsor is empowered, but not obligated, to direct the Trustee to
dispose of Securities in the
17
<PAGE>
event of an advanced refunding or when certain other events occur that adversely
affect the value of Securities, including default in payment of interest or
principal, default in payment of interest or principal of other obligations of
the same issuer, institution of legal proceedings, default under other documents
adversely affecting debt service, decline in price or the occurrence of other
market or credit factors, or decline in projected income pledged for debt
service on revenue Bonds that, in the opinion of the Sponsor, may be detrimental
to the interests of the Certificateholders.
If any default in the payment of principal or interest on any Bond
occurs and no provision for payment is made therefor within 30 days, the Trustee
of the affected series of the Fund is required to notify the Sponsor thereof.
If the Sponsor fails to instruct the Trustee to sell or to hold such Bond within
thirty days after notification by the Trustee to the Sponsor of such default,
the Trustee may at its discretion sell the defaulted Bond and not be liable for
any depreciation or loss thereby incurred.
The Trustee is also empowered to sell, for the purpose of redeeming
Units tendered by any Certificateholder, and for the payment of expenses for
which funds may not be available, such of the Bonds in a list furnished by the
Sponsor as the Trustee in its sole discretion may deem necessary. The Sponsor,
in establishing such a list, will consider a variety of factors relating to the
Bonds, including (a) interest rates, (b) market value, and (c) marketability.
The Sponsor shall instruct the Trustee to reject any offer made by an
issuer of any of the Bonds to issue new obligations in exchange and substitution
for any Bonds pursuant to a refunding or refinancing plan, except that the
Sponsor may instruct the Trustee to accept such an offer or to take any other
action with respect thereto as the Sponsor may deem proper if the issuer is in
default with respect to such Bonds or if, in the written opinion of the Sponsor,
the issuer will probably default in respect to such Bonds in the foreseeable
future.
Any obligations so received in exchange or substitution will be held
subject to the terms and conditions of the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the Trustee is
required to give notice thereof to each Certificateholder, identifying the Bonds
eliminated and the Bonds substituted therefor. Except as stated in this
paragraph and in the preceding paragraph, the acquisition by the Fund of any
securities other than the Securities initially deposited is not permitted.
The Sponsor
The Sponsor, Legg Mason Wood Walker, Incorporated, is a wholly owned
subsidiary of Legg Mason, Inc. and is a registered broker-dealer incorporated
under the laws of the State of Maryland. The Sponsor is a member firm of the
New York Stock Exchange and is a member of the National Association of
Securities Dealers, Inc. The Sponsor, through its over 90 offices located in 23
states, and other subsidiaries of Legg Mason Inc. offer a full line of
investment services including investment research and trade execution services
for listed and unlisted equity and fixed-income securities and options; exchange
floor execution; investment banking services for corporations and public sector
clients; and professional investment management services for individual and
institutional clients. The Sponsor and other subsidiaries of Legg Mason, Inc.
may, but need not, make a principal market as dealer in one or more of the
Securities in the Trust. For the fiscal year ended March 31, 1995 Legg Mason,
Inc. had revenues of $371,591,000. As of March 31, 1995 the stockholders'
equity of Legg Mason Wood Walker, Incorporated, on an unconsolidated basis, was
$129,173,000 (audited). The foregoing information with regard to the Sponsor
relates to the Sponsor only and not to the Trust. Such information is included
in this Prospectus only for the purpose of informing investors as to the
responsibility of the Sponsor and its ability to carry out its contractual
obligations with respect to the Trust. More detailed financial information
concerning the Sponsor can be
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<PAGE>
obtained upon request from the Sponsor.
If at any time the Sponsor shall fail to perform any of its duties
under the Trust Agreement or shall become incapable of acting or shall be
adjudged bankrupt or insolvent or shall have its affairs taken over by public
authorities, then the Trustee may (a) appoint a successor sponsor at rates of
compensation deemed by the Trustee to be reasonable and not exceeding such
reasonable amounts as may be prescribed by the SEC, or (b) terminate the Trust
Agreement and liquidate the Trust as provided therein, or (c) continue to act as
Trustee without terminating the Trust Agreement.
The Trustee
The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its offices at 101 Barclay
Street, New York, New York 10286 (800-221-7668). 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, whose duties are ministerial in nature, did not
participate in the selection of the portfolio. For information relating to the
responsibilities of the Trustee under the Indenture, reference is made to the
material set forth under "Issue and Transfer of Certificates" and subsequent
sections.
In accordance with the Indenture, the Trustee shall keep proper books
of record and accounts of all transactions at its office for the Fund. Such
records shall include the name and address of, and the Certificates issued by
the Fund to, every Certificateholder of the Fund. Such books and records shall
be open to inspection by any Certificateholder at all reasonable times during
usual business hours. The Trustee shall make such annual or other reports as
may from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Reports to Certificateholders"). The Trustee is
required to keep a certified copy or duplicate original of the Indenture on file
in its office available for inspection at all reasonable times during the usual
business hours by any Certificateholder, together with a current list of the
Securities held in the Fund.
The Trustee or any successor trustee may resign by executing an
instrument in writing and filing the same with the Sponsor and mailing a copy of
a notice of resignation to all Certificateholders. The Trustee or successor
trustee must mail a copy of the notice of resignation to all Certificateholders
then of record, not less than 60 days before the date specified in such notice
when such resignation is to take effect. Upon receipt of such notice, the
Sponsor is obligated to appoint a successor trustee promptly. If a trustee
becomes incapable of acting or becomes bankrupt or its affairs are taken over by
public authorities, the Sponsor may remove such trustee and appoint a successor
as provided in the Indenture. If upon resignation of a trustee no successor has
accepted the appointment within 30 days after notification, the retiring trustee
may apply to a court of competent jurisdiction for the appointment of a
successor. Upon execution of a written acceptance of such appointment by such
successor trustee, all the rights, powers, duties and obligations of the
original trustee shall vest in the 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.
Any corporation into which a trustee may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which a trustee shall be a party, shall be the successor trustee. The
trustee must be a banking corporation organized under the laws of the United
States or any State and having at all times an aggregate capital, surplus and
undivided profits of not less than $5,000,000.
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Limitations on Liabilities of Sponsor and Trustee
The Sponsor and the Trustee shall be under no liability to
Certificateholders for taking any action or for refraining from taking any
action in good faith pursuant to the Indenture, or for errors in judgment, but
shall be liable only for their own willful misfeasance, bad faith, gross
negligence (ordinary negligence in the case of the Trustee) or reckless
disregard of their obligations and duties. The Trustee shall not be liable for
depreciation or loss incurred by reason of the sale by the Trustee of any of the
Bonds. In the event of the failure of the Sponsor to act under the Indenture, a
Trustee may act thereunder and shall not be liable for any action taken by it in
good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Bonds or upon the interest thereon or
upon it as Trustee under the Indenture or upon or in respect of the Fund which
the Trustee may be required to pay under any present or future law of the United
States of America or of any other taxing authority having jurisdiction. In
addition, the Indenture contains other customary provisions limiting the
liability of a Trustee.
Amendment or Termination of the Indenture
The Sponsor and the Trustee have the power to amend the Indenture
without the consent of any of the Certificateholders when such an amendment is
(1) to cure an ambiguity or to correct or supplement any provision of the
Indenture 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 Certificateholders (as determined in good faith by
the Sponsor and the Trustee), provided that the Indenture is not 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 Securities initially deposited in the Fund, except for the substitution of
certain refunding securities for such debt obligations. In the event of any
amendment, the Trustee is obligated to notify promptly all Certificateholders of
the substance of such amendment.
A series of the Fund may be liquidated at any time by consent of 100%
of the Certificateholders or by the Trustee when the value of such series of the
Fund, as shown by any Semi-Annual Evaluation, is less than $1,000,000. The Fund
will terminate upon the redemption, sale or other disposition of the last
Security held thereunder, but in no event shall it continue beyond the end of
the calendar year preceding the fiftieth anniversary of its execution. In the
event of termination, written notice thereof will be sent by the Trustee to all
Certificateholders. Within a reasonable period after termination, the Trustee
will sell any Bonds remaining in a series of the Fund, and, after paying all
expenses and charges incurred by the Fund, will distribute to each Certificate-
holder (including the Sponsor if it then holds any Units), upon surrender for
cancellation of his Certificate for Units, his pro rata share of the balance
remaining in the Interest and Principal Accounts, all as provided in the
Indenture. With such distribution the Certificateholders shall be furnished a
final distribution statement of the amount distributable.
Legal Opinions
The legality of the Units offered hereby was passed upon by Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as counsel for the
Sponsor. Weinberg and Green, 100 South Charles Street, Baltimore, Maryland
21201, acted as special counsel for the Fund for Maryland tax matters. Leboeuf,
Lamb, Leiby & MacRae, 140 Broadway, New York, New York 10005, served as counsel
for the Trustee and as special counsel for the Fund for New York tax matters.
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Auditors
The statement of assets and liabilities and the related Portfolio of
the Fund, as of September 30, 1995, and the related statements of operations and
changes in net assets for each of the three years in the period ended September
30, 1995 have been audited by Coopers & Lybrand L.L.P., independent accountants,
as set forth in their report in Part One of this Prospectus, and are included
therein in reliance upon such report, which is given upon the authority of such
firm as experts in accounting and auditing.
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