File No. 333-_____
CIK No. 0000814151
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
Registration Statement
on
FORM S-6
For Registration under the Securities Act of 1933 of Securities of
Unit Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: STATE AND LOCAL TRUSTS, SERIES 1
B. Name of Depositor: STERNE, AGEE & LEACH, INC.
C. Complete address of Depositor's principal executive offices:
1901 Sixth Avenue North
Birmingham, Alabama 35203
D. Name and complete address of agents for service:
STERNE, AGEE & LEACH, INC.
Attention: S. Ashton Stuckey
1901 Sixth Avenue North
Birmingham, Alabama 35203
CHAPMAN AND CUTLER
Attention: Mark J. Kneedy
111 West Monroe Street
Chicago, Illinois 60603
E. Title and amount of securities being registered: Indefinite number of
Units of fractional undivided interest pursuant to Rule 24f-2 promulgated
under the Investment Company Act of 1940
F. Proposed maximum offering price to the public of the securities being
registered: Indefinite
G. Amount of filing fee: N/A
H. Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT
__ Check box if it is proposed that this filing will become effective on
_________, 1996 at 2:00 p.m. pursuant to Rule 487
____________________________________________________________________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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STATE AND LOCAL TRUSTS, SERIES 1
CROSS REFERENCE SHEET
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Item Number Form S-6 Heading in Prospectus
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust )
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Sponsor Information
3. Name and address of Trustee ) Trustee Information
4. Name and address of principal ) Sponsor Information
underwriter
5. Organization of trust ) Summary of the Trust
6. Execution and termination of ) Summary of the Trust
Trust Indenture and Agreement
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. General information conercing ) Summary of Information
the securities of the trust and ) Redemption and Repurchase
rights of holders ) of Units
) Description of Trust Portfolio-
) General
) Other Rights of Unitholders
) Sponsor Information
) Trustee Information
) Tax Status (Federal, State,
) Capital Gains)
11. Type of securities comprising ) Prospectus Front Cover Page
units )
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12. Certain information regarding )*
periodic payment certificates )
13. (a) Load, fees, charges and ) Prospectus Front Cover Page
expenses ) Summary of Essential Financial
) Information
) Estimated Current Return
) Accrued Interest
(b) Certain information regarding ) *
periodic payment plan certificates )
(c) Certain percentages ) Prospectus Front Cover Page
) Summary of Essential Financial
) Information
) Estimated Current Return
) Public Offering Information
) Accrued Interest
(d) Certain other fees, ) Other Rights of Unitholders
expenses or charges )
payable by holders )
(e) Load, fees, charges and ) Other Rights of Unitholders
charges not covered in 13(a) )
(f) Certain profits to be received ) Sponsor Information
by depositor, principal underwriter, )
trustee or any affiliated persons )
(g) Ratio of annual charges to income ) *
14. Issuance of securities ) Summary of the Trust
) Public Offering Information
15. Receipt of payments ) Trust Administration
16. Purchase and sale of ) Summary of the Trust
underlying securities ) Description of Trust Portfolio
) Trustee Information
17. Redemption of redemption ) Redemption and Repurchase
) of Units
) Sponsor Information
18. (a) Receipt and disposition ) Prospectus Front Cover Page
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of income ) Accrued Interest
) Distributions of Interest and
) Principal
(b) Reinvestment of distributions ) *
(c) Reserves or special funds ) Expenses of the Trust
) Summary of the Trust
(d) Schedule of distributions ) *
19. Records and accounts ) Other Rights of Unitholders
20. Indecture provisions regarding ) Summary of the Trust
depositor, trustee or indenture ) Sponsor Information
changes ) Trustee Information
21. Loans to security holders ) *
22. Limitations on liability ) Sponsor Information
) Trustee Information
23. Bonding of officers and employees ) *
24. Other material provisions ) *
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of Depositor ) Sponsor Information
26. Fees received by Depositor ) *
27. Business of Depositor ) Sponsor Information
28. Officials and affiliated ) *
persons of Depositor )
29. Companies owning securities of ) *
Depositor )
30. Controlling persons ) *
31. Compensation of Officers of Depositor ) *
32. Compensation of Directors ) *
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33. Compensation to Employees ) *
34. Compensation to other persons ) *
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35.Distribution of trust's securities ) Prospectus Front Cover Page
by states ) Objectives of the Trust
36.Suspension of sales of trust's ) *
securities )
37.Revocation of authority to ) *
distribute securities )
38. (a) Method of distribution ) Public Offering Information
(b) Underwriting agreements )
(c) Selling agreement )
39. (a) Organization of principal ) Sponsor Information
underwriter )
(b) N.A.S.D. membership by )Sponsor Information
principal underwriter )
40. Certain fees received by ) Public Offering Information
principal underwriter )
41. (a) Business of principal ) Sponsor Information
underwriter )
(b) Branch offices or principal ) *
underwriter )
(c) Salesmen or principal ) *
underwriter )
42. Ownership of securities of the trust ) *
43. Certain brokerage commissions ) *
received by principal underwriter )
44. (a) Method of valuation ) Prospectus Front Cover Page
) Summary of Essential Financial
) Information
) Public Offering Information
) Accrued Interest
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) Redemption and Repurchase
) of Units
(b) Schedule as to offering ) Public Offering Information
price )
(c) Variation in offering ) Accrued Interest
price to certain persons ) Public Offering Information
45. Suspension of redemption rights ) Redemption and Repurchase
) of Units
46. (a) Redemption valuation ) Redemption and Repurchase
) of Units
) Accrued Interest
) Public Offering Information
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Sponsor Information
in underlying securities from ) Redemption and Repurchase
and to security holders ) of Units
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. General information ) Trustee Information
49. Fees paid ) Summary of Essential Financial
) Information
) Expenses of the Trust
50. Lien on assets ) Accrued Interest
) Distribution of Interest and
) Principal
) Expenses of the Trust
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of trust's ) *
securities )
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement ) Trustee Information
with respect to replacement or ) Description of Trust Portfolio-
elimination of portfolio securities ) Replacement Bonds
(b) Transactions involving ) *
elimination of underlying securities )
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(c) Policy regarding substitution or ) Trustee Information
elimination of underlying securities ) Description of Trust Portfolio-
) Replacement Bonds
(d) Fundamental policy not ) *
otherwise covered )
53. Tax status of trust ) Tax Status (Federal, State,
) Capital Gains)
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trust's securities during ) *
last ten years )
55. ) *
56. Certain information regarding )
57. periodic payment certificates )
58. )
59. Financial statements ) Report Independent Accountants
) Statement of Net Assets
- --------------------------
* Inapplicable, answer negative or not required.
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PRELIMINARY PROSPECTUS DATED OCTOBER 23, 1996
SUBJECT TO COMPLETION
TRUST ALABAMA, SERIES 7
THE TRUST. State and Local Trusts, Series 1 consists of the underlying
unit investment trust set forth above. Trust Alabama, Series 7 is referred to
herein as the "Trust." The Trust initially consists of bonds and delivery
statements relating to contracts to purchase bonds and, thereafter, will
consist of a $____________ aggregate principal amount portfolio comprised of
interest bearing obligations issued by or on behalf of municipalities or other
governmental authorities in the State of Alabama (the "Bonds" or
"Securities"). In the opinion of counsel, interest income to the Trust and to
Unitholders thereof, with certain exceptions, is exempt under existing law
from Federal and Alabama state income taxes, but may be subject to other state
and local taxes. Capital gains, if any, are subject to tax. The objectives
of the Trust include (1) interest income which is exempt from Federal income
taxes and Alabama state income taxes, (2) conservation of capital, and (3)
liquidity of investment (see "Objectives of the Trust"). The payment of
interest and the preservation of capital are dependent upon the continuing
ability of the issuers and/or obligors of the Bonds to meet their respective
obligations. Certain of the Bonds may be obligations which derive their
payment from mortgage loans. A substantial portion of such Bonds will
probably be redeemed prior to their scheduled maturities; any such early
redemption would reduce the aggregate principal amount of the Trust and could
also affect the Estimated Long-Term Return and the Estimated Current Return.
Depending on which Bonds are redeemed at any given time, the then Estimated
Long-Term Return and Estimated Current Return may be higher, lower or
unchanged from the Estimated Long-Term Return and Estimated Current Return
that existed immediately prior to such redemption. The Sponsor has a limited
right to substitute other tax-exempt bonds in the Trust portfolio in the event
of a failed contract. There is no assurance that the Trust's objectives will
be met. The Sponsor of the Trust is Sterne, Agee & Leach, Inc., 1901 Sixth
Avenue North, Birmingham, Alabama 35203.
PUBLIC OFFERING PRICE. The Public Offering Price of the Units during the
initial offering period is equal to the aggregate offering price of the Bonds
in the portfolio divided by the number of Units outstanding, plus a sales
charge equal to 5.50% of the Public Offering Price (5.820% of the aggregate
offering price of the Bonds). After the initial public offering period, the
secondary market public offering price will be equal to the aggregate bid
price of the Bonds in the portfolio of the Trust divided by the number of
Units outstanding, plus a sales charge of 6.00% of the Public Offering Price
(6.383% of the aggregate bid price of the Bonds). If the Bonds in the Trust
were available for direct purchase by investors, the purchase price of the
Bonds would not include the sales charge included in the Public Offering Price
of the Units. In addition, on transactions entered into on and after
_________, 1996, there will be added an amount equal to the accrued interest
from __________, 1996 to the date of settlement (three business days after
order) less distributions from the Interest Account subsequent to __________,
1996 (the "First Settlement Date"). If Units were available for purchase at
the opening of business on the Date of Deposit, the Public Offering Price per
Unit would have been $_________. During the initial offering period, the sales
charge is reduced on a graduated scale for sales involving at least 150 Units.
See "Public Offering Information." The value of the Bonds will fluctuate with
market and credit conditions, including any changes in interest rate levels.
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.
Please read this Prospectus and retain it for future reference.
The date of this Prospectus is ___________, 1996.
STERNE, AGEE & LEACH, INC.
SPONSOR
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THE UNITS. Each Unit represents a fractional undivided interest in the
principal and net income of the Trust in the ratio of one Unit for each
$_______ principal value of Bonds originally deposited in the Trust.
Initially, Units will be offered for sale in the minimum amount of five Units.
DISTRIBUTIONS. Distributions of interest received by the Trust will be
made on a monthly basis (pro-rated on an annual basis). The first
distribution to Unitholders will be made on _______ 15, 1996 to holders of
record on ______ 1, 1996, and thereafter distributions will be made monthly on
the fifteenth day of each month to record holders on the first day of such
month. Distributions of funds in the Principal Account, if any, will also be
made monthly on the fifteenth day of each month to record holders on the first
day of such month.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The Estimated
Current Return and Estimated Long-Term Return to Unitholders as of the
business day prior to the Date of Deposit, were as set forth under "Summary of
Essential Financial Information." The methods of calculating Estimated
Current Return and Estimated Long-Term Return are set forth in the footnotes
to "Summary of Essential Financial Information."
REDEMPTION AND MARKET FOR UNITS. A Unitholder may redeem Units at the
office of the Trustee at prices based upon the bid prices of the Bonds. In
addition, although not obligated to do so, the Sponsor intends to maintain a
secondary market for the Units at prices based upon the aggregate bid price of
the Bonds in the portfolio of the Trust (see "Redemption and Repurchase of
Units").
RISK FACTORS. An investment in the Trust should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer to pay the principal of or interest on a
Bond when due, volatile interest rates, early call provisions and changes to
the tax status of the Bonds. See "Description of Trust Portfolio - Risk
Factors."
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<TABLE>
<CAPTION>
STATE AND LOCAL TRUSTS, SERIES 1
TRUST ALABAMA, SERIES 7
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
As of ___________, 1996, the business day prior to the Date of Deposit
SPONSOR, EVALUATOR AND SUPERVISOR: STERNE, AGEE & LEACH, INC.
TRUSTEE: THE TRUST COMPANY OF STERNE, AGEE & LEACH, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE SPONSOR)
<S> <C>
Principal Amount of Bonds in Trust $____________
Number of Units ____________
Fractional Undivided Interest in Trust per Unit 1/_____
Principal Amount (Par Value) of Bonds per Unit(1) $____________
Aggregate Offering Price of Bonds in the Trust $____________
Aggregate Offering Price of Bonds per Unit $____________
Plus Sales Charge 5.50% (5.820% of the Aggregate
Offering Price of the Bonds) $____________
Public Offering Price per Unit(2) $____________
Redemption Price per Unit(3) $____________
Sponsor's Initial Repurchase Price per Unit(3)(4) $____________
Excess of Public Offering Price per Unit Over
Redemption Price per Unit $____________
Excess of Public Offering Price per Unit Over
Sponsor's Initial Repurchase Price per Unit $____________
Estimated Annual Interest Income per Unit $____________
Less: Estimated Annual Expense per Unit $____________
Estimated Annual Net Interest Income per Unit $____________
Estimated Daily Rate of Net Interest Income Accrual per Unit $____________
Estimated Current Return(5)(6)(7) ____________%
Estimated Long-Term Return(5)(6)(7) ____________%
Initial Distribution (_______, 1996) $_______ per Unit
Initial Date of Deposit ___________, 1996
First Settlement Date ___________, 1996
Minimum Principal Distribution $1.00 per Unit
Mandatory Termination Date _________________
Minimum Principal Amount of Bonds of Trust Under Which
Indenture May Be Terminated $____________
Distribution Dates Fifteenth day of every month commencing ________, 1996
Trustee's Annual Fee $_____ per $1,000 principal amount of Bonds,
exclusive of expenses of the Trust.
Evaluator's Annual Fee $_____ per $1,000 principal amount of Bonds
Supervisor's Annual Fee $_____ per $1,000 principal amount of Bonds
Annual Audit Fee $_____ per Unit
Estimated Annual Organizational Expenses(8) $_____ per Unit
</TABLE>
[FN]
Evaluations for purpose of sale, purchase or redemption of Units are made as
of 3:00 P.M. Central time on days of trading on the New York Stock Exchange
next following receipt of an order for a sale or purchase of Units or receipt
by the Trustee of Units tendered for redemption.
(1) Because certain of the Bonds may from time to time under certain
circumstances be sold or redeemed or will be called or mature in
accordance with their terms (including the call or sale of zero coupon
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bonds at prices less than par value), there is no guarantee that the value
of a Unit at the Trust's termination will be equal to the Principal Amount
(Par Value) of Bonds per Unit stated above.
(2) No accrued interest will be added for any person contracting to purchase
Units on the Date of Deposit. Anyone ordering Units after such date will
pay accrued interest from the First Settlement Date to the date of
settlement (three business days after order) less distributions from the
Interest Account subsequent to the First Settlement Date. A person will
become the owner of Units on the date of settlement provided payment has
been received.
(3) Plus accrued interest to the settlement date in the case of sale or to the
date of tender in the case of redemption.
(4) The Sponsor intends to maintain a secondary market for Units at prices
based on the aggregate bid price of the Bonds in the Trust; however,
during the initial offering period such prices will be based on the
aggregate offering price of the Bonds.
(5) The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge (see "Public Offering
Information").
(6) The Estimated Current Return is calculated by dividing the estimated net
annual interest income per Unit by the Public Offering Price. The
estimated net annual interest income per Unit will vary with changes in
fees and expenses of the Trustee, the Evaluator and the Supervisor and
with the principal prepayment, redemption, maturity, exchange or sale of
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities; therefore, there is no
assurance that the present Estimated Current Return indicated above will
be realized in the future. The Estimated Long-Term Return is calculated
using a formula which (1) takes into consideration, and determines and
factors in the relative weightings of, the market values, yields (which
takes into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all of the Bonds in the Trust and
(2) takes into account a compounding factor and the expenses and sales
charge associated with each Trust Unit. Since the market values and
estimated retirements of the Bonds and the expenses of the Trust will
change, there is no assurance that the present Estimated Long-Term Return
as indicated above will be realized in the future. The Estimated Current
Return and Estimated Long-Term Return are expected to differ because the
calculation of the Estimated Long-Term Return reflects the estimated date
and amount of principal returned while the Estimated Current Return
calculation includes only net annual interest income and Public Offering
Price. Neither rate reflects the true return to Unitholders which is
lower because neither includes the effect of the delay in the first
payment to Unitholders.
(7) These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in current
interest rates and with the principal prepayment, redemption, maturity,
call, exchange or sale of the underlying Securities. The estimated cash
flows for this Trust are either set forth under the section titled
"Estimated Cash Flows to Unitholders" or are available on request.
(8) The Trust (and therefore Unitholders) will bear all or a portion of its
organizational costs (including costs of preparing the registration
statement, the trust indenture and other closing documents, registering
Units with the Securities and Exchange Commission and states, the initial
audit of the Trust portfolio, legal fees and the initial fees and expenses
of the Trustee but not including the expenses incurred in the preparation
and printing of brochures and other advertising materials and other
selling expenses) as is common for mutual funds. Total organization
expenses will be amortized over a five year period. See "Expenses of the
Trust." Historically, the sponsors of unit investment trusts have paid
all of the costs of establishing such trusts.
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SUMMARY OF THE TRUST
State and Local Trusts, Series 1, which is comprised of one unit
investment trust, Trust Alabama, Series 7, was created under the laws of the
State of Alabama pursuant to a Trust Indenture and Agreement (the
"Indenture"), dated the date of this Prospectus (the "Date of Deposit"),
between Sterne, Agee & Leach, Inc., as Sponsor and Evaluator, and The Trust
Company of Sterne, Agee & Leach, Inc. (a wholly-owned subsidiary of the
Sponsor), as Trustee.
The Trust consists of a portfolio of interest bearing obligations (or
delivery statements relating to contracts to purchase obligations) issued by
or on behalf of the State of Alabama and political subdivisions,
municipalities and authorities thereof, the interest on which is excludable,
in the opinion of recognized bond counsel, from Federal gross income taxes,
and is exempt from Alabama state income tax. See "Tax Status (Federal, State,
Capital Gains)." An investment in the Trust should be made with an
understanding of the risks associated with an investment in such obligations.
Fluctuations in interest rates may cause corresponding fluctuations in the
value of the Bonds. The Sponsor cannot predict whether the value of the Bonds
in a portfolio will increase or decrease.
On the Date of Deposit, the Sponsor deposited with the Trustee that
principal amount of interest-bearing obligations, including delivery
statements relating to contracts for the purchase of certain such obligations,
indicated under "Summary of Essential Financial Information." Upon deposit of
such Bonds the Trustee delivered to the Sponsor evidence of ownership of that
number of Units for the Trust set forth under "Summary of Essential Financial
Information," which are offered for sale by this Prospectus. Each Unit
initially offered represents that undivided interest set forth under "Summary
of Essential Financial Information." To the extent that any Units are redeemed
by the Trustee, the fractional undivided interest in the Trust represented by
each unredeemed Unit will increase, although the actual interest in the Trust
represented by such fraction will remain unchanged. Units in the Trust will
remain outstanding until redeemed upon tender to the Trustee by Unitholders,
which may include the Sponsor, or until the termination of the Indenture.
The Indenture may be amended at any time by consent of Unitholders
representing at least 51% of the Units of the Trust then outstanding. The
Indenture may also be amended by the Trustee and the Sponsor without the
consent of any of the Unitholders (1) to cure any ambiguity or to correct or
supplement any provision thereof which may be defective or inconsistent, or
(2) to make such other provisions as shall not adversely affect the interest
of the Unitholders, provided, however, that the Indenture may not be amended
to increase the number of Units issuable thereunder or to permit the deposit
or acquisition of bonds either in addition to, or in substitution for any of
the Bonds initially deposited in the Trust except in connection with the
limited right of substitution of Replacement Bonds for failed Bonds (see
"Description of Trust Portfolio") and for the substitution of refunding bonds
under certain circumstances. The Trustee shall advise the Unitholders of any
amendment promptly after the execution thereof.
The Trust may be terminated at any time by consent of Unitholders
representing at least 51% of the Units of the Trust then outstanding or by the
Trustee when the value of the Trust, as shown by any evaluation, is less than
20% of the original principal amount of the Trust and will be liquidated by
the Trustee in the event that a sufficient number of Units not yet sold are
tendered for redemption by the Sponsor and the Underwriters thereby reducing
the net worth of the Trust to less than 40% of the principal amount of the
Bonds originally deposited in the portfolio. The Indenture will terminate
upon the redemption, sale or other disposition of the last Bond held in the
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Trust, but in no event shall it continue beyond the end of the calendar year
preceding the fiftieth anniversary of its execution.
Written notice of any termination specifying the time or times at which
Unitholders may surrender their Units for cancellation shall be given by the
Trustee to each Unitholder at the address appearing on the registration books
of the Trust maintained by the Trustee. The Trustee will begin to liquidate
any Bonds held in the Trust within a reasonable period of time from said
notification and shall deduct from the proceeds any accrued costs, expenses or
indemnities provided by the Indenture, including any compensation due the
Trustee, any costs of liquidation and any amounts required for payment of any
applicable taxes, governmental charges or final operating costs of the Trust.
The Trustee shall then distribute to Unitholders their pro rata shares of
the remaining balances in the Principal and Interest Accounts of the Trust
together with a final distribution statement which will be in substantially
the same form as the annual distribution statement (see "Other Rights of
Unitholders"). Any amount held by the Trustee in any reserve account will be
distributed when the Trustee determines the reserve is no longer necessary in
the same manner as the final distribution from the Principal and Interest
Accounts (see "Distribution of Interest and Principal").
The Sponsor, Evaluator, Supervisor and the Trustee shall be under no
liability to Unitholders for taking any action or for refraining from any
action in good faith pursuant to the Indenture, or for errors in judgment, but
shall be liable only for their own gross negligence, lack of good faith,
willful misconduct or reckless disregard of their 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, the 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 Trust
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.
Approximately ___% of the aggregate principal amount of the Bonds in the
Trust are "zero coupon" bonds. Zero coupon bonds are purchased at a deep
discount because the buyer receives only the right to receive a final payment
at the maturity of the bond and does not receive any periodic interest
payments. The effect of owning deep discount bonds which do not make current
interest payments (such as the zero coupon bonds) is that a fixed yield is
earned not only on the original investment but also, in effect, on all
discount earned during the life of such obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable
to reinvest the income on such obligation at a rate as high as the implicit
yield on the discount obligation, but at the same time eliminates the holder's
ability to reinvest at higher rates in the future. For this reason, zero
coupon bonds are subject to substantially greater price fluctuations during
periods of changing market interest rates than are securities of comparable
quality which pay interest currently.
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DESCRIPTION OF TRUST PORTFOLIO
PORTFOLIO. The Trust consists of _________ obligations of issuers located in
the State of Alabama. ________ of the issues in the Trust are general
obligations of the governmental entities issuing them or are backed by the
taxing power thereof. The remaining issues are payable directly or indirectly
from the income of a specific project or authority and are divided by source
of revenue (and percentage of principal amount to total Trust) as follows:
Health Care, _____ (___%); Electric Utility, _____ (___%); Single-Family
Housing, _____ (___%) and Education, _____ (___%). The dollar weighted average
maturity of the Bonds in the Trust is ____ years.
RISK FACTORS. Since the Trust will invest substantially all of its assets
in Alabama municipal securities, the Trust is susceptible to political and
economic factors affecting the issuers of Alabama municipal securities.
Alabama's economy has experienced a major trend toward industrialization over
the past two decades. By 1994, manufacturing accounted for 25.58% of
Alabama's Real Gross State Product (the total value of goods and services
produced in Alabama). During the 1960s and 1970s the State's industrial base
became more diversified and balanced, moving away from primary metals into
pulp and paper, lumber, furniture, electrical machinery, transportation
equipment, textiles (including apparel), chemicals, rubber and plastics.
Since the early 1980s, modernization of existing facilities and an increase in
direct foreign investments in the State has made the manufacturing sector more
competitive in domestic and international markets.
Among several leading manufacturing industries have been pulp and papers
and chemicals. In recent years Alabama has ranked as the fifth largest
producer of timber in the nation. The State's growing chemical industry has
been the natural complement of production of wood pulp and paper. Mining, oil
and gas production and service industries are also important to Alabama's
economy. Coal mining is by far the most important mining activity.
In recent years, the importance of service industries to the State's
economy has increased significantly. The major service industries in the
State are the general health care industries, most notably represented by the
University of Alabama medical complex in Birmingham, and the high technology
research and development industries concentrated in the Huntsville area. The
financial, insurance and real estate sectors have also shown strong growth
over the last several years.
REAL GROSS STATE PRODUCT. Real Gross State Product (RGSP) is a
comprehensive measure of economic performance for the State of Alabama.
Alabama's RGSP is defined as the total value of all final goods and services
produced in the State in constant dollar terms. Hence, changes in RGSP
reflect changes in final output. From 1990-1994, RGSP originating in
manufacturing increased by 2.0% per year while RGSP originating in all the
non-manufacturing sectors grew by 1.9% per year.
Those non-manufacturing sectors exhibiting large percentage increases in
RGSP originating between 1990 and 1994 were Services; Trade; Transportation,
Communication, and Public Utilities. From 1990 to 1994, RGSP originating in
Services grew by 3.3% per year, Trade grew by 2.8% per year, and
Transportation, Communication, and Public Utilities grew by 2.6% per year.
The present movement toward diversification of the State's manufacturing base
and a similar present trend toward enlargement and diversification of the
transportation, communication, and public utilities and service industries in
the State are expected to lead to increased economic stability.
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The economy in the State of Alabama recovered quickly from the recession
of the early 1980's. Since 1983, the State has recovered and moved forward
faster than the national average. The Alabama Development Office (ADO)
reported as of December 31, 1994, that for the ninth consecutive year more
than two billion dollars in capital investment was announced in Alabama for
new and expanded industries. The State had new and expending capital
investments of more than $3 billion in 1995 of $2.6 billion in 1994 and $2.4
billion in 1993. These expenditures included 20,253 announced jobs created by
1,025 companies for 1993 and 22,862 announced jobs by 944 companies in 1994.
In the last six years, in excess of $15 billion has been announced in new or
expanding industry in the State. Some of the largest investments during the
period 1990-1995 included Champion International ($550 million); Mercedes Benz
($520 million); Trico Steel Co. LLC ($450 million); Boise Cascade Corp. ($400
million); Amoco Chemicals ($350 million); EXXON Company, USA ($300 million);
Amoco Chemicals ($250 million); Acustar Inc. ($200 million); United States
Steel Corp. ($200 million); Courtlaulds Fibers, Inc. ($170 million); and USS
Fairfield Works ($150 million).
Among other risks, the State of Alabama's economy depends upon cyclical
industries such as iron and steel, natural resources, and timber and forest
products. As a result, economic activity may be more cyclical than in certain
other Southeastern states. The national economic recession in the early 1980s
caused a decline in manufacturing activity and natural resource consumption,
and Alabama's unemployment rate was 14.4% in 1982, significantly higher than
the national average. Unemployment remains high in certain rural areas of the
State. A trend towards diversification of the State's economic base and an
expansion of service industries may lead to improved economic stability in the
future, although there is no assurance of this.
Political subdivisions of the State of Alabama have limited taxing
authority. In addition, the Alabama Supreme Court has held that a
governmental unit may first use its taxes and other revenues to pay the
expenses of providing governmental services before paying debt service on its
bonds, warrants or other indebtedness. The State has statutory budget
provisions which result in a proration procedure in the event estimated budget
resources in a fiscal year are insufficient to pay in full all appropriations
for that year. Proration has a materially adverse effect on public entities
that are dependent upon State funds subject to proration.
Deterioration of economic conditions could adversely affect both tax and
other governmental revenues, as well as revenues to be used to service various
revenue obligations, such as industrial development obligations. Such
difficulties could affect the market value of the bonds held by the Trust and
thereby adversely affect Unitholders.
The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of Bonds and does not
purport to be a complete or exhaustive description of all adverse conditions
to which the issuers in the Trust are subject. Additionally, many factors
including national economic, social and environmental policies and conditions,
which are not within the control of the issuers of Bonds, could affect or
could have an adverse impact on the financial condition of the State and
various agencies and policies and conditions, which are not within the control
of the issuers of Bonds, could affect or could have an adverse impact on the
financial condition of the State and various agencies and political
subdivisions located in the State. The Sponsor is unable to predict whether
or to what extent such factors or other factors may affect the issuers of
Bonds, the market value or marketability of the Bonds or the ability of the
respective issuers of the Bonds acquired by the Trust to pay interest on or
principal of the Bonds.
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<PAGE>
Approximately ___% of the aggregate principal amount of the Bonds in the
Trust are hospital revenue bonds. In view of this, an investment in the Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. 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
receipt 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 Bonds
held in the portfolio of the Trust. Such adverse changes also may adversely
affect the ratings of the Bonds held in the portfolio of the Trust.
Approximately ___% of the aggregate principal amount of the Bonds in the
Trust consists of obligations whose revenues are primarily derived from the
sale of electric energy. Utilities are generally subject to extensive
regulation by state utility commissions which, among other things, establish
the rates which may be charged and the appropriate rate of return on an
approved asset base. The problems faced by such issuers include the
difficulty in obtaining approval for timely and adequate rate increases from
the governing public utility commission, the difficulty in financing large
construction programs, the limitations on operations and increased costs and
delays attributable to environmental considerations, increased competition,
recent reductions in estimates of future demand for electricity in certain
areas of the country, the difficulty of the capital market in absorbing
utility debt, the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing and
impose additional regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of
the issuers of such Bonds to make payments of principal and/or interest on
such Bonds.
Approximately ___% of the aggregate principal amount of the Bonds in the
Trust consists of obligations which derive their payment from mortgage loans.
No more than 25% of the Trust's total assets will be invested in mortgages
originated by the same financial institution. Certain of the Bonds in the
Trust may be single family mortgage revenue bonds 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. In view of this, an investment in the Trust should be
made with an understanding of the characteristics of such issuers and the
risks which such an investment may entail. 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 on 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.
Extraordinary mandatory redemption without premium could also result from the
failure of the originating financial institutions to make mortgage loans in
sufficient amounts within a specified time period. Additionally, unusually
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<PAGE>
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. These bonds were issued under Section 103A of the Internal Revenue
Code, which Section contains certain 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 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. Certain of the Bonds in the Trust 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 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
and 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.
Certain issuers of housing bonds have considered various ways to redeem bonds
they have issued prior to the stated first redemption dates for such bonds.
In one situation an issuer, in reliance on its interpretation of certain
language in the indenture under which one of its bond issues was created,
redeemed all of such issue at par in spite of the fact that such indenture
provided that the first optional redemption was to include a premium over par
and could not occur prior to a later date. In connection with the housing
bonds held by the Trust, the Sponsor at the Date of Deposit is not aware that
any of the respective issuers of such Bonds are actively considering the
redemption of such Bonds prior to their respective stated initial call dates.
For a general discussion of the effects of Bond prepayments and redemptions on
Unitholders who acquired Units at a time when such Bonds were valued in excess
of the principal amount or redemption price of such Bonds, see "General"
below.
Approximately ___% of the aggregate principal amount of the Bonds in the
Trust consists of obligations of issuers which are, or which govern the
operation of, colleges and universities and whose revenues are derived mainly
from tuition, dormitory revenues, grants and endowments. General problems
relating to college and university obligations would include the prospect of a
declining percentage of the population consisting of "college" age
individuals, possible inability to raise tuitions and fees sufficiently to
cover increased operating costs, the uncertainty of continued receipt of
Federal grants and state funding and new government legislation or regulations
which may adversely affect the revenues or costs of such issuers. All of such
issuers have been experiencing certain of these problems in varying degrees.
REPLACEMENT BONDS. Because certain of the Bonds in the Trust may from
time to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that the Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any Bond. In the event of a failure to
deliver any Bond that has been purchased for the Trust under a contract,
including any Bonds purchased on a "delayed delivery" basis ("Failed Bonds"),
the Sponsor is authorized under the Indenture to direct the Trustee to acquire
other bonds ("Replacement Bonds") to make up the original corpus of the Trust.
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The Replacement Bonds must be purchased within 20 days after delivery of
the notice of the failed contract and the purchase price (exclusive of accrued
interest) may not exceed the amount of funds reserved for the purchase of the
Failed Bonds. The Replacement Bonds (i) must be tax-exempt bonds issued by
the State of Alabama or its political subdivisions, (ii) must have a fixed
maturity date of at least 10 years, (iii) must be purchased at a price that
results in a yield to maturity and in a current return, in each case as of the
Date of Deposit, at least equal to that of the Failed Bonds, (iv) shall not be
"when, as and if issued" bonds and (v) must be rated "BBB-" or better by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("Standard &
Poor's" or "S&P") or "Baa3" or better by Moody's Investors Service, Inc.
("Moody's"). Whenever a Replacement Bond has been acquired for the Trust, the
Trustee shall, within five days thereafter, notify all Unitholders of the
Trust of the acquisition of the Replacement Bonds and shall, on the next
monthly distribution date which is more than 30 days thereafter, make a pro
rata distribution of the amount, if any, by which the cost to the Trust of the
Failed Bond exceeded the cost of the Replacement Bond plus accrued interest.
Once the original corpus of the Trust is acquired, the Trustee will have no
power to vary the investment of the Trust, i.e., the Trust will have no
managerial power to take advantage of market variations to improve a
Unitholder's investment.
If the right to limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsor will refund the sales charge attributable to such Failed
Bonds to all Unitholders of the Trust and distribute the principal and accrued
interest (at the coupon rate of such Failed Bonds to the date the Failed Bonds
are removed from the Trust) attributable to such Failed Bonds not more than 30
days after such removal or such earlier time as the Trustee in its sole
discretion deems to be in the interest of the Unitholders. In the event a
Replacement Bond should not be acquired by the Trust, the estimated net annual
interest income per Unit for the Trust would be reduced and the Estimated
Current Return and Estimated Long-Term Return thereon might be lowered. In
addition, Unitholders should be aware that they may not be able at the time of
receipt of such principal to reinvest such proceeds in other securities at a
yield equal to or in excess of the yield which such proceeds were earning to
Unitholders in the Trust.
GENERAL. Certain of the Bonds in the Trust are subject to redemption
prior to their stated maturity date pursuant to sinking fund provisions, call
provisions or extraordinary optional or mandatory redemption provisions. A
sinking fund is a reserve fund accumulated over a period of time for
retirement of debt. A callable debt obligation 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 debt obligation is redeemed, at or before
maturity, by the proceeds of a new debt obligation. 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 portfolio
contains a listing of the sinking fund and call provisions, if any, with
respect to each of the debt obligations. Extraordinary optional redemptions
and mandatory redemptions result from the happening of certain events.
Generally, events that may permit the extraordinary optional redemption of
Bonds or may require the mandatory redemption of Bonds include, among others:
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,
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<PAGE>
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
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. See "Trust Portfolio" and
footnote (3) in "Notes to Trust Portfolio." See also "Portfolio" above for
possible redemptions prior to initial stated call dates. Certain of the Bonds
in the Trust may have been purchased by the Trust at premiums over the par
value (principal amount) of such Bonds (see "Trust Portfolio"). To the extent
Unitholders acquire their Units at a time Bonds are valued at a premium over
such par value and such Bonds are subsequently redeemed or prepaid at par or
for less than such valuations, Unitholders will likely sustain losses in
connection with such redemptions or prepayments. For the tax effects of Bond
redemptions generally, see "Tax Status (Federal, State, Capital Gains)."
To the best knowledge of the Sponsor there is no litigation pending as of
the Date of Deposit in respect of any Bonds which might reasonably be expected
to have a material adverse effect upon the Trust. At any time after the Date
of Deposit, litigation may be initiated on a variety of grounds with respect
to Bonds in the Trust. Such litigation, as, for example, suits challenging
the issuance of pollution control revenue bonds under environmental protection
statutes, 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 Trust 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 income tax. In addition, other factors may arise from time to
time which potentially may impair the ability of issuers to meet obligations
undertaken with respect to the Bonds.
OBJECTIVES OF THE TRUST
The Trust has been formed to provide residents of the State of Alabama
interest income which is exempt from Federal and Alabama state income taxes.
In addition, the Trust also has objectives which include conservation of
capital and liquidity of investment. There is no assurance that the Trust's
objectives will be met.
In selecting Bonds for the Trust, the following facts, among others, were
considered by the Sponsor: (a) either the Standard & Poor's 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 "Baa3" 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 Trust (see "Description of Bond Ratings") and (b) the
prices of the Bonds relative to other bonds of comparable quality and
maturity. Medium-quality Bonds (rated BBB or A by S&P or Baa or A by Moody's)
are obligations of issuers that are considered to possess adequate, but not
outstanding, capacities to service the obligations. Investment in medium-
quality debt securities involves greater investment risk, including the
possibility of issuer default or bankruptcy, than investment in higher-quality
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<PAGE>
debt securities. An economic downturn could severely disrupt this market and
adversely affect the value of outstanding bonds and the ability of the issuers
to repay principal and interest. During a period of adverse economic changes,
including a period of rising interest rates, issuers of such bonds may
experience difficulty in servicing their principal and interest payment
obligations. Medium-quality debt securities tend to be less marketable than
higher-quality debt securities because the market for them is less broad.
During periods of thin trading in these markets, the spread between bid and
asked prices is likely to increase significantly, and the Trust may have
greater difficulty selling the medium-quality debt securities in its
portfolio. 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 elimination of such Bond from a portfolio but
may be considered in the Sponsor's determination as to whether or not to
direct the Trustee to dispose of the Bond (see "Trustee Information").
The Trust consists of a portfolio of fixed rate, long-term debt
obligations. An investment in the Trust should be made with an understanding
of the risks associated with an investment in such obligations. Fluctuations
in interest rates may cause corresponding fluctuations in the value of the
Bonds in the portfolio. The Sponsor cannot predict whether the value of the
Bonds in the portfolio will increase or decrease.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the business day prior to the Date of Deposit, the Estimated Current
Return and the Estimated Long-Term Return were as set forth in "Summary of
Essential Financial Information." Estimated Current Return is calculated by
dividing the estimated net annual interest income per Unit by the Public
Offering Price. The estimated net annual interest income per Unit will vary
with changes in fees and expenses of the Trustee and the Evaluator and with
the principal prepayment, redemption, maturity, exchange or sale of Securities
while the Public Offering Price will vary with changes in the offering price
of the underlying Securities; therefore, there is no assurance that the
present Estimated Current Return will be realized in the future. Estimated
Long-Term Return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the Trust and (2) takes into account a compounding factor and
the expenses and sales charge associated with each Trust Unit. Since the
market values and estimated retirements of the Securities and the expenses of
the Trust will change, there is no assurance that the present Estimated Long-
Term Return will be realized in the future. Estimated Current Return and
Estimated Long-Term Return are expected to differ because the calculation of
Estimated Long-Term Return reflects the estimated date and amount of principal
returned while the Estimated Current Return calculation includes only net
annual interest income and Public Offering Price. Neither rate reflects the
true return to Unitholders which is lower because neither includes the effect
of the delay in the first payment to Unitholders.
In order to acquire certain of the Bonds contracted for by the Sponsor for
deposit in the Trust, it may be necessary for the Sponsor or Trustee to pay on
the settlement dates for delivery of such Bonds amounts covering accrued
interest on such Bonds which exceed (1) the amounts paid by Unitholders and
(2) the amounts which will be made available through cash furnished by the
Sponsor on the Date of Deposit, which amount of cash may exceed the interest
which would accrue to the First Settlement Date. The Trustee has agreed to
pay any amounts necessary to cover any such excess and will be reimbursed
therefor, without interest, when funds become available from interest payments
on the particular Bonds with respect to which such payments may have been
made.
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PUBLIC OFFERING INFORMATION
Units in the Trust are offered at the Public Offering Price which during
the initial public offering period is based on the offering prices of the
Bonds in the Trust plus a sales charge of 5.50% of the Public Offering Price
(equivalent to 5.820% of the net amount invested) and which in the secondary
market is based on the bid prices of the Bonds in the portfolio and includes a
sales charge of 6.00% of the Public Offering Price (equivalent to 6.383% of
the net amount invested) plus accrued and undistributed interest to the
settlement date. The initial public offering period shall be the earlier of
the sale to the public of all the Units in the Trust or 30 days from the date
of this Prospectus; provided, however, the Sponsor reserves the right to
extend this period for three successive 30-day periods. Upon termination of
the initial offering period, any unsold Units and any Units repurchased in the
secondary market may be offered by this Prospectus at the secondary Public
Offering Price in the manner described herein. The sales charge applicable to
quantity purchases is reduced during the initial public offering period on a
graduated basis to any person acquiring at least 150 Units as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF
SALES CHARGE REDUCTION
NUMBER OF UNITS PURCHASED PER UNIT
<S> <C>
150-249 Units $ 2.50
250-499 Units 5.00
500-799 Units 7.75
800 or more Units 10.00
</TABLE>
Any reduced sales charge shall be the responsibility of the selling
dealer. The reduced sales charge will apply on all purchases of Units in the
Trust made by the same person on any one day from any one dealer. Units
purchased in the name of the spouse of a purchaser or in the name of a child
of any such purchaser under 21 years of age will be deemed for the purposes of
calculating the applicable sales charge to be a single purchase by the
purchaser. The reduced sales charges will also be applicable to a trustee or
other fiduciary purchasing Units for a single trust estate or single fiduciary
account.
Although payment is normally made three business days following the order
for purchase, payment may be made prior thereto. A person will become the
owner of Units on the date of settlement provided payment has been received.
Cash, if any, made available to the Sponsor prior to the date of settlement
for the purchase of Units may be used in the Sponsor's business and may be
deemed to be a benefit to the Sponsor, subject to the limitations of the
Securities Exchange Act of 1934.
During the initial offering period, Units will be distributed to the
public through the Underwriters and through certain dealers. Underwriters
will acquire Units from the Sponsor at the concessions set forth under
"Underwriting." Dealers will be allowed a concession during the initial
offering period equal to 3.25% of the Public Offering Price. In the secondary
market such concession will amount to 3.60% of the Public Offering Price.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge paid by their
customers is retained by or remitted to the banks in an amount allowing a
concession equal to that shown above for dealers. Under the Glass-Steagall
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Act, banks are prohibited from underwriting Trust Units; however, the Glass-
Steagall Act does permit certain agency transactions and the banking
regulators have indicated that these particular agency transactions are
permitted under such Act.
To facilitate the handling of transactions during the initial public
offering period, sales of Units shall normally be limited to transactions
involving a minimum of five Units. Further purchases may be made in multiples
of one Unit. The minimum purchase in the secondary market will be one Unit.
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units and to change the amount of the concession to
dealers, set forth below, from time to time.
ACCRUED INTEREST
Accrued interest is the accumulation of unpaid interest on a bond from the
last day on which interest thereon was paid. Interest on Bonds in the Trust
is paid to the Trustee either monthly or semi-annually. However, interest on
the Bonds in the Trust is accounted for daily on an accrual basis. Because of
this, the Trust always has an amount of interest earned but not yet collected
by the Trustee because of coupons that are not yet due. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued and undistributed interest to the date of settlement. Unitholders
will receive on the next distribution date of the Trust the amount, if any, of
accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would
otherwise have to be paid in addition to the Public Offering Price in the sale
of Units to the public, the Trustee will advance the amount of accrued
interest as of the First Settlement Date and the same will be distributed to
the Sponsor, as the Unitholder of record on such date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest arising after the First Settlement Date of
the Trust, less any distributions from the Interest Account subsequent to this
First Settlement Date. Since the First Settlement Date is the date of
settlement for anyone ordering Units on the Date of Deposit, no accrued
interest will be added to the Public Offering Price of Units ordered on the
Date of Deposit.
Because of the varying interest payment dates of the Bonds, accrued
interest at any point in time will be greater than the amount of interest
actually received by the Trust and distributed to Unitholders. Therefore,
there will always remain an item of accrued interest that is added to the
value of the Units. If a Unitholder sells or redeems all or a portion of his
Units, he will be entitled to receive his proportionate share of the accrued
interest from the purchaser of his Units. Since the Trustee has use of the
funds held in the Interest Account for distributions to Unitholders and since
such Account is non-interest-bearing to Unitholders, the Trustee benefits
thereby.
REDEMPTION AND REPURCHASE OF UNITS
Unitholders may redeem all or a portion of their Units by tender to the
Trustee, at its corporate office, of a request for redemption of the Units,
duly endorsed or accompanied by proper instruments of transfer with signature
guaranteed. No redemption fee will be charged. On the third business day
following such tender, the Unitholder will be entitled to receive in cash for
each Unit tendered an amount equal to the redemption price per Unit as next
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<PAGE>
computed after receipt by the Trustee of such tender of Units as determined by
the bid price of the Bonds in the Trust on the date of tender (the "Redemption
Price") plus accrued interest through the date of tender. The price received
upon redemption may be more or less than the amount paid by the Unitholder
depending on the value of the Bonds on the date of tender. The value of the
Bonds will fluctuate with market and credit conditions, including any changes
in interest rate levels.
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. In addition, the Trustee is empowered, with certain
recommendations allowed by the Sponsor, to sell Bonds in the portfolio of the
Trust to make funds available for redemption. Units redeemed shall be
cancelled and not be available for reissuance.
The recognized date of tender is deemed to be the date on which Units are
received in proper form by the Trustee prior to 3:00 p.m. Central time. Units
received by the Trustee after 3:00 p.m. will be deemed to have their
recognized date of tender on the next business day on which the New York Stock
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 date (see "Evaluation of the Trust").
To the extent that Bonds in the portfolio of the Trust are sold to meet
redemptions, the size and diversity of the Trust will be reduced. Such sales
may occur at a time when Bonds might not otherwise be sold which may result in
lower prices received on the Bonds than might be realized under normal trading
conditions.
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
Unitholder'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 Unitholder only when filing his or her tax
return. Under normal circumstances the Trustee obtains the Unitholder's tax
identification number from the selling broker at the time the Unit is issued.
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 Bonds
is not reasonably practicable, or for such other periods as the Securities and
Exchange Commission may by order permit.
The Trustee shall notify the Sponsor of any tender of Units for
redemption. If the Sponsor's repurchase price in the secondary market at that
time equals or exceeds the redemption price, it may repurchase such Units by
notifying the Trustee before the close of business on the second succeeding
business day and by making payment therefor to the tendering Unitholder not
later than the day on which payment would otherwise have been made by the
Trustee. The secondary market Public Offering Price of any Units thus
acquired by the Sponsor will be in accord with the procedure described in the
then currently effective prospectus relating to such Units. Units held by the
Sponsor may be tendered to the Trustee for redemption. Any profit or loss
resulting from the resale or redemption of such Units will belong to the
Sponsor.
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Although not obligated to do so, the Sponsor intends to maintain a market
for the Units offered hereby and to offer continuously to purchase such Units
at prices, subject to change at any time, based upon the aggregate bid prices
of the Bonds in the portfolio plus interest accrued to the date of settlement
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. If the supply of Units exceeds demand or if some other business
reason warrants it, the Sponsor may either discontinue all purchases of Units
or discontinue purchases of Units at such prices. In the event that a market
is not maintained for the Units and the Unitholder cannot find another
purchaser, a Unitholder desiring to dispose of his Units may be able to
dispose of such Units only by tendering them to the Trustee for redemption at
the redemption price, which is based upon the aggregate bid price of the Bonds
in the portfolio. The aggregate bid prices of the underlying Bonds in the
Trust are expected to be less than the related aggregate offering prices. A
Unitholder 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.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest received by the Trust, including that part of the proceeds from
the disposition of Bonds, if any, which represents accrued interest, is
credited by the Trustee to the Interest Account for the Trust. Any other
receipts are credited to the Principal Account for the Trust. Interest
received by the Trust will be distributed on or shortly after the fifteenth
day of each month on a pro rata basis to Unitholders of record as of the
preceding record date (which is the first day of such month). All
distributions will be net of applicable expenses. The pro rata share of cash
in the Principal Account will be computed on the first day of each month and
will be distributed to the Unitholders as of the fifteenth day of such month.
Such principal distribution may be combined with any interest distribution due
to the Unitholder at that time. Proceeds received from the disposition of any
of the Bonds in the portfolio of the Trust after each record date and prior to
the following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to
pay interest on funds held in the Principal or Interest Accounts (but may
itself earn interest thereon and therefore benefit from the use of such funds)
nor to make a distribution from the Principal Account unless the amount
available for distribution shall equal at least $1.00 per Unit.
The distribution to the Unitholders as of each record date after the First
Settlement Date will be made on the following distribution date or shortly
thereafter and shall consist of an amount substantially equal to the
Unitholder's pro rata share of the estimated annual income after deducting
estimated expenses. Because interest payments are not received by the Trust
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 purpose 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. A person who
purchases Units will commence receiving distributions only after such person
becomes a record owner. Notification to the Trustee of the transfer of Units
is the responsibility of the purchaser, but in the normal course of business
such notice is provided by the selling broker/dealer.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (see
"Expenses of the Trust"). The Trustee may also withdraw from said accounts an
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amount, if deemed necessary, to fund a reserve for any governmental charges or
anticipated Trust expenses which may be payable out of the Trust. Amounts so
withdrawn will not be considered a part of the Trust's assets until such time
as the Trustee shall return all or part of the amount withdrawn to the
appropriate accounts. In addition, the Trustee may withdraw from the Interest
and Principal Accounts such amounts as may be necessary to cover purchases of
Replacement Bonds and redemptions of Units by the Trustee (see "Description of
Trust Portfolio" and "Redemption and Repurchase of Units").
Funds which are available for future distributions, redemptions and
payment of expenses are held in accounts which are non-interest bearing to
Unitholders and are available for use by the Trustee pursuant to normal
banking procedures.
TAX STATUS (FEDERAL, STATE, CAPITAL GAINS)
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof, to the exemption of interest thereon from Federal and
Alabama income taxation were rendered by bond counsel to the respective
issuing authorities. If the interest on a Bond should be determined to be
taxable, the Bond would generally have to be sold at a substantial discount.
In addition, investors could be required to pay income tax on interest
received prior to the date of which interest is determined to be taxable.
Gain realized on the sale or redemption of the Bonds by the Trustee or of a
Unit by a Unitholder is, however, includable in gross income for Federal and
Alabama state income tax purposes. It should be noted in this connection that
such gain does not include any amounts received in respect of accrued interest
or earned original issue discount, if any. Neither the Sponsor nor its
counsel have made any special review for the Trust of the proceedings relating
to the issuance of the Bonds or of the bases for such opinions.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under
existing law:
(1) the Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on
the Bonds which is excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status when distributed to
Unitholders. In the case of certain corporations owning Units, interest
and accrued original issue discount with respect to Bonds held by the
Trust may be subject to the alternative minimum tax, an additional tax on
branches of foreign corporations and the environmental tax (the "Superfund
Tax"); and
(2) each Unitholder is considered to be the owner of a pro rata portion of
the Trust under subpart E, subchapter J of Chapter I of the Code and will
have a taxable event when the Trust disposes of a Bond or when the
Unitholder redeems or sells 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 Bonds (whether by sale, payment on maturity, redemption or otherwise),
gain or loss is recognized to the Unitholder. The amount of any such gain
or loss is measured by comparing the Unitholder's pro rata share of the
total proceeds from such disposition with the Unitholder's basis for his
or her fractional interest in the asset disposed of. In the case of a
Unitholder who purchases Units, such 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 Trust assets
ratably according to value as of the date of acquisition of the Units.
The tax basis reduction requirements of said Code relating to amortization
of bond premium may, under some circumstances, result in the Unitholder
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realizing a taxable gain when his Units are sold or redeemed for an amount
equal to his original cost. A Unitholder will realize a taxable gain when
his Units are sold or redeemed for an amount greater than his adjusted
basis in his Units at the time of such sale or redemption.
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 Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue
discount which would have previously accrued based on its issue price (its
"adjusted issue price"). The application of these rules will also vary
depending on the value of the Bond on the date a Unitholder acquires his Units
and the price the Unitholder 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
Trust pays for Bonds or the price a Unitholders 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 the Trust holds a Bond would be recognized as
ordinary income by the Unitholders when principal payments are received on the
Bond, upon sale or at redemption (including early redemption) or upon the sale
or redemption of the Units, unless a Unitholder elects to include market
discount in taxable income as it accrues. The market discount rules are
complex and Unitholders should consult their tax advisers regarding these
rules and their application.
In the case of corporations, for taxable years beginning after
December 31, 1986, the alternative minimum tax and the Superfund Tax 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 Bonds in
the Trust. Corporate Unitholders are urged to consult their tax advisers with
respect to the particular tax consequences to them, including the corporate
alternative minimum tax, Superfund Tax and the branch profits tax imposed by
Section 884 of the Code.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry obligations, the interest on which is wholly exempt from
Federal income taxes, is not deductible. Because each Unitholder is treated
for Federal income tax purposes as the owner of a pro rata share of the Bonds
owned by the Trust, interest on borrowed funds used to purchase or carry Units
of the Trust will not be deductible for Federal income tax purposes. Under
rules used by the Internal Revenue Service for determining when borrowed funds
are considered used for the purpose of purchasing or carrying particular
assets, the purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not directly traceable to
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the purchase of Units. However, these rules generally do not apply to
interest paid on indebtedness incurred for expenditures of a personal nature
such as a mortgage incurred to purchase or improve a personal residence.
Federally tax-exempt income, including income on Units of the Trust, will be
taken into consideration in computing the portion, if any, of social security
benefits received that will be included in a taxpayer's gross income subject
to Federal income tax. It should be noted that under the Tax Act, the
proportion of social security benefits subject to inclusion in taxable income
has been raised for taxable years starting in 1994. 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.
For taxpayers other than corporations, net capital gains are subject to a
maximum rate of 28 percent. However, it should be noted that legislative
proposals are made 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 Bonds in the Trust, 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 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.
Alabama Taxation. In the opinion of Balch & Bingham, Birmingham, Alabama,
special counsel to the Trust for Alabama tax matters, under existing Alabama
income tax law applicable to taxpayers whose income is subject to Alabama
income taxation:
The Trust is not taxable as a corporation for purposes of the Alabama
income tax.
Income of the Trust, to the extent it is taxable, will be taxable to the
Unitholders, not the Trust.
Each Unitholder distributive share of the Trust's net income will be
treated as the income of the Unitholder for purposes of the Alabama income
tax.
Interest on obligations held by the Trust which is exempt from the Alabama
income tax will retain its tax-exempt character when the distributive share
thereof is distributed or deemed distributed to each Unitholder.
Each Unitholder will, for purposes of the Alabama income tax, treat his
distributive share of gains realized upon the sale or other disposition of the
Bonds held by the Trust as though the Bonds were sold or disposed of directly
by the Unitholders.
Gains realized on the sale or redemption of Units by Unitholders, who are
subject to the Alabama income tax, will be includable in the Alabama income of
such Unitholders.
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All statements of law in the Prospectus concerning exemption from Federal,
state or other taxes are the opinion of counsel and are to be so construed.
EXPENSES OF THE TRUST
The Sponsor will not receive any fees in connection with activities
relating to the Trust. However, for providing portfolio supervisory services
for the Trust, the Supervisor (which is the Sponsor) will receive an annual
supervisory fee as indicated under "Summary of Essential Financial
Information" which fee is based on the largest aggregate amount of Bonds in
the Trust at any time during such period. For regularly evaluating the
portfolio of the Trust, the Evaluator (which is also the Sponsor) will receive
that minimum annual fee set forth under "Summary of Essential Financial
Information" which fee is based on the largest aggregate amount of Bonds in
the Trust at any time during such period.
The Trustee, which is a wholly-owned subsidiary of the Sponsor, will
receive for ordinary services that annual fee set forth under "Summary of
Essential Financial Information," which fee is based on the largest aggregate
amount of Bonds in the Trust at any time during such period.
The foregoing fees may be adjusted without prior approval from
Unitholders, provided that all adjustments upward will not exceed the
cumulative percentage increase of the United States Department of Labor's
Consumer Price Index or, if such index is no longer published, in a comparable
index. Each of the foregoing fees may exceed the actual costs of providing
the respective services for this Trust, but at no time will the total amount
received for the respective services rendered to unit investment trusts of
which Sterne, Agee & Leach, Inc. is the sponsor in any calendar year exceed
the aggregate cost of supplying such services in such year. In addition, the
Trustee's fee may be periodically adjusted in response to fluctuations in
short-term interest rates (reflecting the cost to the Trustee of advancing
funds to the Trust to meet scheduled distributions). 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 Unitholders, the Trustee benefits
thereby. Part of the Trustee's compensation for its services to the Trust is
expected to result from the use of these funds. For a discussion of the
services rendered by the Trustee pursuant to its obligations under the
Indenture, see "Trustee Information" and "Other Rights of Unitholders."
Expenses incurred in establishing the Trust, including the cost of the
initial preparation of documents relating to the Trust, Federal and state
registration fees, the initial fees and expenses of the Trustee, legal
expenses and any other non-material out-of-pocket expenses, will be paid by
the Trust and amortized over a five-year period. The following is a summary
of expenses of the Trust which, when owed to the Trustee, are secured by a
lien on the assets of the Trust: (1) the expenses and costs of any action
undertaken by the Trustee to protect the Trust and the rights and interests of
the Unitholders; (2) any taxes and other governmental charges upon the Bonds
or any part of the Trust (no such taxes or charges are currently being levied,
or, to the knowledge of the Sponsor, contemplated); (3) amounts payable to the
Trustee as fees for ordinary recurring services and for extraordinary non-
recurring services rendered pursuant to the Indenture and all disbursements
and expenses including counsel fees (including fees of counsel which the
Trustee may retain) and auditing fees sustained or incurred by the Trustee in
connection therewith; and (4) any losses or liabilities accruing to the
Trustee without gross negligence, bad faith or willful misconduct on its part.
The Trustee is empowered to sell Bonds from the Trust in order to pay these
amounts if funds are not available in the Interest and Principal Accounts.
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EVALUATION OF THE TRUST
As of the opening of business on the Date of Deposit, the price of the
Units was determined on the basis of an initial evaluation of the Bonds in the
Trust prepared by ______________________, a firm regularly engaged in the
business of evaluating, quoting or appraising comparable securities. After
the opening of business on the Date of Deposit and during the period of
initial public offering, the Evaluator will appraise or cause to be appraised
daily the value of the underlying Bonds as of 3:00 P.M. Central time on days
the New York Stock Exchange is open and will adjust the Public Offering Price
of the Units commensurate with such appraisal. Such Public Offering Price
will be effective for all orders received at or prior to 3:00 P.M. Central
time on each such day. Orders received by the Trustee or Sponsor for
purchases, sales or redemptions after that time, or on a day when the New York
Stock Exchange is closed, will be held until the next determination of price.
While the Trustee has the power to determine the Redemption Price per Unit
when Units are tendered for redemption, such authority has been delegated to
the Evaluator which determines the Redemption Price per Unit on a daily basis
on days the New York Stock Exchange is open (and on any other days on which
Sponsor secondary market transactions or redemptions occur). Each evaluation
of the Trust has been and will be determined on the basis of cash on hand in
the Trust or money in the process of being collected, the value of the Bonds
in the portfolio of the Trust based on the bid prices of the Bonds and
interest accrued thereon not subject to collection less any taxes or
governmental charges payable, any accrued expenses of the Trust and any cash
held for distribution to Unitholders. The result of that computation is then
divided by the number of Units outstanding as of the date thereof to determine
the per Unit value of the Trust.
The Evaluator may determine the value of the Bonds in the portfolio of the
Trust (1) on the basis of current bid prices of the Bonds obtained from
dealers or brokers who customarily deal in bonds comparable to those held in
the Trust; (2) if bid prices are not available for any of the Bonds, on the
basis of bid prices for comparable bonds; (3) by causing the value of the
Bonds to be determined by others engaged in the practice of evaluating,
quoting or appraising comparable bonds; or (4) by any combination of the
above. Although the Unit value is based on the bid prices of the Bonds, the
Units are sold initially to the public at the Public Offering Price based on
the offering prices of the Bonds.
The initial or primary Public Offering Price of the Units and the
Sponsor's initial repurchase price per Unit are based on the offering price
per Unit of the underlying Bonds plus the applicable sales charge and any
interest accrued but undistributed. The secondary market Public Offering
Price and the Redemption Price per Unit are based on the bid price per Unit of
the Bonds in the portfolio of the Trust plus the applicable sales charge and
accrued interest. The offering price of Bonds in the portfolio of the Trust
may be expected to range from 1%-2% more than the bid price of such Bonds.
OTHER RIGHTS OF UNITHOLDERS
The Trustee shall furnish Unitholders in connection with each distribution
a statement of the amount of interest and, if any, the amount of other
receipts (received since the preceding distribution) being distributed,
expressed in each case as a dollar amount representing the pro rata share of
each Unit outstanding. Within a reasonable period of time after the end of
each calendar year, the Trustee shall furnish to each person who at any time
during the calendar year was a registered Unitholder of the Trust a statement
(1) as to the Interest Account for the Trust; interest received (including
amounts representing interest received upon any disposition of Bonds),
deductions for fees and expenses of the Trust, for purchases of Replacement
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Bonds and for redemptions of Units, if any, and the balance remaining after
such distributions and deductions, expressed in each case 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 for the Trust: the dates of disposition of any Bonds and the
net proceeds received therefrom (excluding any portion representing accrued
interest), the amount paid for purchases of Replacement Bonds and for
redemptions of Units, if any, deductions for payment of applicable taxes and
fees and expenses of the Trustee, and the balance remaining after such
distributions and deductions expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) a list of the Bonds held and the
number of Units outstanding on the last business day of such calendar year;
(4) the Redemption Price based upon the last computation thereof made during
such calendar year; and (5) amounts actually distributed during such calendar
year from the Interest Account and from the Principal Account, separately
stated, expressed both as total dollar amounts and as dollar amounts
representing the pro rata share of each Unit outstanding.
The Indenture requires the Trust to be audited on an annual basis at the
expense of the Trust by independent auditors selected by the Sponsor. The
Trustee shall not be required, however, to cause such an audit to be performed
if its cost to the Trust shall exceed $.50 per Unit on an annual basis.
Unitholders may obtain a copy of such audited financial statements upon
request.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Bonds in the Trust furnished to it by the Evaluator.
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 of the Trust is evidenced in book entry form only. Units are
transferable by written request to the Trustee. A Unitholder must sign
exactly as his name appears on the books of the Trustee 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. Units will be issued
in denominations of one Unit or any whole multiple thereof. Although no such
charge is now made or contemplated, the Trustee may require a Unitholder to
pay a reasonable fee to be determined by the Trustee for each Unit transferred
and to pay any governmental charge that may be imposed in connection with each
such transfer or interchange.
SPONSOR INFORMATION
Sterne, Agee & Leach, Inc. was organized under the laws of the State of
Delaware in 1964. Prior to 1964 the business of the Sponsor was conducted by
a partnership originally formed in 1916. The Sponsor is a member of the New
York Stock Exchange and the National Association of Securities Dealers (NASD).
In addition to acting as sponsor of various unit investment trusts, Sterne,
Agee & Leach is engaged in a general securities business, which includes the
underwriting and distribution of municipal securities.
The Sponsor's offices are located at 1901 Sixth Avenue North, Birmingham,
Alabama 35203. As of March 29, 1996, the net capital of Sterne, Agee & Leach,
Inc. was $11,530,727. (This paragraph relates only to the Sponsor and not to
any Series of Sterne Unit Trust or to any other dealer. The information is
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included herein only for the purpose of informing investors as to the
financial responsibility of the Sponsor and its ability to carry out its
contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
Dealers will purchase the Units from the Sponsor on the Date of Deposit at
a price equal to the Public Offering Price per Unit less that percentage
indicated under "Public Offering Information." Any reduced sales charge for
quantity purchases as described under "Pubic Offering Information" will be the
responsibility of the dealer. In addition to that portion of the sales
commission retained by the Sponsor, the Sponsor will realize a profit or
sustain a loss, as the case may be, as a result of the difference between the
price paid for the Bonds by the Sponsor and the cost of such Bonds to the
Trust (which is based on the aggregate offering price of the Bonds in the
portfolio of the Trust on the Date of Deposit as determined by _____________).
See "Trust Portfolio." The Sponsor may also realize profits or sustain losses
with respect to Bonds deposited in the Trust which were acquired by the
Sponsor from underwriting syndicates of which it was a member. The Sponsor
has participated as sole underwriter or as manager or as a member of the
underwriting syndicate from which ___% of the aggregate principal amount of
the Bonds in the portfolio of the Trust was acquired. The Sponsor may realize
additional profit or loss during the initial offering period as a result of
the possible fluctuations in the market value of the Bonds in the Trust after
the Date of Deposit.
As stated under "Redemption and Repurchase of Units," the Sponsor intends
to maintain a secondary market for the Units of the Trust. In so maintaining
a market, the Sponsor will also realize profits or sustain losses in the
amount of any difference between the price at which Units are purchased and
the price at which Units are resold (which price is based on the bid prices of
the Bonds in the Trust and includes a sales charge of 6.00%). In addition,
the Sponsor will also realize profits or sustain losses resulting from a
redemption of such repurchased Units at a price above or below the purchase
price for such Units.
If the Sponsor shall fail to perform any of its duties under the Indenture
or become incapable of acting or become bankrupt or its affairs are taken over
by public authorities, then the Trustee may (i) appoint a successor Sponsor at
rates of compensation deemed by the Trustee to be reasonable and not exceeding
amounts prescribed by the Securities and Exchange Commission, (ii) terminate
the Indenture and liquidate the trust as provided therein or (iii) continue to
act as Trustee without terminating the Indenture.
TRUSTEE INFORMATION
The Trustee, The Trust Company of Sterne, Agee & Leach, Inc., is a wholly-
owned subsidiary of the Sponsor and is a trust company specializing in
investment related services, organized and existing under the laws of Alabama,
having its trust office at 1901 Sixth Avenue North, Birmingham, Alabama 35203.
The Trustee is subject to supervision and examination by the State of Alabama.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Bonds for the Trust portfolio. The Trustee is
empowered to sell, for the purpose of redeeming Units tendered by any
Unitholder and for the payment of expenses for which funds may not be
available, such of the Bonds as are designated by the Sponsor as the Trustee
in its sole discretion may deem necessary. The Sponsor is empowered, but not
obligated, to direct the Trustee to dispose of Bonds upon default in payment
of principal or interest, institution of certain legal proceedings, default
under other documents adversely affecting debt service, default in payment of
principal or interest on other obligations of the same issuer, decline in
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projected income pledged for debt service on revenue bonds or decline in price
or the occurrence of other market or credit factors, so that in the opinion of
the Sponsor the retention of such Bonds would be detrimental to the interest
of the Unitholders. The Sponsor is required to instruct the Trustee to reject
any offer made by an issuer of any of the Bonds to issue new obligations in
exchange or substitution for any Bond pursuant to a refunding or refinancing
plan, except that the Sponsor may instruct the Trustee to accept or reject
such an offer or to take any other action with respect thereto as the Sponsor
may deem proper if (1) the issuer is in default with respect to such Bond or
(2) in the written opinion of the Sponsor the issuer will probably default
with respect to such Bond in the reasonably foreseeable future. Any
obligation so received in exchange or substitution will be held by the Trustee
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 Unitholder, identifying the Bonds
eliminated and the Bonds substituted therefor. Except as stated herein and
under "Description of Trust Portfolio" regarding the substitution of
Replacement Bonds for Failed Bonds, the acquisition by the Trust of any
securities other than the Bonds initially deposited is not permitted.
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 is
required to notify the Sponsor thereof. If the Sponsor fails to instruct the
Trustee to sell or to hold such Bond within 30 days after notification by the
Trustee to the Sponsor of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred.
In accordance with the Indenture, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of every Unitholder of the Trust.
Such books and records shall be open to inspection by any Unitholder at all
reasonable times during the 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. 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 Unitholder, together with a current list of the
Bonds held in the Trust.
Under the Indenture, the Trustee or any successor trustee may resign and
be discharged of the trust created by the Indenture by executing an instrument
in writing and filing the same with the Sponsor. The Trustee or trustee must
mail a copy of the notice of resignation to all Unitholders then of record,
not less than 60 days before the date specified in such notice when such
resignation is to take effect. The Sponsor upon receiving notice of such
resignation is obligated to appoint a successor trustee promptly. If, upon
such resignation, no successor trustee has been appointed and 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. The
Sponsor may remove the Trustee and appoint a successor trustee as provided in
the Indenture at any time or without cause. Notice of such removal and
appointment shall be mailed to each Unitholder by the Sponsor. 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.
25
<PAGE>
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 corporation organized under the laws of the United States, or any
state thereof, be authorized under such laws to exercise trust powers and have
at all times an aggregate capital, surplus and undivided profits of not less
than $500,000.
UNDERWRITING
UNDERWRITING
<TABLE>
The Underwriters named below have severally purchased Units in the
following respective amounts from the Sponsor.
<CAPTION>
NAME ADDRESS UNITS
<S> <C> <C>
_________________________ _________________________ _____
_________________________
_________________________ _________________________ _____
_________________________
_________________________ _________________________ _____
_________________________
_________________________ _________________________ _____
_________________________
</TABLE>
Underwriters and broker-dealers of the Trust are eligible to participate
in a program in which such firms receive from the Sponsor a nominal award for
each of their registered representatives who have sold a minimum number of
units of unit investment trust created by the Sponsor during a specified time
period. In addition, at various times the Sponsor may implement other
programs under which the sales force of an Underwriter, broker or dealer may
be eligible to win other nominal awards for certain sales efforts, or under
which the Sponsor will reallow to any such Underwriter, broker or dealer that
sponsors sales contests or recognition programs conforming to criteria
established by the Sponsor, or participates in sales programs sponsored by the
Sponsor, an amount not exceeding the total applicable sales charges on the
sales generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time pursuant
to objective criteria established by the Sponsor pay fees to qualifying
Underwriters, brokers or dealers for certain services or activities which are
primarily intended to result in sales of Units of the Trust. Such payments
are made by the Sponsor out of its own assets and not out of the assets of the
Trust. These programs will not change the price Unitholders pay for their
Units or the amount that the Trust will receive from the Units sold.
Units may also be sold to dealers at prices representing the per Unit
concession stated under "Public Offering Information." However, resales of
Units by such dealers to the public will be made at the Public Offering Price
described in the Prospectus. The Sponsor reserves the right to reject, in
whole or in part, any order for the purchase of Units and the right to change
the amount of the concession from time to time. Underwriters will acquire
26
<PAGE>
Units from the Sponsor based on the amount of Units underwritten. The
concessions from the Public Offering Price will be as set forth in the
following table:
<TABLE>
<CAPTION>
100-249 250-499 Units 500-999 Units 1,000 or More Units
Underwritten Underwritten Underwritten Underwritten
<C> <C> <C> <C>
3.50% 3.60% 3.75% 4.00%
</TABLE>
LEGAL AND AUDITING MATTERS
The legality of the Units offered hereby and certain matters relating to
Federal tax law have been passed upon by Chapman and Cutler, Chicago, Illinois
as special counsel for the Sponsor.
The statement of net assets, including the Trust portfolio, of the Trust
at the opening of business on the Date of Deposit appearing in this Prospectus
and Registration Statement have been audited by___________ ______________,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES, INC. A
description of the applicable Standard & Poor's rating symbols and their
meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment may take into consideration obligators such
as guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
(1) Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
(2) Nature of and provisions of the obligation;
27
<PAGE>
(3) Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangements under the laws
of bankruptcy and other laws affecting creditors' rights.
AAA-This is the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is extremely strong.
AA-Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A-Bonds rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB-Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by
the addition of a plus or minus sign to show relative standing within the
major rating categories.
Provisional Ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the issuance of the bonds being rated and indicates
that payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion. Accordingly, the investor should exercise his
own judgment with respect to such likelihood and risk.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
Their safety is so absolute that, with the occasional exception of oversupply
in a few specific instances, characteristically, their market value is
affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in few specific
instances.
28
<PAGE>
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
economic performance during a sustained period of depressed business
conditions, but, during periods of normalcy, A-rated bonds frequently move in
parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well. The market value of Baa-rated
bonds is more sensitive to changes in economic circumstances, and aside from
occasional speculative factors applying to some bonds of this class, Baa
market valuations move in parallel with Aaa, Aa and A obligations during
periods of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con. (--)-Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operation experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
TAX-EXEMPT/TAXABLE ESTIMATED CURRENT RETURN EQUIVALENTS
As of the date of this Prospectus, the following table shows the
approximate taxable estimated current returns for individuals that are
equivalent to tax-exempt estimated current returns under combined Federal and
state taxes, using the published 1996 Federal and Alabama tax rates scheduled
to be in effect. The table incorporates increased tax rates for higher-income
taxpayers that were included in the Revenue Reconciliation Act of 1993. The
combined Federal and state tax brackets shown reflect the fact that state tax
payments are deductible for Federal tax purposes and that no deduction of the
Federal tax is claimed for state purposes. The table illustrates
approximately what you would have to earn on taxable investments to equal tax-
exempt estimated current returns in your income tax bracket under present tax
law. Locate your income (after deductions and exemptions), then locate your
tax bracket based on joint or single tax filing. Read across to the
29
<PAGE>
equivalent taxable estimated current return you would need to match tax-free
income. The taxable equivalent estimated current returns may be somewhat
higher than the equivalent returns indicated in the table below for those
individuals who have Adjusted Gross Income in excess of $117,950.
<TABLE>
<CAPTION>
Taxable Income Tax-Exempt Estimated Current Return
- -------------------------------- -----------------------------------
Single Joint
Return Return Tax 41/2% 5% 51/2% 6% 61/2% 7% 71/2%
In thousands Bracket* Equivalent Taxable Estimated Current Returns
- -------------------------------- -------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.00 $ 0 - 40.10 18.60% 5.53% 6.14% 6.76% 7.37% 7.99% 8.60% 9.21%
24.00- 58.15 40.10 - 96.90 30.60 6.48 7.20 7.93 8.65 9.37 10.09 10.81
58.15- 121.30 96.90- 147.70 33.40 6.76 7.51 8.26 9.01 9.76 10.51 11.26
121.30- 263.75 147.70- 263.75 38.10 7.27 8.08 8.89 9.69 10.50 11.31 12.12
Over 263.75 Over 263.75 41.50 7.69 8.55 9.40 10.26 11.11 11.97 12.82
</TABLE>
[FN]
* The table does not reflect the effect of two adjustments designed to phase-
out the advantage of itemized deductions and personal exemptions for higher
income taxpayers. These adjustments, in effect, increase the marginal
Federal tax rate above the stated marginal tax rate by eliminating a
portion of claimed itemized deductions and potentially eliminating entirely
the effect of personal exemptions in determining Taxable Income. The total
impact of the adjustments, which will vary from taxpayer to taxpayer, is
dependent upon the itemized deductions and personal exemptions claimed. In
addition, the combined Federal and state tax bracket was computed taking
into account the cross-deductibility of each tax in determining the other.
A comparison of tax-free and equivalent taxable estimated current returns
with the returns on various taxable investments is one element to consider in
making an investment decision. The Sponsor may from time to time in its
advertising and sales material compare the then current estimated returns on
the Trust and return over specified periods on other similar Sterne, Agee &
Leach, Inc. sponsored unit investment trusts with returns on taxable
investments such as corporate or U.S. Government bonds, bank CDs and money
market accounts or money market funds, each of which has investment
characteristics that may differ from those of the Trust. U.S. Government
bonds, for example, are backed by the full faith and credit of the U.S.
Government and bank CDs and money market accounts are insured by an agency of
the Federal government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the condition
of the short-term debt market. The investment characteristics of the Trust
are described more fully elsewhere in this Prospectus.
30
<PAGE>
Report of Independent Auditors
Independent Auditors
Unitholders
State and Local Trusts, Series 1
(Trust Alabama, Series 7):
We have audited the accompanying statement of net assets, including the Trust
portfolio, of State and Local Trusts, Series 1 (Trust Alabama, Series 7),
as of the opening of business on _________, 1996, the Date of Deposit. This
statement of net assets is the responsibility of the Trust's Sponsor.
Our responsibility is to express an opinion on this statement of net assets
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of net assets is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement of net
assets. Our procedures included confirmation of the Bonds held by the
Trustee at the opening of business on _________, 1996. An audit also
includes assessing the accounting principles used and significant estimates
made by the Trust's Sponsor, as well as evaluating the overall statement of
net assets presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the statement of net assets referred to above presents
fairly, in all material respects, the financial position of State and Local
Trusts, Series 1 (Trust Alabama, Series 7) at the opening of business
on ________, 1996, in conformity with generally accepted accounting principles.
________________________
__________________
__________, 1996
<TABLE>
STATE AND LOCAL TRUSTS, SERIES 1
TRUST ALABAMA, SERIES 7
STATEMENT OF NET ASSETS
AT THE OPENING OF BUSINESS ON ________, 1996, THE DATE OF DEPOSIT
<CAPTION>
TRUST PROPERTY
<S> <C>
Investment in securities--
Bonds deposited in Trust (1) $ _________
Accrued interest to Date of Deposit on Bonds (2) _________
Organizational costs (3) _________
Less distributions payable (2) _________
Less accrued organizational costs (3) _________
Net assets, applicable to _____ outstanding Units of
fractional undivided interest $ _________
=========
<CAPTION>
INTEREST OF UNITHOLDERS
<S> <C>
Cost to investors (4) $ _________
Less sales charge (4) _________
Net proceeds to the Trust, equal to net assets $ _________
=========
</TABLE>
[FN]NOTES:
(1) Aggregate cost to the Trust of the Bonds listed in the Trust Portfolio is
based on offering side evaluations determined by _____________.
(2) Pursuant to the Indenture, the Trustee will advance funds in the amount of
$______ representing the accrued interest to ___________, 1996 (the "First
Settlement Date") and such advance will be distributed to the Sponsor.
(3) The Trust (and therefore Unitholders) will bear all or a portion of its
estimated organizational costs which will be deferred and amortized over
five years.
(4) The aggregate cost to investors (exclusive of interest) includes a sales
charge computed at the rate of 5.50% of the Public Offering Price
(equivalent to 5.820% of the net amount invested) assuming no reduction of
sales charge for quantity purchases
31
<PAGE>
<TABLE>
TRUST ALABAMA, SERIES 7
TRUST PORTFOLIO AT THE OPENING OF BUSINESS ON _______________, 1996, THE DATE
OF DEPOSIT
<CAPTION>
NAME OF ISSUER, TITLE, COUPON RATE
AND MATURITY DATE OF BONDS DEPOSITED
AGGREGATE IN TRUST OR REPRESENTED BY SPONSOR'S REDEMPTION COST OF BONDS
PRINCIPAL CONTRACTS TO PURCHASE BONDS(1)(5) RATINGS(2) PROVISION(3) TO TRUST(4)
_________________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
</TABLE>
[FN]
See "Notes to Trust Portfolio.
32
<PAGE>
NOTES TO TRUST PORTFOLIO:
(1) Contracts to acquire Bonds were entered into by the Sponsor during the
period ________, 1996 through ________, 1996. All Bonds are represented
by regular way contracts, unless otherwise indicated, for the performance
of which cash or an irrevocable letter of credit has been deposited with
the Trustee.
(2) Securities ratings represent the latest published ratings by Standard &
Poor's unless marked with a "#" in which case the rating is by Moody's or
unless marked with a "&&" in which case the Sponsor expects Standard &
Poor's or Moody's, upon the receipt of an insurance policy obtained by the
issuer, to issue a AAA rating. A brief description of the applicable
Standard & Poor's or Moody's rating symbols and their meanings is set
forth under "Description of Bond Ratings." "N/R" indicates that no rating
has been provided for such Bonds; in the opinion of the Sponsor, these
Bonds have 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 Trust. "**" indicates
rating is contingent upon receipt by Standard & Poor's of final
documentation.
(3) There is shown under this heading the year in which each issue of Bonds is
initially redeemable and the redemption price for that year or, if
currently redeemable, the redemption price in 1996; unless otherwise
indicated, each issue continues to be redeemable at declining prices
thereafter, but not below par value. The prices at which the Bonds may be
redeemed or called prior to maturity may or may not include a premium and,
in certain cases, may be less than the cost of the Bonds to the Trust. In
addition, certain Bonds in the Trust portfolio may be redeemed in whole or
in part other than by operation of the stated redemption or sinking fund
provisions under certain unusual or extraordinary circumstances specified
in the instruments setting forth the terms and provisions of such Bonds.
"S.F." indicates a sinking fund is established with respect to an issue of
Bonds.
(4) During the initial offering period, evaluations of the Bonds are made on
the basis of current offering side evaluations of the Bonds. The
aggregate offering price is greater than the aggregate bid price of the
Bonds, which is the basis on which Redemption Prices will be determined
for purposes of redemption of Units.
(5) Other information regarding the Bonds in the Trust, at the opening of
business on the Date of Deposit, is as follows:
<TABLE>
<CAPTION>
COST OF BONDS PROFIT TO ANNUAL INTEREST BID SIDE VALUE
TO SPONSOR SPONSOR INCOME TO TRUST OF BONDS
_____________ ________ ______________ _____________
<C> <C> <C> <C>
__________ _______ ________ __________
</TABLE>
(6) This Bond has been purchased at a discount from par value because there is
little or no stated interest income thereon. Such bonds are normally
described as "zero coupon" bonds. Over the life of such bonds the value
increases such that upon maturity the holder of such bonds will receive
100% of the principal amount thereof. Approximately ___% of the aggregate
principal amount of the Bonds in the Trust are "zero coupon" bonds.
%% This Bond is the same issue as another Bond in the portfolio.
@@ This Bond was issued at an original issue discount.
* This Bond is represented by a "when, as and if issued" or "delayed
delivery" contract and has expected settlement date after the "First
Settlement Date" of the Trust. Interest on this Bond begins accruing to
the benefit of Unitholders on the date of delivery
33
<PAGE>
ESTIMATED CASH FLOWS TO UNITHOLDERS
The table below sets forth the per Unit estimated monthly distribution of
interest and principal to Unitholders. The table assumes no changes in
expenses, no changes in the current interest rates, no exchanges, redemptions,
sales or prepayments of the underlying Bonds prior to maturity or expected
retirement date and the receipt of principal upon maturity or expected
retirement date. To the extent the foregoing assumptions change, actual
distributions will vary.
<TABLE>
SERIES 7
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
__________________ ____________ ____________ ____________
<S> <C> <C> <C>
______ ____ $____ $ ______ $______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
______ ____ ____ ______ ______
______ ____ - ______ ____ ____ ______ ______
</TABLE>
34
<PAGE>
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or any dealer. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
This Prospectus contains information concerning the Trust and the Sponsor,
but does not contain all of the information set forth in the registration
statements and exhibits relating thereto, which the Trust has filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, and to which reference is
hereby made.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
TITLE PAGE
_____ ____
<S> <C>
Summary of Essential Financial Information 3
Summary of the Trust 5
Description of Trust Portfolio 7
Objectives of the Trust 12
Estimated Current Return and Estimated Long-Term Return 13
Public Offering Information 14
Accrued Interest 15
Redemption and Repurchase of Units 15
Distribution of Interest and Principal 17
Tax Status (Federal, State, Capital Gains) 18
Expenses of the Trust 21
Evaluation of the Trust 22
Other Rights of Certificateholders 22
Sponsor Information 23
Trustee Information 24
Underwriting 26
Legal and Auditing Matters 27
Description of Bond Ratings 27
Tax-Exempt/Taxable Estimated Current Return Equivalents 29
Report of Independent Auditors 31
Statement of Net Assets 31
Trust Portfolio 32
Notes to Trust Portfolio 33
Estimated Cash Flows to Unitholders 34
</TABLE>
35
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The undertaking to file reports
The signatures
The following exhibits:
1.1 Trust Agreement (to be supplied by amendment).
1.1.1. Standard Terms and Conditions of Trust.
1.2 Articles of Incorporation of Sterne, Agee & Leach, Inc.
1.3 By-laws of Sterne, Agee & Leach, Inc.
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be supplied by amendment).
3.2 Opinion and consent of counsel as to Federal income tax status of
securities being registered (to be supplied by amendment).
3.3 Opinion and consent of counsel as to Alabama tax status of securities
being registered (to be supplied by amendment).
4.1 Consent of evaluator (to be supplied by amendment).
4.2 Consent of Independent Auditors (to be supplied by amendment).
6.1 Power of Attorney.
S-1
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
S-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
State and Local Trusts, Series 1 has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized in
the City of Birmingham and State of Alabama on the 23rd day of October, 1996.
STATE AND LOCAL TRUSTS, SERIES 1
By STERNE, AGEE & LEACH, INC., Depositor
By S. ASHTON STUCKEY
-----------------------------------
S. Ashton Stuckey
Managing Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on October 23, 1996 by the following
persons in the capacities indicated.
SIGNATURE TITLE
CRAIG BARROW III Director
- ------------------------
Craig Barrow III
LINDA M. DANIEL Director
- ------------------------
Linda M. Daniel
WILLIAM H. FLANDERS Director
- ------------------------
William H. Flanders
R. ANDREW GARRETT Director
- ------------------------
R. Andrew Garrett
JAMES S. HOLBROOK, JR. Director
- ------------------------
James S. Holbrook, Jr.
ALONZO H. LEE, JR. Director
- ------------------------
Alonzo H. Lee, Jr.
S-3
<PAGE>
SIGNATURE TITLE
KATHRYN W. MIREE Director
- ------------------------
Kathryn W. Miree
WILLIAM LEE SMITH Director
- ------------------------
William Lee Smith
F. EUGENE WOODHAM Director
- ------------------------
F. Eugene Woodham
S. ASHTON STUCKEY
------------------------------
S. Ashton Stuckey
(Attorney-in-fact*)
- -------------------
* An executed copy of the power of attorney is filed herewith.
S-4
EXHIBIT 1.1.1
STANDARD TERMS AND CONDITIONS OF TRUST
FOR
STERNE, AGEE & LEACH, INC.
TAX-EXEMPT TRUSTS
DATED: OCTOBER 23, 1996
(INCLUDING STATE AND LOCAL TRUSTS, SERIES 1
AND SUBSEQUENT SERIES)
AMONG
STERNE, AGEE & LEACH, INC.
Depositor, Evaluator and Supervisor
AND
THE TRUST COMPANY OF STERNE, AGEE & LEACH, INC.
Trustee
<PAGE>
STANDARD TERMS AND CONDITIONS OF TRUST
FOR
STERNE, AGEE & LEACH, INC.
TAX-EXEMPT TRUSTS
DATED OCTOBER 23, 1996
TABLE OF CONTENTS
PAGE
Preambles 1
ARTICLE I DEFINITIONS 2
Section 1.01 Definitions 2
ARTICLE II DEPOSIT OF BONDS; ACCEPTANCE OF TRUST; SEPARATE
TRUSTS; FORM AND ISSUANCE OF UNITS; PORTFOLIO
INSURANCE 4
Section 2.01 Deposit of Bonds 4
Section 2.02 Acceptance of Trust 4
Section 2.03 Issue of Units 4
Section 2.04 Separate Trusts 5
Section 2.05 Portfolio Insurance for the Insured Trusts 5
ARTICLE III ADMINISTRATION OF FUND 6
Section 3.01 Initial Cost 6
Section 3.02 Interest Account 7
Section 3.03 Principal Account 7
Section 3.04 Reserve Account 8
Section 3.05 Distributions 8
Section 3.06 Distribution Statements 10
Section 3.07 Sale of Bonds 12
Section 3.08 Refunding Bonds 13
Section 3.09 Bond Counsel 14
Section 3.10 Notice and Sale by Trustee 14
Section 3.11 Trustee Not Required to Amortize 14
Section 3.12 Liability of Depositor 14
Section 3.13 Notice to Depositor 14
Section 3.14 Limited Replacement of Special Bonds 15
Section 3.15 Compensation of Supervisor 16
Section 3.16 Deferred Sales Charge 17
ARTICLE IV EVALUATION OF BONDS; EVALUATOR 17
Section 4.01 Evaluation of Bonds 17
Section 4.02 Information for Unitholders 18
-i-
<PAGE>
Section 4.03 Compensation of Evaluator 18
Section 4.04 Liability of Evaluator 19
Section 4.05 Resignation and Removal of Evaluator; Successor 19
ARTICLE V EVALUATION, REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF UNITS 20
Section 5.01 Evaluation 20
Section 5.02 Redemptions by Trustee; Purchases by Depositor 21
Section 5.03 Transfer of Units 22
ARTICLE VI TRUSTEE 23
Section 6.01 General Definition of Trustee's Liabilities,
Rights and Duties 23
Section 6.02 Books, Records and Reports 25
Section 6.03 Indenture and List of Bonds on File 26
Section 6.04 Compensation 26
Section 6.05 Removal and Resignation of Trustee; Successor 27
Section 6.06 Qualifications of Trustee 28
ARTICLE VII RIGHTS OF UNITHOLDERS 28
Section 7.01 Beneficiaries of Trust 28
Section 7.02 Rights, Terms and Conditions 28
ARTICLE VIII ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS 29
Section 8.01 Amendments 29
Section 8.02 Termination 30
Section 8.03 Construction 31
Section 8.04 Registration of Units 31
Section 8.05 Written Notice 31
Section 8.06 Severability 31
Section 8.07 Dissolution of Depositor Not to Terminate 32
Execution 33
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STERNE, AGEE & LEACH, INC.
TAX-EXEMPT TRUSTS
DATED: OCTOBER 23, 1996
These Standard Terms and Conditions of Trust dated October 23, 1996 are
executed by STERNE, AGEE & LEACH, INC., as Depositor, Evaluator and
Supervisor, and THE TRUST COMPANY OF STERNE, AGEE & LEACH, INC., as Trustee.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, Evaluator, Supervisor and Trustee agree as follows:
INTRODUCTION
These Standard Terms and Conditions of Trust dated October 23, 1996 shall be
applicable to State and Local Trusts, Series 1 and all subsequent Series
established on or after the date of effectiveness hereof, as provided in this
paragraph. For State and Local Trusts, Series 1 and all subsequent Series
established on or after the date of effectiveness hereof to which these
Standard Terms and Conditions of Trust dated October 23, 1996 are to be
applicable, the Depositor, Evaluator, Supervisor and Trustee shall execute a
Trust Agreement incorporating by reference these Standard Terms and Conditions
of Trust dated October 23, 1996 and designating any exclusion from or
exception to such incorporation by reference for the purposes of that Series
or variation of the terms hereof for the purposes of that Series and
specifying for that Series (i) the Bonds deposited in the various Trusts and
the number of Units delivered by the Trustee in exchange for the Bonds
pursuant to Section 2.03, (ii) the fractional undivided interest in the
respective Trusts represented by each Unit, (iii) the First Settlement Date,
(iv) the First General Record Date, if any, (v) the Record and Distribution
Dates specific to each plan of distribution and (vi) the amount of the Trustee
advancement with respect to any "when-issued" Bonds deposited in the Fund.
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NOW THEREFORE, in consideration of the premises and of the mutual agreements
herein contained the Depositor, Evaluator, Supervisor and Trustee agree as
follows:
ARTICLE I
DEFINITIONS;
Section 1.01. Definitions. Whenever used in this Indenture the
following words and phrases, unless the context clearly indicates otherwise,
shall have the following meanings:
(1) "Depositor" shall mean Sterne, Agee & Leach, Inc. and its
successors in interest, or any successor depositor appointed as hereinafter
provided.
(2) "Evaluator" shall mean Sterne, Agee & Leach, Inc. and its
successors in interest, or any successor evaluator appointed as hereinafter
provided.
(3) "Supervisor" shall mean Sterne, Agee & Leach, Inc. and its
successors in interest, or any successor supervisor appointed as hereinafter
provided.
(4) "Trustee" shall mean The Trust Company of Sterne, Agee & Leach,
Inc., or any successor trustee appointed as hereinafter provided or any entity
which acquires all or a substantial part of the unit investment trust division
of The Trust Company of Sterne, Agee & Leach, Inc.
(5) "Bonds" shall mean such of the interest bearing tax-exempt
obligations, including delivery statements relating to "when-issued" and/or
"regular way" contracts, if any, for the purchase of certain bonds and
certified or bank check or checks or letter of credit or letters of credit
sufficient in amount or availability required for such purchase, deposited in
irrevocable trust and listed in all Schedules of the Trust Agreement, and any
obligations received in exchange, substitution or replacement for such
obligations pursuant to Sections 3.08 and 3.14 hereof, as may from time to
time continue to be held as a part of the Trusts.
(6) "Unitholder" shall mean the registered holder of any Unit as
recorded on the books of the Trustee, his legal representatives and heirs and
the successors of any corporation, partnership or other legal entity which is
a registered holder of any Unit and as such shall be deemed a beneficiary of
the Trusts created by this Indenture to the extent of his or her pro rata
share thereof.
(7) "Contract Bonds" shall mean Bonds which are to be acquired by
the Fund pursuant to contracts, including (i) Bonds listed in Schedule A to
the Trust Agreement and (ii) Bonds which the Depositor has contracted to
purchase for the Fund pursuant to Section 3.14 hereof.
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(8) "Trust" or "Trusts" shall mean the separate trust or trusts,
created by this Indenture, the Bonds constituting the portfolios of which are
listed in the various separate Schedules attached hereto. "Insured Trust"
shall mean a Trust in the Fund which has obtained Insurance, as such term is
defined in Section 1.01(11), or which is comprised entirely of Pre-Insured
Bonds, as such term is defined in Section 1.01(11). "State Trust" shall mean
a Trust in the Fund, the Bonds constituting the portfolio of which are
predominantly issued by issuers located in the state for which such Trust is
named.
(9) "Fund" shall mean the collective Trusts created by the Trust
Agreement, which shall consist of the Bonds held pursuant and subject to the
Indenture together with all undistributed interest received or accrued
thereon, any undistributed cash realized from the sale, redemption,
liquidation, or maturity thereof or the proceeds of insurance received in
respect thereof. Such amounts as may be on deposit in any Reserve Account
hereinafter established shall be excluded from the Fund.
(10) "Trust Agreement" shall mean the Trust Agreement for the
particular series of the Fund into which these Standard Terms and Conditions
are incorporated.
(11) "Insurance" shall mean one or more contracts or policies of
insurance obtained by certain Trusts of the Fund guaranteeing the payment when
due of the principal of and interest on the Bonds held pursuant and subject to
this Indenture, together with the proceeds, if any, thereof payable to or
received by the Trustee for the benefit of such Trusts and the Unitholders
thereof except that Insurance shall not include those Bonds held pursuant and
subject to this Indenture which are insured by individual policies of
insurance issued by AMBAC Indemnity Corporation, MBIA Insurance Corporation,
Financial Guaranty Insurance Company, Financial Security Assurance, Inc.,
Capital Guarantee Insurance Company and/or Capital Markets Assurance
Corporation (collectively, the "Issuer Insurers") which have been obtained by
the issuers of such Bonds (the "Pre-Insured Bonds").
(12) "Insurer" shall mean AMBAC Indemnity Corporation or Financial
Guaranty Insurance Company, their successors and assigns, each having its
principal office in New York, New York, one or both of which have issued a
contract or policy of insurance obtained by certain Trusts of the Fund
protecting such Trusts and the Unitholders thereof against nonpayment when due
of the principal of and interest on any Bond (except for Pre-Insured Bonds)
held by the Trustee as part of such Trust.
(13) "Units" in respect of any Trust shall mean the fractional
undivided interest in and ownership of the Trust equal initially to the
fraction of the respective Trust specified in Part II of the Trust Agreement,
the denominator of which shall be decreased by the number of any such Units
redeemed as provided in Section 5.02.
(14) "Indenture" shall mean these Standard Terms and Conditions of
Trust as originally executed or, if amended as hereinafter provided, as so
amended, together with the Trust Agreement creating a particular series of the
Fund.
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(15) "Business Day" shall mean any day other than a Sunday or, in the
City of Birmingham, Alabama, a legal holiday or a day on which banking
institutions are authorized by law to close.
(16) "Prospectus" shall mean (a) the prospectus relating to the Fund
filed with the Securities and Exchange Commission pursuant to Rule 497(b)
under the Securities Act of 1933, as amended, and dated the date of the Trust
Agreement or (b) if any post effective amendment to such prospectus shall have
been subsequently made effective under the Securities Act of 1933, as amended,
such post effective amendment thereto.
(17) Words importing singular number shall include the plural number
in each case and vice versa, and words importing persons shall include
corporations and associations, as well as natural persons.
(18) The words "herein," "hereby," "herewith," "hereof,"
"hereinafter," "hereunder," "hereinabove," "hereafter," "heretofore" and
similar words or phrases of reference and association shall refer to this
Indenture in its entirety.
ARTICLE II
DEPOSIT OF BONDS; ACCEPTANCE OF TRUST; SEPARATE TRUSTS;
FORM AND ISSUANCE OF UNITS; PORTFOLIO INSURANCE
Section 2.01. Deposit of Bonds. The Depositor, on the date of the
Trust Agreement, has deposited with the Trustee in trust the Bonds listed in
the Schedules attached to this Indenture in bearer form or duly endorsed in
blank or accompanied by all necessary instruments of assignment and transfer
in proper form to be held, managed and applied by the Trustee as herein
provided. The Depositor shall deliver the Bonds listed on said Schedules to
the Trustee which were not actually delivered concurrently with the execution
and delivery of the Trust Agreement within 90 days after said execution and
delivery, or if the contract to buy such Bond between the Depositor and seller
is terminated by the seller thereof for any reason beyond the control of the
Depositor, the Depositor shall forthwith take the remedial action specified in
Section 3.14.
Section 2.02. Acceptance of Trust. The Trustee hereby accepts the
trusts herein created for the use and benefit of the Unitholders in the
Trusts, subject to the terms and conditions of this Indenture.
Section 2.03. Issue of Units. The Trustee hereby acknowledges receipt
of the deposit of the Bonds listed in the Schedules to the Trust Agreement and
referred to in Section 2.01 hereof and, simultaneously with the receipt of
said deposit, has recorded on its book the ownership, by the Depositor or such
other person or persons as may be indicated by the Depositor, of the aggregate
number of Units specified in the Trust Agreement and has delivered, or on the
order of the Depositor will deliver, in exchange for such Bonds, documentation
evidencing the ownership of the number of Units specified. Units will be held
in uncertificated form only.
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Section 2.04. Separate Trusts. The Trusts created by this Indenture
are separate and distinct trusts for all purposes and the assets of one trust
may not be commingled with the assets of any other nor shall the expenses of
any Trust be charged against the other. The Units representing the ownership
of an undivided fractional interest in one Trust shall not be exchangeable for
Units representing the ownership of an undivided fractional interest in any
other.
Section 2.05. Portfolio Insurance for the Insured Trusts.
Concurrently with the delivery to the Trustee of the Bonds listed in the
Schedules attached to this Indenture, the Insurer has delivered to and
deposited with the Trustee for each of the Insured Trusts of the Fund the
Insurance to protect such Trusts of the Fund and the Unitholders thereof
against nonpayment of principal and interest, when due, on any Bond or Bonds
(except for Pre-Insured Bonds) held by the Trustee in the portfolios of such
Trusts of the Fund.; The Trustee shall take all action deemed necessary or
advisable in connection with the Insurance to continue the Insurance in full
force and effect and shall pay all premiums due thereon, including the initial
premium, all in such manner as in its sole discretion shall appear to result
in the most protection and least expense to the Insured Trusts of the Fund.
The Insurance may not be canceled by the Insurer. However, as of each
computation day the Trustee shall make the deduction and payment of premiums
prescribed in Section 3.05(c) of this Indenture in order to continue in force
the coverage thus provided. The Insurer's right to the payment of premiums
from funds held by the Trustee in accordance with the terms of the policy is
absolute (except when payment is withheld in good faith by the Trustee in the
event of a dispute over the amount thereof), but no failure on the part of the
Trustee to make such payment of premium or installment thereof to the Insurer
shall result in a cancellation of the Insurance or otherwise affect the right
of any Unitholder under the policy to have any amounts of principal and
interest paid by the Insurer to the Trustee to be held as part of the Insured
Trusts of the Fund when the same are not paid when due by the issuer of a Bond
or Bonds held by the Trustee as part of such Trusts of the Fund.
With each payment of premium or installment thereof, the Trustee shall notify
the Insurer of all Bonds (except Pre-Insured Bonds) which during the expiring
premium period were redeemed from or sold by the Insured Trusts of the Fund.
At all times during the existence of the Insured Trusts of the Fund the
Insurance policy shall provide for payment by the Insurer to the Trustee of
any amounts of principal and interest due, but not paid, by the issuer of a
Bond insured by the Insurance. The Trustee shall promptly notify the Insurer
of any nonpayment or threatened nonpayment of principal or interest and the
Insurer shall within 30 days after receipt of such notice make payment to the
Trustee of all amounts of principal and interest at that time due, but not
paid.
Payments of principal and interest assumed by the Insurer shall be made as
required by the related Bond or Bonds, except in the event of a sale of any
such Bond or Bonds by the Trustee under Section 3.07, 5.02 or 6.04, or a
termination of this Indenture and the Insured Trusts of the Fund created
hereby under Section 8.02, prior to the final maturity of such Bond or Bonds,
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in each of which events, upon notice from the Trustee, the Insurer shall
promptly make payment of the accrued interest on such Bond or Bonds to the
Trustee and shall be relieved of further obligation to the Trustee thereon.
Upon the making of any payment referred to in the preceding paragraphs, the
Insurer shall succeed to the rights of the Trustee under the Bond or Bonds
involved to the extent of the payments made at that time, or any time
subsequent thereto, and shall continue to make all payments required by the
terms of such Bond or Bonds to the extent that funds are not provided therefor
by the issuer thereof. Upon the payment of any amounts by the Insurer,
occasioned by the nonpayment thereof by the issuer, the Trustee shall execute
and deliver to the Insurer any receipt, instrument or document required to
evidence the right of the Insurer in the Bond or Bonds involved to payment of
principal and/or interest thereon to the extent of the payments made by the
Insurer to the Trustee.
With respect to Pre-Insured Bonds in the respective Trusts of the Fund, the
Trustee shall promptly notify the Issuer Insurer of any nonpayment of
principal or interest on such Pre-Insured Bonds and if the Issuer Insurer
should fail to make payment to the Trustee within 30 days after receipt of
such notice, the Trustee shall take all action against the Issuer Insurer
and/or the issuer deemed necessary to collect all amounts of principal and
interest at that time due, but not collected.
ARTICLE III
ADMINISTRATION OF FUND
Section 3.01. Initial Cost. The expenses incurred in establishing a
Trust, including the cost of the initial preparation and typesetting of the
registration statement, prospectuses (including preliminary prospectuses), the
indenture, and other documents relating to a Trust, Securities and Exchange
Commission and state blue sky registration fees, the costs of the initial
valuation of the portfolio and audit of a Trust, the initial fees and expenses
of the Trustee, and legal and other non-material out-of-pocket expenses
related thereto, but not including the expenses incurred in the printing of
preliminary prospectuses and final prospectuses, expenses incurred in the
preparation and printing of brochures and other advertising materials and any
other selling expenses shall be borne by the Trust. To the extent the funds
in the Interest and Principal Accounts of the Trust shall be insufficient to
pay the expenses borne by the Trust specified in this Section 3.01, the
Trustee shall advance out of its own funds and cause to be deposited and
credited to the Interest Account such amount as may be required to permit
payment of such expenses. The Trustee shall be reimbursed for such advance on
each Record Date from funds on hand in the Income Account or, to the extent
funds are not available in such Account, from the Principal Account, in the
amount deemed to have accrued as of such Record Date as provided in the
following sentence (less prior payments on account of such advances, if any),
and the provisions of Section 6.04 with respect to the reimbursement of
disbursements for Trust expenses, including, without limitation, the lien in
favor of the Trustee therefor, shall apply to the payment of expenses made
pursuant to this Section. For purposes of the preceding sentence and the
addition provided in clause (d) of the first sentence of Section 5.01, the
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expenses borne by the Trust pursuant to this Section shall be deemed to have
been paid upon the date of the Trust Agreement and to accrue at a daily rate
over the time period specified for their amortization by the Depositor
pursuant to Section 5.01; provided, however, that nothing herein shall be
deemed to prevent, and the Trustee shall be entitled to full reimbursement
for, any advances made pursuant to this Section no later than the termination
of the Trust. For purposes of calculating the accrual of organizational
expenses under this Section 3.01, the Trustee shall rely on the written
estimates provided by the Depositor pursuant to Section 5.01.
Section 3.02. Interest Account. The Trustee shall collect the
interest on the Bonds in each Trust as such becomes payable (including all
interest accrued but unpaid prior to the date of deposit of the Bonds in trust
and including that part of the proceeds of the sale, liquidation, redemption
or maturity of any Bonds or insurance thereon which represents accrued
interest thereon) and credit such interest to a separate account for each
Trust to be known as the "Interest Account."
Section 3.03. Principal Account. (a) The Bonds in each Trust and all
moneys (except moneys held by the Trustee pursuant to subsection (b) hereof)
other than amounts credited to the Interest Account, received by the Trustee
in respect of the Bonds in each Trust, including insurance thereon, if any,
shall be credited to a separate account for each Trust to be known as the
"Principal Account."
(b) Moneys and/or irrevocable letters of credit required to purchase
Contract Bonds or deposited to secure such purchases are hereby declared to be
held specially by the Trustee for such purchases and shall not be deemed to be
part of the Principal Account of the applicable Trust until (i) the Depositor
fails to timely purchase a Contract Bond and has not given the Failed Contract
Notice (as defined in Section 3.14) at which time the moneys and/or letters of
credit attributable to the Contract Bond not purchased by the Depositor shall
be credited to the Principal Account; or (ii) the Depositor has given the
Trustee the Failed Contract Notice at which time the moneys and/or letters of
credit attributable to failed contracts referred to in such Notice shall be
credited to the Principal Account; provided, however, that if the Depositor
also notifies the Trustee in the Failed Contract Notice that it has purchased
or entered into a contract to purchase a New Bond (as defined in Section
3.14), the Trustee shall not credit such moneys and/or letters of credit to
the Principal Account unless the New Bond shall also have failed or is not
delivered by the Depositor within two business days after the settlement date
of such New Bond, in which event the Trustee shall forthwith credit such
moneys and/or letters of credit to the Principal Account. The Trustee shall
in any case forthwith credit to the Principal Account, and/or cause the
Depositor to deposit in the Principal Account, the difference, if any, between
the purchase price of the failed Contract Bond and the purchase price of the
New Bond, together with any sales charge and accrued interest applicable to
such difference and distribute such moneys to Unitholders pursuant to Section
3.05.
The Trustee shall give prompt written notice to the Depositor and the
Evaluator of all amounts credited to or withdrawn from a Principal Account and
the balance in such Account after giving effect to such credit or withdrawal.
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Section 3.04. Reserve Account. From time to time the Trustee shall
withdraw from the cash on deposit in an Interest Account or Principal Account
of the appropriate Trust such amounts as it, in its sole discretion, shall
deem requisite to establish a reserve for any applicable taxes or other
governmental charges that may be payable out of such Trust. Such amounts so
withdrawn shall be credited to a separate account which shall be known as the
"Reserve Account." The Trustee shall not be required to distribute to the
Unitholders any of the amounts in the Reserve Account; provided, however, that
if it shall, in its sole discretion, determine that such amounts are no longer
necessary for payment of any applicable taxes or other governmental charges,
then it shall promptly deposit such amounts in the account from which
withdrawn or if such Trust shall have terminated or shall be in the process of
termination, the Trustee shall distribute same in accordance with Section 8.02
(d) and (e) to each Unitholder such holder's interest in the Reserve Account.
Section 3.05. Distributions. The Trustee, as of the "First Settlement
Date," as defined in Part II of the Trust Agreement, shall advance from its
own funds and shall pay to the Unitholders of the respective Trusts then of
record the amount of interest accrued on the Bonds deposited in the respective
Trusts. The Trustee shall also advance from its own funds and pay the
appropriate persons the amount specified in Part II of the Trust Agreement,
which amount represents interest which accrues on any "when issued" Bonds
deposited in the respective Trusts from the date stated in the preceding
sentence to the respective dates of delivery to the respective Trusts of any
of such Bonds. The Trustee shall be entitled to reimbursement for such
advancement from interest received by the respective Trusts before any further
distributions shall be made from the Interest Account to Unitholders of the
respective Trusts. Subsequent distributions shall be made as hereinafter
provided.
The second distribution of funds from the Interest Accounts of the respective
Trusts shall be made on the applicable "Distribution Dates" of each Trust as
defined in Part II of the Trust Agreement.
As of the first day of each month of each year commencing with the first
monthly Record Date, the Trustee shall, with respect to each Trust:
(a) deduct from the Interest Account or, to the extent funds are not
available in such Account, from the Principal Account and pay to itself
individually the amounts that it is at the time entitled to receive pursuant
to Section 6.04;
(b) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account and pay to the
Evaluator the amount that it is at the time entitled to receive pursuant to
Section 4.03;
(c) with respect to the Insured Trusts, deduct from the Interest
Account, or, to the extent funds are not available in such Account, from the
Principal Account and pay to the Insurer the amount of any premium to which it
is at the time entitled to receive pursuant to Section 2.06.;
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(d) deduct from the Interest Account, or to the extent funds are not
available in such Account, from the Principal Account and pay to the
Supervisor the amount that it is entitled to receive pursuant to Section 3.15;
(e) deduct from the Interest Account, or to the extent funds are not
available in such Account, from the Principal Account and pay to the Depositor
the amount that it is entitled to receive pursuant to Section 3.16; and
(f) deduct from the Interest Account, or, to the extent funds are
not available in such Account, from the Principal Account and pay to bond
counsel, as hereinafter provided for, an amount equal to unpaid fees and
expenses, if any, of such bond counsel pursuant to Section 3.09 as certified
to by the Depositor.
On or shortly after the monthly distribution date for each Trust (the
"Distribution Date"), as specified in Part II of the Trust Agreement, the
Trustee shall, with respect to each Trust, distribute by mail to or upon the
order of each Unitholder of record of such Trust as of the close of business
on the preceding Record Date at the post office address appearing on the
registration books of the Trustee such Unitholder's pro rata share of the
balance of the Interest Account calculated as of the Record Date for such
monthly payment on the basis of one-twelfth of the estimated annual interest
income to such Trust for the ensuing twelve months, after deduction of the
estimated costs and expenses of such Trust to be incurred during the twelve
month period for which the interest income has been estimated.
In the event the amount on deposit in the Interest Account of a Trust is not
sufficient for the payment of the amount of interest to be distributed to
Unitholders on the basis of the aforesaid computations, the Trustee may
advance its own funds and cause to be deposited in and credited to such
Interest Account such amounts as may be required to permit payment of the
monthly interest distribution to be made as aforesaid and shall be entitled to
be reimbursed out of interest received by such Trust subsequent to the date of
such advance.
Distributions of amounts represented by the cash balance in the Principal
Account for each Trust shall be computed as of the monthly Record Dates
occurring subsequent to the date of the First General Record Date. On the
Distribution Date of each month as of which such computation is made, or
within a reasonable period of time thereafter, the Trustee shall distribute by
mail to each Unitholder of record of such Trust at the close of business on
the date of computation (the "Record Date") at his post office address such
holder's pro rata share of the cash balance of the Principal Account as thus
computed. The Trustee shall not be required to make a distribution from the
Principal Account unless the cash balance on deposit therein available for
distribution shall be sufficient to distribute at least $1.00 per Unit.
If the Depositor (i) fails to replace any failed Special Bond (as defined in
Section 3.14) or (ii) is unable or fails to enter into any contract for the
purchase of any New Bond in accordance with Section 3.14, the Trustee shall
distribute to all Unitholders of the related Trust the principal, accrued
interest and sales charge attributable to such Special Bonds at the next
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monthly distribution date which is more than thirty days after the expiration
of the Purchase Period (as defined in Section 3.14) or at such earlier time or
in such manner as the Trustee in its sole discretion deems to be in the best
interest of the Unitholders of the related Trust.
If any contract for a New Bond in replacement of a Special Bond shall fail,
the Trustee shall distribute the principal, accrued interest and sales charge
attributable to the Special Bond to the Unitholders of the related Trust at
the next monthly distribution date which is more than thirty days after the
date on which the contract in respect of such New Bond failed or at such
earlier time or in such earlier manner as the Trustee in its sole discretion
determines to be in the best interest of the Unitholders of the related Trust.
If, at the end of the Purchase Period, less than all moneys attributable to a
failed Special Bond have been applied or allocated by the Trustee pursuant to
a contract to purchase New Bonds, the Trustee shall distribute the remaining
moneys to Unitholders of the related Trust at the next monthly distribution
date which is more than thirty days after the end of the Purchase Period or at
such earlier time thereafter as the Trustee in its sole discretion deems to be
in the best interest of the Unitholders of the related Trust.
The amounts to be so distributed to each Unitholder of a Trust shall be that
pro rata share of the cash balance of the Interest and Principal Accounts of
such Trust, computed as set forth above, as shall be represented by the Units
registered in the name of such Unitholder.
In the computation of each such share, fractions of less than one cent shall
be omitted. After any such distribution provided for above, any cash balance
remaining in an Interest Account or Principal Account of a Trust shall be held
in the same manner as other amounts subsequently deposited in each of such
accounts, respectively.
For the purpose of distributions as herein provided, the holders of record on
the registration books of the Trustee at the close of business on each Record
Date shall be conclusively entitled to such distribution, and no liability
shall attach to the Trustee by reason of payment to any such registered
Unitholder of record. Nothing herein shall be construed to prevent the
payment of amounts from the Interest Account and the Principal Account of a
Trust to individual Unitholders by means of one check, draft or other proper
instrument, provided that the appropriate statement of such distribution shall
be furnished therewith as provided in Section 3.06 hereof.
Section 3.06. Distribution Statements. With each distribution from
the Interest or Principal Accounts of a Trust the Trustee shall set forth,
either in the instrument by means of which payment of such distribution is
made or in an accompanying statement, the amount being distributed from each
such account and, if from the Interest Account, the amount of accrued interest
(uncollected and not available for distribution) on the record date for such
distribution, each expressed as a dollar amount per Unit.
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Within a reasonable period of time after the last business day of each
calendar year, the Trustee shall furnish to each person who at any time during
such calendar year was a Unitholder of a Trust a statement setting forth, with
respect to such calendar year:
(A) as to the Interest Account:
(1) the amount of interest received on the Bonds,
(2) the amounts paid for purchases of New Bonds pursuant to Section
3.14 and for redemptions pursuant to Section 5.02,
(3) the deductions for applicable taxes and fees and expenses of the
Trustee and bond counsel, and
(4) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount per Unit
outstanding on the last business day of such calendar year;
(B) as to the Principal Account:
(1) the dates of the sale, maturity, liquidation or redemption of
any of the Bonds and the net proceeds received therefrom, excluding any
portion thereof credited to the Interest Account,
(2) the amount paid for purchases of New Bonds pursuant to Section
3.14 and for redemptions pursuant to Section 5.02,
(3) the deductions for payment of applicable taxes and fees and
expenses of the Trustee and bond counsel, and
(4) the balance remaining after such distributions and deductions,
expressed both as a total dollar amount and as a dollar amount per Unit
outstanding on the last business day of such calendar year;
(C) the following information:
(1) a list of the Bonds as of the last business day of such calendar
year,
(2) the number of Units outstanding on the last business day of such
calendar year,
(3) the Unit Value based on the last evaluation of such Trust made
during such calendar year, and
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(4) the amounts actually distributed during such calendar year from
the Interest and Principal Accounts, separately stated, expressed both as
total dollar amounts and as dollar amounts per Unit outstanding on the
record dates.
Section 3.07. Sale of Bonds. If necessary, in order to maintain the
investment character of a Trust, the Depositor may direct the Trustee to sell
or liquidate Bonds at such price and time and in such manner as shall be
determined by the Depositor, provided that the Depositor has determined that
any one or more of the following conditions exist:
(a) that there has been a default on such Bonds in the payment of
principal or interest, or both, when due and payable;
(b) that any action or proceeding has been instituted in law or
equity seeking to restrain or enjoin the payment of principal or interest on
any such Bonds, attacking the constitutionality of any enabling legislation or
alleging and seeking to have judicially determined the illegality of the
issuing body or the constitution of its governing body or officers, the
illegality, irregularity or omission of any necessary acts or proceedings
preliminary to the issuance of such Bonds, or seeking to restrain or enjoin
the performance by the officers or employees of any such issuing body of any
improper or illegal act in connection with the administration of funds
necessary for debt service on such Bonds or otherwise; or that there exists
any other legal question or impediment affecting such Bonds or the payment of
debt service on the same;
(c) that there has occurred any breach of covenant or warranty in
any resolution, ordinance, trust indenture or other document, which would
adversely affect either immediately or contingently the payment of debt
service on such Bonds, or their general credit standing, or otherwise impair
the sound investment character of such Bonds;
(d) that there has been a default in the payment of principal of or
interest on any other outstanding obligations of an issuer or guarantor of
such Bonds;
(e) that in the case of revenue Bonds, the revenues and income of
the facility or project or other special funds expressly charged and pledged
for debt service on any such Bonds shall fall substantially below the
estimated revenues or income calculated by the engineers or other proper
officials charged with the acquisition, construction or operation of such
facility or project, so that, in the opinion of the Depositor, the retention
of such Bonds would be detrimental to the sound investment character of such
Trust and to the interest of the Unitholders;
(f) that the price of any such Bonds had declined to such an extent,
or such other market or credit factor exists, so that in the opinion of the
Depositor the retention of such Bonds would be detrimental to such Trust and
to the interest of the Unitholders;
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(g) that such Bonds are the subject of an advanced refunding. For
the purposes of this Section 3.07(g), "an advanced refunding" shall mean when
refunding bonds are issued and the proceeds thereof are deposited in
irrevocable trust to retire the Bonds on or before their redemption date; or
(h) that as of any Record Date any of the Bonds are scheduled to be
redeemed and paid prior to the next succeeding monthly Distribution Date;
provided, however, that as the result of such redemption the Trustee will
receive funds in an amount sufficient to enable the Trustee to include in the
next distribution from the Principal Account at least $1.00 per Unit.
If the Trust is an Insured Trust, the Depositor shall also consider whether
any Insurance that may be applicable to the Bonds cannot be relied upon to
provide the principal and interest protections intended to be afforded by such
Insurance.
In the event the Depositor has directed the Trustee to sell a Bond from an
Insured Trust, the Trustee shall exercise its right to purchase a policy
providing for permanent insurance (a "Permanent Insurance Policy") if the
Depositor determines that such purchase and payment of related premium will
result in a net realization for the Insured Trust greater than would the sale
of the Bond without the purchase of a Permanent Insurance Policy with respect
to such Bond and shall pay an amount equal to the premium payable for such
Permanent Insurance Policy to the Insurer at the time and in the manner
required by such Permanent Insurance Policy. Such premium shall be payable
only from the sale of such Bonds.
Upon receipt of such direction from the Depositor, upon which the Trustee
shall rely, the Trustee shall proceed to sell or liquidate the specified Bonds
in accordance with such direction; provided, however, that the Trustee shall
not sell or liquidate any Bonds upon receipt of a direction from the Depositor
that it has determined that the conditions in subdivision (h) above exist,
unless the Trustee shall receive on account of such sale or liquidation the
full principal amount of such Bonds, plus the premium, if any, and the
interest accrued and to accrue thereon to the date of the redemption of such
Bonds.
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of any sale made pursuant to any such direction or by
reason of the failure of the Depositor to give any such direction, and in the
absence of such direction the Trustee shall have no duty to sell or liquidate
any Bonds under this Section 3.07 except to the extent otherwise required by
Section 3.10 of this Indenture.
Section 3.08. Refunding Bonds. In the event that an offer shall be
made by an obligor of any of the Bonds in a Trust to issue new obligations in
exchange and substitution for any issue of Bonds pursuant to a plan for the
refunding or refinancing of such Bonds, the Depositor shall instruct the
Trustee in writing to reject such offer and either to hold or sell such Bonds,
except that if (1) the issuer is in default with respect to such Bonds or (2)
in the opinion of the Depositor, given in writing to the Trustee, the issuer
will probably default with respect to such Bonds in the reasonably foreseeable
future, the Depositor shall instruct the Trustee in writing to accept or
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reject such offer or take any other action with respect thereto as the
Depositor may deem proper. Any obligation so received in exchange shall be
deposited hereunder and shall be subject to the terms and conditions of this
Indenture to the same extent as the Bonds originally deposited hereunder.
Within five days after such deposit, notice of such exchange and deposit shall
be given by the Trustee to each Unitholder of such Trust, including an
identification of the Bonds eliminated and the bonds substituted therefor.
Section 3.09. Bond Counsel. The Depositor may employ from time to
time as it may deem necessary a firm of municipal bond attorneys for any legal
services that may be required in connection with the disposition of underlying
bonds pursuant to Section 3.07 or the substitution of any Bonds for underlying
bonds as the result of any refunding permitted under Section 3.08. The fees
and expenses of such bond counsel shall be paid by the Trustee from the
Interest and Principal Accounts of the appropriate Trust as provided for in
Section 3.05(e) hereof.
Section 3.10. Notice and Sale by Trustee. If at any time the
principal of or interest on any of the Bonds shall be in default and not paid
or provision for payment thereof shall not have been duly made within thirty
days, either pursuant to the Insurance, if any, or otherwise, the Trustee
shall notify the Depositor thereof. If within thirty days after such
notification the Depositor has not given any instruction to sell or to hold or
has not taken any other action in connection with such Bonds, the Trustee may
in its discretion sell such Bonds forthwith, and the Trustee shall not be
liable or responsible in any way for depreciation or loss incurred by reason
of such sale.
Section 3.11. Trustee Not Required to Amortize. Nothing in this
Indenture, or otherwise, shall be construed to require the Trustee to make any
adjustments between the Interest and Principal Accounts of any Trust by reason
of any premium or discount in respect of any of the Bonds.
Section 3.12. Liability of Depositor. The Depositor shall be under no
liability to the Unitholders for any action taken or for refraining from the
taking of any action in good faith pursuant to this Indenture or for errors in
judgment, but shall be liable only for its own willful misfeasance, bad faith
or gross negligence in the performance of its duties or by reason of its
reckless disregard of its obligations and duties hereunder. The Depositor may
rely in good faith on any paper, order, notice, list, affidavit, receipt,
opinion, endorsement, assignment, draft or any other document of any kind
prima facie properly executed and submitted to it by the Trustee, bond counsel
or any other persons pursuant to this Indenture and in furtherance of its
duties.
Section 3.13. Notice to Depositor. In the event that the Trustee
shall have been notified at any time of any action to be taken or proposed to
be taken by holders of the Bonds (including but not limited to the making of
any demand, direction, request, giving of any notice, consent or waiver or the
voting with respect to any amendment or supplement to any indenture,
resolution, agreement or other instrument under or pursuant to which the Bonds
have been issued), the Trustee shall promptly notify the Depositor and shall
thereupon take such action or refrain from taking any action as the Depositor
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shall in writing direct; provided, however, that if the Depositor shall not
within five business days of the giving of such notice to the Depositor direct
the Trustee to take or refrain from taking any action, the Trustee shall take
such action as it, in its sole discretion, shall deem advisable. Neither the
Depositor nor the Trustee shall be liable to any person for any action or
failure to take action with respect to this Section 3.13.
Section 3.14. Limited Replacement of Special Bonds. If any contract
in respect of Contract Bonds other than a contract to purchase a New Bond (as
defined below), including those purchased on a when, as and if issued basis,
shall have failed due to any occurrence, act or event beyond the control of
the Depositor or the Trustee (such failed Contract Bonds being herein called
the "Special Bonds"), the Depositor shall notify the Trustee (such notice
being herein called the "Failed Contract Notice") of its inability to deliver
the failed Special Bond to the Trustee after it is notified that the Special
Bond will not be delivered by the seller thereof to the Depositor. Prior to,
or simultaneously with, giving the Trustee the Failed Contract Notice, or
within a maximum of twenty days after giving such Notice (such twenty day
period being herein called the "Purchase Period"), the Depositor shall, if
possible, purchase or enter into the contract, if any, to purchase an
obligation to be held as a Bond hereunder (herein called the "New Bond") as
part of the appropriate Trust in replacement of the failed Special Bond,
subject to the satisfaction of all of the following conditions in the case of
each purchase or contract to purchase:
(a) The New Bonds (i) shall be tax exempt bonds issued by states or
territories of the United States or political subdivisions thereof and, in the
case of a State Trust, shall have the benefit of an exemption from taxation of
interest to an extent equal to or greater than that of the Bonds they replace,
(ii) shall have a fixed maturity date (whether or not entitled to the benefits
of any sinking, redemption, purchase or similar fund) not less than ten years
after the date of purchase, (iii) must be purchased at a price that results in
a current return as of the Date of Deposit at least equal to that of the
Special Bonds they replace, (iv) must be purchased at a price that results in
a yield to maturity of the Date of Deposit at least equal to that of the
Special Bonds they replace and (v) shall be payable as to principal and
interest in United States currency.
(b) Each New Bond shall be rated at least "BBB-" or better in the
case of the Insured Trusts and "A-" or better in the case of other Trusts by
Standard & Poor's Corporation or "Baa" or better in the case of the Insured
Trusts or "A" or better in the case of other Trusts by Moody's Investors
Service, Inc. or comparably rated by any other nationally recognized credit
rating service rating debt obligations which shall be designated by the
Depositor and shall be satisfactory to the Trustee.
(c) The purchase price of the New Bonds (exclusive of accrued
interest) shall not exceed the principal attributable to the Special Bonds.
(d) With respect to the Insured Trusts, each New Bond is a Pre-
Insured Bond or is acceptable to the Insurer to be included under the
respective Insured Trust's Insurance and will be so included upon acquisition
by the Trust.
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(e) The Depositor shall furnish a notice to the Trustee (which may
be part of the Failed Contract Notice) in respect of the New Bond purchased or
to be purchased that shall (i) identify the New Bonds, (ii) state that the
contract to purchase, if any, entered into by the Depositor is satisfactory in
form and substance, and (iii) state that the foregoing conditions of clauses
(a) through (d) have been satisfied with respect to the New Bonds.
Notwithstanding anything to the contrary in this Section 3.14, no substitution
of Replacement Bonds will be made without an opinion of counsel that such
substitution will not adversely affect the federal income tax status of the
related State Trust, if such Replacement Bonds when added to all previously
purchased Replacement Bonds in the related Trust exceed 15% of the principal
amount of Bonds initially deposited in the related Trust.
Upon satisfaction of the foregoing conditions with respect to any New Bond,
the Depositor shall pay the purchase price for the New Bond from its own
resources or, if the Trustee has credited any moneys and/or letters of credit
attributable to the failed Special Bond to the Principal Account of the
related Trust, the Trustee shall pay the purchase price of the New Bond upon
directions from the Depositor from the moneys and/or letters of credit so
credited to such Principal Account. If the Depositor has paid the purchase
price, and, in addition, the Trustee has credited moneys of the Depositor to
the Principal Account of the related Trust, the Trustee shall forthwith return
to the Depositor the portion of such moneys that is not properly distributable
to Unitholders of such Trust pursuant to Section 3.05.
Whenever a New Bond is acquired by the Depositor pursuant to the provisions of
this Section 3.14, the Trustee shall, within five days thereafter, mail to all
Unitholders of such Trust notices of such acquisition, including an
identification of the failed Special Bonds and the New Bonds acquired. The
purchase price of the New Bonds shall be paid out of the principal
attributable to the failed Special Bonds. The Trustee shall not be liable or
responsible in any way for depreciation or loss incurred by reason of any
purchase made pursuant to any such directions and in the absence of such
directions the Trustee shall have no duty to purchase any New Bonds under this
Indenture. The Depositor shall not be liable for any failure to instruct the
Trustee to purchase any New Bonds or for errors of judgment in respect of this
Section 3.14; provided, however, that this provision shall not protect the
Depositor against any liability to which it would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
Section 3.15. Compensation of Supervisor. As compensation for
providing supervisory portfolio services under this Indenture, the Supervisor
shall receive against a statement or statements therefor submitted to the
Trustee monthly or annually an aggregate annual fee as set forth in Part II of
the Trust Agreement. Such compensation may, from time to time, be adjusted
provided that the total adjustment upward does not, at the time of such
adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
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Department of Labor Consumer Price Index entitled "All Services Less Rent of
Shelter" or similar index, if such index should no longer be published. The
consent or concurrence of any Unitholder hereunder shall not be required for
any such adjustment or increase. Such compensation shall be charged by the
Trustee, upon receipt of invoice therefor from the Supervisor, against the
applicable Interest and Principal Accounts on or before the Distribution Date
on which such period terminates. If the cash balance in the Interest and
Principal Accounts shall be insufficient to provide for amounts payable
pursuant to this Section 3.15, the Trustee shall have the power to sell (i)
Bonds from the current list of Bonds designated to be sold pursuant to Section
5.02 hereof, or (ii) if no such Bonds have been so designated, such Bonds as
the Trustee may see fit to sell in its own discretion, and to apply the
proceeds of any such sale in payment of the amounts payable pursuant to this
Section 3.15. Any moneys payable to the Supervisor pursuant to this Section
3.15 shall be secured by a prior lien on the Fund except that no such lien
shall be prior to any lien in favor of the Trustee under the provisions of
Section 6.04.
Section 3.16. Deferred Sales Charge. If the Prospectus related to a
Trust specifies a deferred sales charge, the Trustee shall, on the dates
specified and as provided in such Prospectus, withdraw from the Interest
Account or Principal Account (as specified in the such Prospectus), an amount
per Unit specified in such Prospectus and credit such amount to a special non-
Trust account designated by the Depositor out of which the deferred sales
charge will be distributed to the Depositor (the "Deferred Sales Charge
Account"). If the balance in the applicable Account is insufficient to make
such withdrawal, the Trustee shall, as directed by the Depositor, advance
funds in an amount required to fund the proposed withdrawal and be entitled to
reimbursement of such advance upon the deposit of additional moneys in the
applicable Account, and/or sell Bonds and credit the proceeds thereof to the
Deferred Sales Charge Account. Such direction shall, if the Trustee is
directed to sell a Bond, identify the Bond to be sold and include instructions
as to the execution of such sale. If a Unitholder redeems Units prior to full
payment of the deferred sales charge, the Trustee shall, if so provided in the
related Prospectus, on the Redemption Date, withhold from the Redemption Price
payable to such Unitholder an amount equal to the unpaid portion of the
deferred sales charge and distribute such amount to the Deferred Sales Charge
Account. If pursuant to Section 5.02 hereof, the Depositor shall purchase a
Unit tendered for redemption prior to the payment in full of the deferred
sales charge due on the tendered Unit, the Depositor shall pay to the
Unitholder the amount specified under Section 5.02 less the unpaid portion of
the deferred sales charge. All advances made by the Trustee pursuant to this
Section shall be secured by a lien on the Trust prior to the interest of the
Unitholders.
ARTICLE IV
EVALUATION OF BONDS; EVALUATOR
Section 4.01. Evaluation of Bonds. The Evaluator shall determine
separately and promptly furnish to the Trustee and the Depositor upon request
the value of each issue of Bonds in each Trust (treating separate maturities
of Bonds as separate issues) as of the time specified in Part II of the Trust
Agreement (the "Evaluation Time") on days of trading on the New York Stock
Exchange on the bid side of the market on the days on which an evaluation of
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the Fund is required by Section 5.01 and, in addition, as of the Evaluation
Time on days of trading on the New York Stock Exchange on the bid side of the
market if a secondary market for the Units is maintained, such additional
evaluation being made on any day desired by the Trustee or deemed necessary by
the Depositor. Such evaluations shall be made (i) on the basis of current bid
prices for the Bonds, (ii) if bids are not available for the Bonds, on the
basis of current bid prices for comparable bonds, (iii) by causing the value
of the Bonds to be determined by others engaged in the practice of evaluation,
quoting or appraising comparable bonds, or (iv) by any combination of the
above. For each evaluation, the Evaluator shall also determine and furnish to
the Trustee and the Depositor the aggregate of (a) the value of all Bonds in
each Trust on the basis of such evaluation and (b) on the basis of the
information furnished to the Evaluator by the Trustee pursuant to Section
3.03, the amount of cash then held in the Principal Account relating to such
Trust which was received by the Trustee after the Record Date preceding such
determination less any amounts held in the Principal Account relating to such
Trust for distribution to Unitholders on a subsequent Distribution Date when a
Record Date occurs four business days or less after such determination. For
the purposes of the foregoing, the Evaluator may obtain current bid prices for
the Bonds in each Trust from investment dealers or brokers (including the
Depositor) that customarily deal in municipal bonds.
Section 4.02. Information for Unitholders. For the purpose of
permitting Unitholders to satisfy any reporting requirements of applicable
Federal or State tax law, the Evaluator shall make available to the Trustee
and the Trustee shall transmit to any Unitholder upon request any
determinations made by it pursuant to Section 4.01.
Section 4.03. Compensation of Evaluator. As compensation for its
services hereunder, the Evaluator shall receive against a statement therefor
submitted to the Trustee an annual fee, payable in monthly installments, as
set forth in Part II of the Trust Agreement. The Evaluator's compensation for
any year shall be computed on the basis set forth in Part II of the Trust
Agreement. Such compensation may, from time to time, be adjusted provided
that the total adjustment upward does not, at the time of such adjustment,
exceed the percentage of the total increase, after the date hereof, in
consumer prices for services as measured by the United States Department of
Labor Consumer Price Index entitled "All Services Less Rent of Shelter" or
similar index, if such index shall no longer be published. The consent or
concurrence of any Unitholder hereunder shall not be required for any such
adjustment or increase. Such compensation shall be charged by the Trustee,
upon receipt of invoice therefor from the Evaluator, against the Interest and
Principal Accounts of the respective Trusts on or before the Distribution Date
on which such period terminates. If the cash balances in the Interest and
Principal Accounts of any Trust shall be insufficient to provide for amounts
payable pursuant to this Section 4.03, the Trustee shall have the power to
sell (i) Bonds of such Trust from the Bonds designated to be sold pursuant to
Section 5.02 hereof, or (ii) if no such Bonds have been so designated, such
Bonds of such Trust as the Trustee may see fit to sell in its own discretion,
and to apply the proceeds of any such sale in payment of the amounts payable
pursuant to this Section 4.03. Any moneys payable to the Evaluator pursuant
to this Section 4.03 shall be secured by a prior lien on such Trust except
that no such lien shall be prior to any lien in favor of the Trustee under the
provisions of Section 6.04.
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Section 4.04. Liability of Evaluator. The Trustee, the Depositor and
the Unitholders may rely on any evaluation furnished by the Evaluator and
shall have no responsibility for the accuracy thereof. The determinations
made by the Evaluator hereunder shall be made in good faith upon the basis of
the best information available to it. The Evaluator shall be under no
liability to the Trustee, the Depositor or the Unitholders for errors in
judgment provided, however, that this provision shall not protect the
Evaluator against any liability to which it would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of its reckless disregard of its
obligations and duties hereunder.
Section 4.05. Resignation and Removal of Evaluator; Successor. (a) The
Evaluator may resign and be discharged hereunder, by
executing an instrument in writing resigning as Evaluator and filing the same
with the Depositor and the Trustee, not less than 60 days before the date
specified in such instrument when, subject to Section 4.05(e), such
resignation is to take effect. Upon receiving such notice of resignation, the
Depositor and the Trustee shall use their best efforts to appoint a successor
evaluator having qualifications and at a rate of compensation satisfactory to
the Depositor and the Trustee. Such appointment shall be made by written
instrument executed by the Depositor and Trustee, in duplicate, one copy of
which shall be delivered to the resigning Evaluator and one copy to the
successor evaluator. The Depositor or the Trustee may remove the Evaluator at
any time upon 30 days' written notice and appoint a successor evaluator having
qualifications and at a rate of compensation satisfactory to the Depositor and
the Trustee. Such appointment shall be made by written instrument executed by
the Depositor and the Trustee, in duplicate, one copy of which shall be
delivered to the Evaluator so removed and one copy to the successor evaluator.
Notice of such resignation or removal and appointment of a successor evaluator
shall be mailed by the Trustee to each Unitholder then of record.
(b) Any successor evaluator appointed hereunder shall execute,
acknowledge and deliver to the Depositor and the Trustee an instrument
accepting such appointment hereunder, and such successor evaluator without any
further act, deed or conveyance shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder with like effect
as if originally named Evaluator herein and shall be bound by all the terms
and conditions of this Indenture.
(c) In case at any time the Evaluator shall resign and no successor
evaluator shall have been appointed and have accepted appointment within 30
days after notice of resignation has been received by the Depositor and the
Trustee, the Evaluator may forthwith apply to a court of competent
jurisdiction for the appointment of a successor evaluator. Such court may
thereupon after such notice, if any, as it may deem proper and prescribe,
appoint a successor evaluator.
(d) Any corporation into which the Evaluator hereunder may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Evaluator hereunder shall be a party,
shall be the successor evaluator under this Indenture without the execution or
filing of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such merger
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or consolidation, by which the Evaluator may seek to retain certain powers,
rights and privileges theretofore obtaining for any period of time following
such merger or consolidation, to the contrary notwithstanding.
(e) Any resignation or removal of the Evaluator and appointment of a
successor evaluator pursuant to this Section shall become effective upon
acceptance of appointment by the successor evaluator as provided in subsection
(b) hereof.
ARTICLE V
EVALUATION, REDEMPTION, PURCHASE, TRANSFER,
INTERCHANGE OR REPLACEMENT OF UNITS
Section 5.01. Evaluation. The Trustee shall make an evaluation of
each Trust as of the Evaluation Time (as described in Section 4.01) on days of
trading on the New York Stock Exchange (i) on the day on which any Unit of
such Trust is tendered for redemption and (ii) on any other day desired by the
Trustee or requested by the Depositor. Such evaluations shall take into
account and itemize separately (1) the cash on hand in the respective Trusts
of the Fund (other than cash declared held in trust to cover contracts to
purchase bonds) or moneys in the process of being collected from matured
interest coupons or bonds matured or called for redemption prior to maturity,
(2) the value of each issue of the Bonds in the respective Trusts of the Fund
as last determined by the Evaluator pursuant to Section 4.01, and (3) interest
accrued thereon not subject to collection and distribution. For each such
evaluation there shall be deducted from the sum of the above (i) amounts
representing any applicable taxes or governmental charges payable out of the
respective Trusts of the Fund and for which no deductions shall have
previously been made for the purpose of addition to the Reserve Account of
such Trust, (ii) amounts representing accrued expenses of the respective
Trusts of the Fund including but not limited to unpaid fees and expenses of
the Trustee, the Evaluator, the Supervisor, the Depositor and bond counsel, in
each case as reported by the Trustee to the Depositor on or prior to the date
of evaluation, and (iii) cash held for distribution to Unitholders of record
of such Trust as of a date prior to the evaluation then being made. The value
of the pro rata share of each Unit of such Trust determined on the basis of
any such evaluation shall be referred to herein as the "Unit Value."
The Trustee shall make an evaluation of the Bonds deposited in each Trust as
of the time said Bonds are deposited under this Indenture. Such evaluation
shall be made on the same basis as set forth in Section 4.01, except that it
shall be based upon the offering prices of the Bonds. The Trustee, in lieu of
making the evaluation required hereby, may use an evaluation prepared by the
Evaluator and/or by any other recognized evaluator and in so doing shall not
be liable or responsible, under any circumstances whatsoever, for the accuracy
or correctness thereof, or for any error or omission therein. The Trustee's
determination of the offering price of the Bonds on the date of deposit
determined as herein provided shall be included in the Schedules attached to
the Trust Agreement.
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Section 5.02. Redemptions by Trustee; Purchases by Depositor. Any
Unit tendered for redemption by a Unitholder or his duly
authorized attorney to the Trustee at 1901 Sixth Avenue North, Birmingham,
Alabama 35203, tendered by means of an appropriate request for redemption in
form approved by the Trustee, shall be redeemed by the Trustee on the seventh
calendar day following the day on which tender for redemption is made,
provided that if such day of redemption is not a business day, then such Unit
shall be redeemed on the first business day prior thereto (being herein called
the "Redemption Date"). Subject to payment by such Unitholder of any tax or
other governmental charges which may be imposed thereon, such redemption is to
be made by payment on the Redemption Date of cash equivalent to the Unit
Value, determined by the Trustee as of the close of trading on the New York
Stock Exchange, on the date of tender; provided that accrued interest is paid
to the Redemption Date (herein called the "Redemption Price"). Units received
for redemption by the Trustee on any day after the Evaluation Time on days of
trading on the New York Stock Exchange will be held by the Trustee until the
next day on which the New York Stock Exchange is open for trading and will be
deemed to have been tendered on such day for redemption at the Redemption
Price computed on that day. Units will be deemed to be "tendered" to the
Trustee when the Trustee is in physical receipt of any such documentation as
is required to accomplish transfers of Units pursuant to Section 5.03 hereof.
The Trustee may in its discretion, and shall when so directed by the
Depositor, suspend the right of redemption for Units of a Trust or postpone
the date of payment of the Redemption Price therefor for more than seven
calendar days following the day on which tender for redemption is made (1) for
any period during which the New York Stock Exchange is closed other than
customary weekend and holiday closings or during which trading on the New York
Stock Exchange is restricted; (2) for any period during which an emergency
exists as a result of which disposal by such Trust of the Bonds is not
reasonably practicable or it is not reasonably practicable fairly to determine
in accordance herewith the value of the Bonds; or (3) for such other period as
the Securities and Exchange Commission may by order permit, and shall not be
liable to any person or in any way for any loss or damage which may result
from any such suspension or postponement.
Not later than the close of business on the day of tender of a Unit or Units
for redemption by a Unitholder other than the Depositor, the Trustee shall
notify the Depositor of such tender. The Depositor shall have the right to
purchase such Unit or Units by notifying the Trustee of its election to make
such purchase as soon as practicable thereafter but in no event subsequent to
the close of business on the second business day after the day on which such
Unit or Units were tendered for redemption. Such purchase shall be made by
payment for such Unit or Units by the Depositor to the Unitholder not later
than the close of business on the Redemption Date of an amount not less than
the Redemption Price which would otherwise be payable by the Trustee to such
Unitholder.
Any Unit or Units so purchased by the Depositor may at the option of the
Depositor be tendered to the Trustee for redemption at the Unit Investment
Trust Division office of the Trustee in the manner provided in the first
paragraph of this Section 5.02.
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If the Depositor does not elect to purchase any Unit or Units of a Trust
tendered to the Trustee for redemption, or if a Unit or Units are being
tendered by the Depositor for redemption, that portion of the Redemption Price
which represents interest shall be withdrawn from the Interest Account of such
Trust to the extent available. The balance paid on any redemption, including
accrued interest, if any, shall be withdrawn from the Principal Account of
such Trust to the extent that funds are available for such purpose. If such
available balance shall be insufficient, the Trustee shall sell such of the
Bonds held in such Trust, currently designated for such purposes by the
Supervisor, as the Trustee in its sole discretion shall deem necessary. In
the event that funds are withdrawn from such Principal Account for payment of
accrued interest, such Principal Account shall be reimbursed for such funds so
withdrawn when sufficient funds are next available in such Interest Account.
The Supervisor shall designate the Bonds held in each Trust to be sold for the
purpose of redemption of Units of each Trust tendered for redemption and not
purchased by the Depositor, and for payment of expenses hereunder, provided
that if the Supervisor shall for any reason fail to designate a Bond or Bonds
for such purpose the Trustee, in its sole discretion, may designate Bonds for
such purposes. The net proceeds of any sales of Bonds representing principal
shall be credited to the Principal Account of such Trust and the proceeds of
such sales representing accrued interest shall be credited to the Interest
Account of such Trust. With respect to the Insured Trusts, the Supervisor
shall also designate on such list of Bonds designated to be sold, the Bonds
upon the sale of which the Trustee shall obtain permanent insurance (the
"Permanent Insurance") from an Insurer, provided that if the Supervisor shall
for any reason fail to make such designation, the Trustee in its sole
discretion shall make such designation if it deems such designation to be in
the best interests of Unitholders. The Trustee is hereby authorized to pay
and shall pay out of the proceeds of the sale of the Bonds which are covered
by Permanent Insurance any premium for such Permanent Insurance and the net
proceeds after such deduction shall be credited to the Principal and Interest
Account as described above.
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of any sale of Bonds made pursuant to this Section
5.02. Units redeemed pursuant to this Section 5.02 shall be terminated by
such redemptions.
Section 5.03. Transfer of Units. Units will be held in uncertificated
form only. Units may be transferred by the registered holder thereof by a
written instrument or instruments of transfer in form satisfactory to the
Trustee and executed by the Unitholder or his authorized attorney, whereupon
new Units will be issued in exchange and substitution therefor and Units
surrendered shall be canceled by the Trustee. The registered holder of any
Unit may transfer such Unit by the presentation of transfer instructions to
the Trustee at the Unit Investment Trust Division office of the Trustee
accompanied by such documents as the Trustee deems necessary to evidence the
authority of the person making such transfer and executed by the registered
holder or his authorized attorney, whereupon the Trustee shall make proper
notification of such transfer on the registration books of the Trustee.
A sum sufficient to pay any tax or other governmental charge that may be
imposed in connection with any such transfer shall be paid by the Unitholder
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to the Trustee. The Trustee may require a Unitholder to pay a reasonable fee
which the Trustee in its sole discretion shall determine for each new Unit
issued on any such transfer.
ARTICLE VI
TRUSTEE
Section 6.01. General Definition of Trustee's Liabilities, Rights and
Duties. The Trustee shall in its discretion undertake such action as it may
deem necessary at any and all times to protect each Trust and the rights and
interests of the Unitholders thereof pursuant to the terms of this Indenture,
provided, however, that the expenses and costs of such actions, undertakings
or proceedings shall be reimbursable to the Trustee from the Interest and
Principal Accounts of such Trust and the payment of such costs and expenses
shall be secured by a prior lien on such Trust.
In addition to and notwithstanding the other duties, rights, privileges and
liabilities of the Trustee as otherwise set forth the liabilities of the
Trustee are further defined as follows:
(a) all moneys deposited with or received by the Trustee hereunder
related to a Trust shall be held by it without interest in trust as part of
such Trust or the Reserve Account of such Trust until required to be disbursed
in accordance with the provisions of this Indenture and such moneys will be
segregated by separate recordation on the trust ledger of the Trustee so long
as such practice preserves a valid preference under applicable law, or if such
preference is not so preserved, the Trustee shall handle such moneys in such
other manner as shall constitute the segregation and holding thereof in trust
within the meaning of the Investment Company Act of 1940;
(b) the Trustee shall be under no liability for any action taken in
good faith on any appraisal, paper, order, list, demand, request, consent,
affidavit, notice, opinion, direction, evaluation, endorsement, assignment,
resolution, draft or other document whether or not of the same kind prima
facie properly executed, or for the disposition of moneys or Bonds pursuant to
this Indenture, or in respect of any evaluation which it is required to make
or is required or permitted to have made by others under this Indenture or
otherwise, except by reason of its own gross negligence, lack of good faith or
willful misconduct, provided that the Trustee shall not in any event be liable
or responsible for any evaluation made by the Evaluator. The Trustee may
construe any of the provisions of this Indenture, insofar as the same may
appear to be ambiguous or inconsistent with any other provisions hereof, and
any construction of any such provisions hereof by the Trustee in good faith
shall be binding upon the parties hereto;
(c) the Trustee shall not be responsible for or in respect of the
recitals herein, the validity or sufficiency of this Indenture or for the due
execution hereof by the Depositor, or for the form, character, genuineness,
sufficiency, value or validity of any Bonds (except that the Trustee shall be
responsible for the exercise of due care in determining the genuineness of
Bonds delivered to it pursuant to contracts for the purchase of such Bonds) or
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for or in respect of the validity or sufficiency of the Units, or for the
payment by the Insurer, if any, of amounts due under, or the performance by
the Insurer of its obligations in accordance with, the Insurance, and the
Trustee shall in no event assume or incur any liability, duty, or obligation
to any Unitholder or the Depositor other than as expressly provided for
herein. The Trustee shall not be responsible for or in respect of the
validity of any signature by or on behalf of the Depositor;
(d) the Trustee shall not be under any obligation to appear in,
prosecute or defend any action, which in its opinion may involve it in expense
or liability, unless as often as required by the Trustee, it shall be
furnished with reasonable security and indemnity against such expense or
liability, and any pecuniary cost of the Trustee from such actions shall be
deductible from and a charge against the Interest and Principal Accounts of
the affected Trust or Trusts;
(e) the Trustee may employ agents, attorneys, accountants and
auditors and shall not be answerable for the default or misconduct of any such
agents, attorneys, accountants or auditors if such agents, attorneys,
accountants or auditors shall have been selected with reasonable care. The
Trustee shall be fully protected in respect of any action under this Indenture
taken, or suffered, in good faith by the Trustee, in accordance with the
opinion of its counsel. The fees and expenses charged by such agents,
attorneys, accountants or auditors shall constitute an expense of the Trustee
reimbursable from the Interest and Principal Accounts of the affected Trust or
Trusts as set forth in Section 6.04 hereof;
(f) if at any time the Depositor shall fail to undertake or perform
any of the duties which by the terms of this Indenture are required by it to
be undertaken or performed, or such Depositor shall become incapable of acting
or shall be adjudged a bankrupt or insolvent, or a receiver of such Depositor
or of its property shall be appointed, or any public officer shall take charge
or control of such Depositor or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then in any such case, the
Trustee may: (1) appoint a successor depositor who shall act hereunder in all
respects in place of such Depositor which successor shall be satisfactory to
the Trustee, and which may be compensated at rates deemed by the Trustee to be
reasonable under the circumstances, by deduction ratably from the Interest
Accounts of the affected Trusts or, to the extent funds are not available in
such Account, from the Principal Accounts of the affected Trusts but no such
deduction shall be made exceeding such reasonable amount as the Securities and
Exchange Commission may prescribe in accordance with Section 26(a)(2)(C) of
the Investment Company Act of 1940, or (2) terminate and liquidate the
affected Trust in the manner provided in Section 8.02;
(g) if (i) the value of any Trust as shown by any evaluation by the
Trustee pursuant to Section 5.01 hereof shall be less than 20% of the
aggregate principal amount of Bonds initially deposited in such Trust or (ii)
by reason of the aggregate redemption of Units of any Trust by the Depositor
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and/or one or more underwriters not theretofore sold constituting more than
60% of the number of Units of such Trust initially authorized and the net
worth of any Trust is reduced to less than 40% of the aggregate principal
amount of Bonds initially deposited in such Trust, the Trustee may in its
discretion, and shall when so directed by the Depositor, terminate this
Indenture and the trust created hereby insofar as they relate to such Trust
and liquidate such Trust, all in the manner provided in Section 8.02;
(h) in no event shall the Trustee 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 hereunder or upon or in respect of any
Trust which it 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 the premises. For all such taxes and charges and for any expenses,
including counsel fees, which the Trustee may sustain or incur with respect to
such taxes or charges, the Trustee shall be reimbursed and indemnified out of
the Interest and Principal Accounts of the affected Trust, and the payment of
such amounts so paid by the Trustee shall be secured by a prior lien on such
Trust;
(i) except as provided in Section 3.01 and 3.05, no payment to a
Depositor or to any principal underwriter (as defined in the Investment
Company Act of 1940) for any Trust or to any affiliated person (as so defined)
or agent of a Depositor or such underwriter shall be allowed as an expense
except for payment of such reasonable amounts as the Securities and Exchange
Commission may prescribe as compensation for performing bookkeeping and other
administrative services of a character normally performed by the Trustee; and
(j) the Trustee except by reason of its own gross negligence or
willful misconduct shall not be liable for any action taken or suffered to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture.
Section 6.02. Books, Records and Reports. The Trustee shall keep
proper books of record and account of all the transactions of each Trust under
this Indenture at its corporate trust office including a record of the name
and address of every Unitholder, and such books and records of each Trust
shall be open to inspection by any Unitholder of such Trust at all reasonable
times during the usual business hours.
Unless the Depositor determines that such an audit is not required, the
account of each Trust shall be audited not less than annually by independent
public accountants designated from time to time by the Depositor and reports
of such accountants shall be furnished by the Trustee, upon request, to
Unitholders. The Trustee, however, in connection with any such audits shall
not be obligated to use Trust assets to pay for such audits in excess of the
amounts indicated in the Prospectus relating to such Trust.
To the extent permitted under the Investment Company Act of 1940 as evidenced
by an opinion of counsel to the Depositor, the Trustee shall pay, or reimburse
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to the Depositor or others, the costs of the preparation of documents and
information with respect to a Trust required by law or regulation in
connection with the maintenance of a secondary market in units of such Trust.
Such costs may include but are not limited to accounting and legal fees, blue
sky registration and filing fees, printing expenses and other reasonable
expenses related to documents required under Federal and state securities
laws. Such costs shall be a Trust expense and the Trustee shall not be
obligated to advance any of its own funds to make such payments.
The Trustee shall make such annual or other reports as may from time to time
be required under any applicable state or federal statute or rule or
regulation thereunder.
Section 6.03. Indenture and List of Bonds on File. The Trustee shall
keep a certified copy or duplicate original of this Indenture on file at its
corporate trust office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of
the Bonds in each Trust.
Section 6.04. Compensation. For services performed under this
Indenture the Trustee shall be paid an amount per annum as set forth in Part
II of the Trust Agreement. The Trustee's compensation shall be computed on
the basis of the greatest amount of such principal amount of Bonds in such
Trust at any time during the period with respect to which such compensation is
being computed. The Trustee may from time to time adjust its compensation as
set forth above provided that total adjustment upward does not, at the time of
such adjustment, exceed the percentage of the total increase, after the date
hereof, in consumer prices for services as measured by the United States
Department of Labor Consumer Price Index entitled "All Services Less Rent of
Shelter" or similar index, if such index should no longer be published. In
addition, the Trustee's fee may be periodically adjusted in response to
fluctuations in short-term interest rates (reflecting the cost to the Trustee
of advancing funds to the Trust to meet scheduled distributions). The consent
or concurrence of any Unitholder hereunder shall not be required for any such
adjustment or increase. Such compensation shall be charged by the Trustee
against the Interest and Principal Accounts of each Trust on or before the
distribution date on which such period terminates; provided, however, that
such compensation shall be deemed to provide only for the usual, normal and
proper functions undertaken as Trustee pursuant to this Indenture. The
Trustee shall charge the Interest and Principal Accounts of each Trust for any
and all expenses and disbursements incurred hereunder, including legal and
auditing expenses, and for any extraordinary services performed by the Trustee
hereunder relating to such Trust.
The Trustee shall be indemnified ratably by the affected Trusts and held
harmless against any loss or liability accruing to it without gross
negligence, bad faith or willful misconduct on its part, arising out of or in
connection with the acceptance or administration of the trust, including the
costs and expenses (including counsel fees) of defending itself against any
claim of liability in the premises. If the cash balances in the Interest and
Principal Accounts of the affected Trust shall be insufficient to provide for
amounts payable pursuant to this Section 6.04, the Trustee shall have the
power to sell (i) Bonds of the affected Trust from the Bonds designated to be
sold pursuant to Section 5.02 hereof, or (ii) if no such Bonds have been so
designated, such Bonds of the affected Trust as the Trustee may see fit to
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sell in its own discretion, and to apply the proceeds of any such sale in
payment of the amounts payable pursuant to this Section 6.04.
The Trustee shall not be liable or responsible in any way for depreciation or
loss incurred by reason of any sale of Bonds made pursuant to this Section
6.04. Any moneys payable to the Trustee pursuant to this Section shall be
secured by a prior lien on the affected Trust.
Section 6.05. Removal and Resignation of Trustee; Successor. The
following provisions shall provide for the removal and
resignation of the Trustee and the appointment of any successor trustee:
(a) the Trustee or any trustee or trustees hereafter appointed may
resign and be discharged of the Trusts created by this Indenture, by executing
an instrument in writing resigning as Trustee of such Trusts and filing same
with the Depositor and mailing a copy of a notice of resignation to all
Unitholders then of record, not less than sixty days before the date specified
in such instrument when, subject to Section 6.05(e), such resignation is to
take effect. Upon receiving such notice of resignation, the Depositor shall
promptly appoint a successor trustee as hereinafter provided, by written
instrument, in duplicate, one copy of which shall be delivered to the
resigning Trustee and one copy to the successor trustee. The Depositor may at
any time remove the Trustee, with or without cause, and appoint a successor
trustee by written instrument, in duplicate, one copy of which shall be
delivered to the Trustee so removed and one copy to the successor trustee.
Notice of such resignation or removal of a trustee and appointment of a
successor trustee shall be mailed by the successor trustee, promptly after its
acceptance of such appointment, to each Unitholder then of record;
(b) any successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Depositor and to the retiring Trustee an
instrument accepting such appointment hereunder, and such successor trustee
without any further act, deed or conveyance shall become vested with all the
rights, powers, duties and obligations of its predecessor hereunder with like
effect as if originally named Trustee herein and shall be bound by all the
terms and conditions of this Indenture. Upon the request of such successor
trustee, the Depositor and the retiring Trustee shall, upon payment of any
amounts due the retiring Trustee, or provision therefor to the satisfaction of
such retiring Trustee, execute and deliver an instrument acknowledged by it
transferring to such successor trustee all the rights and powers of the
retiring Trustee; and the retiring Trustee shall transfer, deliver and pay
over to the successor trustee all Bonds and moneys at the time held by it
hereunder, together with all necessary instruments of transfer and assignment
or other documents properly executed necessary to effect such transfer and
such of the records or copies thereof maintained by the retiring Trustee in
the administration hereof as may be requested by the successor trustee, and
shall thereupon be discharged from all duties and responsibilities under this
Indenture;
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(c) in case at any time the Trustee shall resign and no successor
trustee shall have been appointed and have accepted appointment within thirty
days after notice of resignation has been received by the Depositor, the
retiring Trustee may forthwith apply to a court of competent jurisdiction for
the appointment of a successor trustee. Such court may thereupon, after such
notice, if any, as it may deem proper and prescribe, appoint a successor
trustee;
(d) any entity into which any trustee hereunder may be merged or
with which it may be consolidated, or any entity resulting from any merger or
consolidation to which any trustee hereunder shall be a party, shall be the
successor trustee under this Indenture without the execution or filing of any
paper, instrument or further act to be done on the part of the parties hereto,
anything herein, or in any agreement relating to such merger or consolidation,
by which any such trustee may seek to retain certain powers, rights and
privileges theretofore obtaining for any period of time following such merger
or consolidation to the contrary notwithstanding; and
(e) any resignation or removal of the Trustee and appointment of a
successor trustee pursuant to this Section shall become effective upon
acceptance of appointment by the successor trustee as provided in subsection
(b) hereof.
Section 6.06. Qualifications of Trustee. The Trustee shall be a
corporation organized and doing business under the laws of the United States
or any state thereof, which is authorized under such laws to exercise
corporate trust powers and having at all times an aggregate capital, surplus,
and undivided profits of not less than $500,000.
ARTICLE VII
RIGHTS OF UNITHOLDERS
Section 7.01. Beneficiaries of Trust. By the purchase and acceptance
or other lawful delivery and acceptance of any Unit of a Trust the Unitholder
shall be deemed to be a beneficiary of such Trust created by this Indenture
and vested with all right, title and interest in such Trust to the extent of
the Unit or Units held by such Unitholder, subject to the terms and conditions
of this Indenture.
Section 7.02. Rights, Terms and Conditions. In addition to the other
rights and powers set forth in the other provisions and conditions of this
Indenture the Unitholders shall have the following rights and powers and shall
be subject to the following terms and conditions:
(a) a Unitholder may at any time prior to the Trustee's close of
business as of the date on which the Trust is terminated tender his Units
(including any temporary evidence of ownership of Units of such Trust, issued
by the Trustee or the Depositor) to the Trustee for redemption in accordance
with Section 5.02;
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(b) the death or incapacity of any Unitholder shall not operate to
terminate this Indenture or the Trust to which the Unit relates nor entitle
his legal representatives or heirs to claim an accounting or to take any
action or proceeding in any court of competent jurisdiction for a partition or
winding up of the Fund or the related Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them. Each
Unitholder expressly waives any right he may have under any rule of law, or
the provisions of any statute, or otherwise, to require the Trustee at any
time to account, in any manner other than as expressly provided in this
Indenture, in respect of the Bonds or moneys from time to time received, held
and applied by the Trustee hereunder; and
(c) no Unitholder shall have any right to vote or in any manner
otherwise control the operation and management of the Fund, or the obligations
of the parties hereto, nor shall anything herein set forth, be construed so as
to constitute the Unitholders from time to time as partners or members of an
association; nor shall any Unitholder ever be under any liability to any third
persons by reason of any action taken by the parties to this Indenture, or any
other cause whatsoever.
ARTICLE VIII
ADDITIONAL COVENANTS; MISCELLANEOUS PROVISIONS
Section 8.01. Amendments. (a) This Indenture may be amended from time
to time by the parties hereto or their respective successors, without the
consent of any of the Unitholders, (i) to cure any ambiguity or to correct or
supplement any provision contained hereon which may be defective or
inconsistent with any other provision contained herein; or (ii) to make such
other provision in regard to matters or questions arising hereunder as shall
not adversely affect the interests of the Unitholders; provided, however, that
the parties hereto may not amend this Indenture so as to (1) increase the
number of Units issuable hereunder above the maximum number set forth in
Section 2.03 of this Indenture except as provided in Section 5.04 hereof or
such lesser amount as may be outstanding at any time during the term of this
Indenture or (2) permit the deposit or acquisition hereunder of interest-
bearing obligations or other securities either in addition to or in
substitution for any of the Bonds.
(b) Except for the amendments, changes or modifications as provided
in Section 8.01(a) hereof, neither the parties hereto nor their respective
successors shall consent to any other amendment, change or modification of
this Indenture without the giving of notice and the obtaining of the approval
or consent of Unitholders representing at least 51% of the Units then
outstanding of the affected Trust. Nothing contained in this Section 8.01(b)
shall permit, or be construed as permitting, a reduction of the aggregate
percentage of Units the holders of which are required to consent to any
amendment, change or modification of this Indenture without the consent of the
Unitholders of all of the Units then outstanding of the affected Trust and in
no event may any amendment be made which would (1) alter the rights to the
Unitholders as against each other, (2) provide the Trustee with the power to
engage in business or investment activities other than as specifically
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provided in this Indenture or (3) adversely affect the characterization of the
Trust as a grantor trust for federal income tax purposes.
(c) Promptly after the execution of any such amendment the Trustee
shall furnish written notification to all then outstanding Unitholders of the
substance of such amendment.
Section 8.02. Termination. This Indenture and each Trust created
hereby shall terminate upon the maturity, redemption, sale or other
disposition as the case may be of the last Bond held in such Trust unless
sooner terminated as hereinbefore specified and may be terminated at any time
by the written consent of Unitholders representing 51% of the then outstanding
Units of such Trust; provided, that in no event shall any Trust continue
beyond the end of the calendar year preceding the fiftieth anniversary of the
execution of this Indenture (the respective "Mandatory Termination Date"); and
provided further that in connection with any such liquidation it shall not be
necessary for the Trustee to dispose of any Bond or Bonds of such Trusts if
retention of such Bond or Bonds, until due, shall be deemed to be in the best
interests of Unitholders, including, but not limited to, situations in which a
Bond or Bonds insured by the Insurance, if any, are in default, situations in
which a Bond or Bonds insured by the Insurance reflect a deteriorated market
price resulting from a fear of default and situations in which a Bond or Bonds
mature after the Mandatory Termination Date. The Depositor and Trustee will
observe the procedures described in Section 5.02 with respect to the purchase
of Permanent Insurance in connection with the liquidation of Bonds of an
Insured Trust.
Written notice of any termination shall be given by the Trustee to each such
Unitholder at his address appearing on the registration books of the Trustee.
Within a reasonable period of time after such termination of a Trust the
Trustee shall fully liquidate the Bonds of such Trust then held, if any, and
shall:
(a) deduct from the Interest Account of such Trust or, to the extent
that funds are not available in such Account, from the Principal Account of
such Trust and pay to itself individually an amount equal to the sum of (1)
its accrued compensation for its ordinary recurring services in connection
with such Trust, (2) any compensation due it for its extraordinary services in
connection with such Trust and (3) any costs, expenses or indemnities in
connection with such Trust as provided herein;
(b) deduct from the Interest Account of such Trust or, to the extent
that funds are not available in such Account, from the Principal Account of
such Trust and pay accrued and unpaid fees of the Evaluator, Supervisor,
Depositor and bond counsel in connection with such Trust, if any;
(c) deduct from the Interest Account of such Trust or the Principal
Account of such Trust any amounts which may be required to be deposited in the
Reserve Account of such Trust to provide for payment of any applicable taxes
or other governmental charges and any other amounts which may be required to
meet expenses incurred under this Indenture in connection with such Trust;
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(d) distribute to each Unitholder of such Trust such holder's pro
rata share of the balance of the Interest Account of such Trust;
(e) distribute to each Unitholder of such Trust such holder's pro
rata share of the balance of the Principal Account of such Trust; and
(f) together with such distribution to each Unitholder as provided
for in (d) and (e), furnish to each such Unitholder a final distribution
statement as of the date of the computation of the amount distributable to
Unitholders, setting forth the data and information in substantially the form
and manner provided for in Section 3.06 hereof.
The amounts to be so distributed to each Unitholder shall be that pro rata
share of the balance of the total Interest and Principal Accounts of such
Trust as shall be represented by the Units therein held of record by such
Unitholder.
The Trustee shall be under no liability with respect to moneys held by it in
the Interest, Reserve and Principal Accounts of a Trust upon termination
except to hold the same in trust without interest until disposed of in
accordance with the terms of this Indenture.
Section 8.03. Construction. This Indenture is executed and delivered
in the State of Alabama, and all laws or rules of construction of such State
shall govern the rights of the parties hereto and the Unitholders and the
interpretation of the provisions hereof.
Section 8.04. Registration of Units. Except as provided in Sections
3.01 and 3.05, the Depositor agrees and undertakes on its own part to register
the Units with the Securities and Exchange Commission or other applicable
governmental agency, federal or state, pursuant to applicable federal or state
statutes, if such registration shall be required, and to do all things that
may be necessary or required to comply with this provision during the term of
the Fund created hereunder, and the Trustee shall incur no liability or be
under any obligation for expenses in connection therewith.
Section 8.05. Written Notice. Any notice, demand, direction or
instruction to be given to the Depositor, Evaluator, Supervisor or Trustee
hereunder shall be in writing and shall be duly given if mailed or delivered
to the Depositor, Evaluator, Supervisor or Trustee at 1901 Sixth Avenue North,
Birmingham, Alabama 35203, or at such other address as shall be specified by
the Depositor, Evaluator, Supervisor or Trustee to the other parties hereto in
writing.
Any notice to be given to the Unitholders shall be duly given if mailed or
delivered to each Unitholder at the address of such holder appearing on the
registration books of the Trustee.
Section 8.06. Severability. If any one or more of the covenants,
agreements, provisions or terms of this Indenture shall be held contrary to
any express provision of law or contrary to policy of express law, though not
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expressly prohibited, or against public policy, or shall for any reason
whatsoever be held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Indenture and shall in no way affect the validity
or enforceability of the other provisions of this Indenture or the rights of
the Unitholders.
Section 8.07. Dissolution of Depositor Not to Terminate. The
dissolution of the Depositor from or for any cause whatsoever shall not
operate to terminate this Indenture or the Fund insofar as the duties and
obligations of the Trustee are concerned.
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IN WITNESS WHEREOF, Sterne, Agee & Leach, Inc. has caused this Trust Indenture
and Agreement to be executed by its President or one of its Vice Presidents
and The Trust Company of Sterne, Agee & Leach, Inc. has caused this Trust
Indenture and Agreement to be executed by its President or one of its Vice
Presidents; all as of the day, month and year first above written.
STERNE, AGEE & LEACH, INC.,
Depositor, Evaluator and Supervisor
By
--------------------------------------
Title
-----------------------------------
THE TRUST COMPANY OF STERNE, AGEE &
LEACH, INC., Trustee
By
--------------------------------------
Title
-----------------------------------
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EXHIBIT 1.2
CERTIFICATE OF INCORPORATION
OF
STERNE, AGEE & LEACH, INC.
FIRST. The name of the corporation is STERNE, AGEE & LEACH, INC.
SECOND. Its principal office in the State of Delaware is located at No. 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name
and address of its resident agent is The Corporation Trust Company, No. 100
West Tenth Street, Wilmington 99, Delaware.
THIRD. The nature of the business, or objects or purposes to be transacted,
promoted or carried on, are:
(1) Generally to engage in, do and perform any enterprises, act or
vocation of a business nature that a natural person might or could legally do
or perform.
(2) To own and improve, occupy, operate, sell, convey, consign,
mortgage, lease, or otherwise deal in real estate and any interest therein or
deriving therefrom and fully and without limitation to enjoy the ownership and
right of possession thereof.
(3) To acquire the goodwill, rights and property, and to acquire the
whole or any part of the assets of any person, firm or corporation; to pay for
the same in cash, the stock of this corporation, its bonds or debentures, or
otherwise; to hold or in any manner to dispose of the whole or any part of the
property so purchased; to conduct in any lawful manner the whole or any part
of any business so acquired and to exercise all the powers necessary or
convenient in and about the conduct and management of such business.
(4) As principal, agent or nominee to acquire by purchase,
subscription, contract, or otherwise, and to hold for investment or otherwise,
to sell, exchange, mortgage, pledge, or otherwise dispose of, or turn to
account or realize upon, and generally to deal in and with all forms of
securities, including, but not by way of limitation, shares, stocks, bonds,
debentures, notes, scrip, mortgages, rights, warrants, evidences of
indebtedness, certificates of indebtedness, and certificates of interest
issued or created in any and all parts of the world by corporations,
associations, partnerships, firms, trustees, syndicates, individuals,
governments, states, municipalities, or other political or governmental
divisions or subdivisions, or by any combinations or organizations,
whatsoever, or issued or created by others, irrespective of their form or the
name by which they may be described, and all trust, participation and other
certificates of, and receipts evidencing, interest in any such securities, and
to issue in exchange therefor or in payment thereof, in any manner permitted
by law, its own stocks, bonds, debentures, or its other obligations or
securities, subject to the provisions of this certificate, or to make payment
<PAGE>
therefor by any other lawful means of payment whatsoever; to exercise any and
all rights, powers, and privileges of individual ownership or interest in
respect of any and all such securities or evidences of interest therein,
including the right to vote thereon and to consent and otherwise act with
respect thereto; to do any and all acts and things for the preservation,
protection, improvement, and enhancement in value of any and all such
securities or evidences of interest therein, and to lend, subsidize,
guaranty., or otherwise secure those issuing, creating, or taking
responsibility for any such securities or evidences of interest therein; to
acquire or become interested in any such securities or evidence of interest
therein, as aforesaid, by original subscription, underwriting, loan
participation in syndicates, or otherwise, irrespective of whether or not such
securities or evidences of interest therein be fully paid or subject to
further payments; to make payments thereon as called for or in advance of call
or otherwise, and to underwrite or subscribe for them conditionally or
otherwise, with a view either to investment or resale or any other lawful
purpose.
(5) To establish lines of credit with banking houses or others, to
borrow money for any of the purposes of the corporation, and to issue bonds,
debentures, debenture stock, warrants, notes and other obligations or
evidences of indebtedness therefor, without security, or secured by pledge or
mortgage of the whole, or any part of its property, real or personal; and to
draw, make, accept, endorse, discount, guarantee, execute and issue promissory
notes, bills of exchange, drafts, warrants, and all kinds of obligations and
certificates of indebtedness, without limit as to amount except as may be
provided by statute.
(6) To have and maintain one or more offices, and to conduct any or
all of its operations and business and to promote its objects within or
without the State of Delaware, by agent or otherwise, without restriction as
to place or amount.
(7) To do such other things as are incidental, proper or necessary
to the operation of the business, or to the carrying out of objects, purposes
and powers herein granted, as well as to exercise all those powers expressly
conferred by the laws of Delaware upon corporations formed under the General
Corporation Law of the State of Delaware.
(8) The objects and purposes specified herein shall be construed
both as purposes and powers and shall be in nowise be limited or restricted by
reference to, or inference from, the terms of any other clause in this or any
other article, but the purposes and powers specified in each of the clauses
herein shall be regarded as independent purposes and powers, and the
enumeration of specific purposes and powers shall not be construed to limit or
restrict in any manner the meaning of general terms or of the general powers
of the corporation; nor shall expression of one thing be deemed to exclude
another, although it be of like nature not expressed.
FOURTH. The total number of shares of stock which the corporation shall have
authority to issue is one hundred fifty five thousand (155,000) of which stock
one hundred fifty thousand (150,000) shares of the par value of Five Dollars
<PAGE>
($5.00) each, amounting in the aggregate to Seven Hundred Fifty Thousand
Dollars ($750,000) shall be Common Stock-Voting and of which five thousand
(5,000) shares of the par value of Five Dollars ($5.00) each, amounting in the
aggregate to Twenty Five Thousand Dollars ($25,000) shall be Common Stock-Non-
Voting.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
The Common Stock-Voting shall be evidenced by certificates, if paid for in
cash, with the letter "C" prefixed to the certificate number, and if paid for
by exchange of property in lieu of cash, to be evidenced by certificates with
the letters "EX" prefixed to the certificate number.
The Common Stock-Non-Voting shall be evidenced by certificates with the
letters "NV" prefixed to the certificate number.
The certificates evidencing the one hundred thousand (100,000) shares of
Common Stock-Voting and the one thousand two hundred fifty (1,250) shares of
Common Stock-Non-Voting which will be issued in exchange for a like number of
shares of stock of STERNE, AGEE & LEACH, INC., an Alabama corporation, shall
bear the same letter prefixed as the certificates exchanged, that is to say,
common stock voting shall be exchanged for common stock voting and common
stock non-voting will be exchanged for common stock non-voting.
The Common Stock-Voting and the Common Stock Non-Voting shall be of equal rank
and shall entitle the holders thereof to the same rights and privileges except
the holders of the Common Stock-Non-Voting stock shall have no voting power,
all rights to vote and all voting power being vested exclusively in the
holders of the Common Stock-Voting stock.
All stock, both Common Stock-Voting and Common Stock-Non-Voting, shall be of
the par value of Five ($5.00) Dollars per share and shall be issued only after
the corporation receives therefor the full sum of Ten ($10.00) Dollars per
share payable in money or in property of equivalent value acceptable to the
corporation, or part in money and part in such property at the option of the
corporation, provided that after the sale of the first One Hundred Thousand
(100,000) shares, additional shares may thereafter be sold at such prices and
on such terms as the Board of Directors may from time to time determine. Five
($5.00) Dollars of such price shall be covered into the stated capital account
of the corporation and the balance of the sale price into the surplus account.
The rights of the owners of the corporation's stock may be limited, restricted
or qualified by the provisions of this Certificate of Incorporation or by the
By-Laws of the corporation provided reasonable notice of such limitation,
restriction or qualification appears on the certificate evidencing such stock.
Specifically, it is provided that the stock of any stockholder (a) who
proposes to sell same, (b) who dies, (c) which is made the subject of levy,
seizure or other process of involuntary alienation, (d) who has been suspended
or expelled by the New York Stock Exchange or the American Stock Exchange or
any other securities or commodity exchange of which the corporation is a
<PAGE>
member or at which it is entitled to trade, (e) who has violated any agreement
made by him with this corporation or with the New York Stock Exchange, the
American Stock Exchange or any securities or commodity exchange of which the
corporation is a member or at which it is entitled to trade, (f) who shall
give written notice to the corporation that he desires to sell such stock, or
(g) who shall at any time and for any reason whether voluntary or not, cease
to be actively engaged in the business of the corporation, shall be held by
the owner thereof subject to an option or right on the part of the corporation
to purchase such stock as against all others whomsoever at any time within
ninety (90) days after the event giving rise to the right to exercise such
option or right to buy such stock at a price equivalent to the book value
thereof at (a) the end of the corporation's fiscal year ended last prior to
such purchase or (b) its then current book value, whichever is the lesser.
It is provided, however, that in the case of stock which, by operation of the
laws of descent and distribution, has become subject to this option or right
to purchase on the part of the corporation, the purchase price may be paid by
the corporation by issuing to the owner or his order the corporation's six per
cent (6%) non-convertible debentures, subordinate to all obligations of the
corporation except previously issued debentures and outstanding stock and
payable five years after date of issue, bearing interest at six per centum
(6%) per annum payable semiannually and protected both as to principal and
interest by a sinking fund into which shall be paid annually sums not less
than twenty per centum (20%) of the face amount of the original issue of such
debentures.
No stockholder of this corporation shall by reason of his holding shares of
any class have any preemptive or preferential right to purchase or subscribe
to any shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the board of directors, in its discretion from time to time may grant, and
at such price as the board of directors in its discretion may fix; and the
board of directors may issue shares of any class of this corporation, or any
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing stockholders
of any class.
No dividend shall be declared or paid which shall impair the capital of the
corporation nor shall any distribution of assets be made to any stockholder
unless the value of the assets of the corporation remaining after such payment
or distribution, is at least equal to the aggregate of its debts and
liabilities, including capital.
FIFTH. The minimum amount of capital with which the corporation will commence
business is Five Thousand Dollars ($5,000).
<PAGE>
SIXTH. The names and places of residence of the incorporators are as follows:
<TABLE>
<CAPTION>
NAMES Residences
<S> <C>
A. D. Atwell Wilmington, Delaware
F. J. Obara, Jr. Wilmington, Delaware
A. D. Grier Wilmington, Delaware
</TABLE>
SEVENTH. The corporation is to have perpetual existence.
EIGHTH. The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
NINTH. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
By resolution passed by a majority of the whole board, to designate one or
more committees, each committee to consist of two or more of the directors of
the corporation, which, to the extent provided in the resolution or in the by-
laws of the corporation, shall have and may exercise the powers of the board
of directors in the management of the business and affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers
which may require it. Such committee or committees shall have such name or
names as may be stated in the by-laws of the corporation or as may be
determined from time to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of the holders of a majority of
the stock issued and outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or when authorized by the written
consent of the holders of a majority of the voting stock issued and
outstanding, to sell, lease or exchange all of the property and assets of the
corporation, including its good will and its corporate franchises, upon such
terms and conditions and for such consideration, which may be in whole or in
part shares of stock in, and/or other securities of, any other corporation or
corporations, as its board of directors shall deem expedient and for the best
interests of the corporation.
TENTH. The by-laws of the corporation may be amended, altered, or repealed
only by the affirmative vote of holders of a majority of the stock issued and
outstanding and entitled to vote.
<PAGE>
ELEVENTH. Meetings of stockholders may be held outside the State of Delaware,
if the by-laws so provide. The books of the corporation may be kept (subject
to any provision contained in the statutes) outside the State of Delaware at
such place or places as may be designated from time to time by the board of
directors or in the by-laws of the corporation. Elections of directors need
not be by ballot unless the by-laws of the corporation shall so provide.
TWELFTH. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this certificate of incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have
hereunto set our hands and seals this 18th day of September A. D. 1964.
A.D. ATWELL (Seal)
------------------------------
F.J. OBARA, JR. (Seal)
------------------------------
A.D. GRIER (Seal)
------------------------------
<PAGE>
STATE OF DELAWARE )
) SS:
COUNTY OF NEW CASTLE )
BE IT REMEMBERED that on this 18th day of September A. D. 1964, personally
came before me, a Notary Public for the State of Delaware A. D. Atwell, F. J.
Obara, Jr. and A. D. Grier, all of the parties to the foregoing certificate of
incorporation, known to me personally to be such, and severally acknowledged
the said certificate to be the act and deed of the signers respectively and
that the facts therein stated are truly set forth.
GiVEN under my hand and seal of office the day and year aforesaid.
HOWARD K. WEBB
------------------------------
Notary Public
<PAGE>
STATE OF DELAWARE
OFFICE OF SECRETARY OF STATE
I, ELISHA C. DUKES, Secretary of State of the State of Delaware, DO HEREBY
CERTIFY that the above and foregoing is a true and correct copy of Certificate
of Incorporation of the "STERNE, AGEE & LEACH, INC.", as received and filed in
this office the eighteenth day of September, A. D. 1964, at 10 o'clock A. M.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at Dover
this eighteenth day of September in the year of our Lord one thousand nine
hundred and sixty-four.
Elisha C. Dukes
Secretary of State
G.F. Downs
Ass't. Secretary of State
<PAGE>
Received for Record
September 18th, A. D. 1964.
Leo J. Dugan, Jr., Recorder.
State of Delaware :
: SS.:
New Castle County :
Recorded in the Recorder's Office at Wilmington, in Incorporation Record
________________________, Vol. ______ Page _______ &c., the 18th day of
September, A. D. 1964.
Witness my hand and official seal.
Leo J. Dugan, Jr.
Recorder.
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION OF
STERNE, AGEE & LEACH, INC.
Sterne, Agee & Leach, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
First: That at a meeting of the board of directors of Sterne, Agee & Leach,
Inc., resolutions were duly adopted setting forth a proposed amendment to the
certificate of incorporation of said corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Certificate of Incorporation of Sterne, Agee & Leach, Inc.
shall be amended by deleting Article Fourth in its entirety and substituting
in lieu thereof the following:
FOURTH. The total number of shares of stock which the Corporation shall have
authority to issue is Two Hundred Fifty Thousand (250,000) shares of par value
of Five Dollars ($5.00) each, amounting in the aggregate to One Million Two
Hundred Fifty Thousand Dollars ($1,250,000), all of which shares shall be of
one class designated as Common Stock.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
The Common Stock shall be evidenced by certificates, if paid for in cash, with
the letter "C" prefixed to the certificate number, and if paid for by exchange
of property in lieu of cash, to be evidenced by certificates with the letters
"EX" prefixed to the certificate number.
The rights of the owners of the Corporation's stock may be limited, restricted
or qualified by the provisions of this Certificate of Incorporation or by the
By-Laws of the Corporation provided reasonable notice of such limitation,
restriction or qualification appears on the certificate evidencing such stock.
Specifically, it is provided that the stock of any stockholder (a) who
proposes to sell same, (b) who dies, (c) which is made the subject of levy,
seizure, foreclosure, or other judicial or non-judicial process of involuntary
alienation, (d) who has been suspended or expelled by the National Association
<PAGE>
of Securities Dealers, the New York Stock Exchange or the American Stock
Exchange or any other securities or commodity exchange of which the
Corporation is a member or at which it is entitled to trade, (e) who has
violated any agreement made by him with this Corporation or with the National
Association of Securities Dealers, the New York Stock Exchange, the American
Stock Exchange or any securities or commodity exchange of which the
Corporation is a member or at which it is entitled to trade, (f) who shall
give written notice to the Corporation that he desires to sell such stock, or
(g) who shall at any time and for reason whether voluntary or not, cease to be
actively engaged in the business of the Corporation, shall be held by the
owner thereof subject to an option or right on the part of the Corporation to
purchase such stock as against all others whomsoever at any time within ninety
(90) days after the event giving rise to the right to exercise such option or
right to buy such stock at a price equivalent to the then current book value
thereof.
It is provided, further, that at the sole option of the Corporation, the
purchase price may be paid by the Corporation either in cash in a lump sum or
by issuing to the owner or his order the Corporation's non-convertible
debentures, subordinate to all obligations of the Corporation except
previously issued non-convertible subordinated debentures and outstanding
stock and payable five years after date of issue, bearing interest payable
semiannually at a rate equal to the quoted yield-to-maturity rate of five year
U.S. Treasury Notes, with the interest rate adjusted on each anniversary date
of the issuance of the debenture to a rate equal to the then quoted yield-to-
maturity rate of five year U.S. Treasury Notes, provided that in no event
shall the debenture bear interest at a rate of less than five percent (5%) per
annum nor greater than eight percent (8%) per annum, and protected both as to
principal and interest by a sinking fund into which shall be paid annually
sums not less than twenty percent (20%) of the face amount of the original
issue of such debentures.
It is further provided that within ninety (90) days following the death of any
stockholder who at any time had been actively engaged in the business of the
Corporation, such stockholder's executor, administrator or personal
representative may, by written demand upon the Corporation, require the
Corporation to purchase the stock held by such stockholder at the time of
death, at a price equivalent to the then current book value thereof. The
purchase price may be paid by the Corporation by issuing to the owner or his
order the Corporation's non-convertible debentures, subordinate to all
obligations of the Corporation except previously issued non-convertible
subordinated debentures and outstanding stock and payable five years after
date of issue, bearing interest payable semiannually at a rate equal to the
quoted yield-to-maturity rate of five year U.S. Treasury Notes, with the
interest rate adjusted on each anniversary date of the issuance of the
debenture to a rate equal to the then quoted yield-to-maturity rate of five
year U.S. Treasury Notes, provided that in no event shall the debenture bear
interest at a rate of less than five percent (5%) per annum nor greater than
eight percent (8%) per annum, and protected both as to principal and interest
by a sinking fund into which shall be paid annually sums not less than twenty
percent (20%) of the face amount of the original issue of such debentures. In
no event, however, shall the Corporation be required to purchase shares to the
<PAGE>
extent that such purchase may impair the capital of the Corporation in
violation of Delaware law or rules and regulations of the New York Stock
Exchange or the Securities and Exchange Commission. At the option of the
Corporation, it may pay the purchase price in cash in a lump sum, if such
payment would not impair the capital of the Corporation in violation of
Delaware law or rules and regulations of the New York Stock Exchange or the
Securities and Exchange Commission.
No stockholder of this Corporation shall by reason of his holding shares of
any class have any preemptive or preferential right to purchase or subscribe
to any shares of any class of this Corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors, in its discretion from time to time may grant, and
at such price as the Board of Directors in its discretion may fix; and the
Board of Directors may issue shares of any class of this Corporation, or any
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing stockholders
of any class.
No dividend shall be declared or paid which shall impair the capital of the
Corporation nor shall any distribution of assets be made to any stockholder
unless the value of the assets of the Corporation remaining after such payment
or distribution is at least equal to the aggregate of its debts and
liabilities, including capital.
Second: That thereafter, pursuant to resolution of its board of directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation
Law of the state of Delaware, at which meeting the necessary number of shares
as required by statute were voted in favor of the amendment.
Third: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the state of Delaware.
Fourth: This amendment increases the authorized capital stock of the
Corporation from 155,000 shares having aggregate par value of $775,000.00 to
250,000 shares having aggregate par value of $1,250,000.00.
<PAGE>
IN WITNESS WHEREOF, Sterne, Agee & Leach, Inc. has caused this Certificate to
be signed and attested by its duly authorized officers, this 28th day of
October, 1991.
STERNE, AGEE & LEACH, INC.
By HENRY S. LYNN, JR.
-----------------------------
Attest:
W. WARREN BELSER, JR.
- ------------------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION OF
STERNE, AGEE & LEACH, INC.
Sterne, Agee & Leach, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
First: That at a meeting of the board of directors of Sterne, Agee & Leach,
Inc. resolutions were duly adopted setting forth a proposed amendment to the
certificate of incorporation of said corporation, declaring said amendment to
be advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is
as follows:
RESOLVED, that the Certificate of Incorporation of the Company shall be
amended by deleting Article Fourth in its entirety and substituting in lieu
thereof the following:
FOURTH. The total number of shares of stock which the Corporation shall have
authority to issue is Three Hundred Fifty Thousand (350,000) shares of par
value of Five Dollars ($5.00) each, amounting in the aggregate to One Million
Seven Hundred Fifty Thousand Dollars ($1,750,000), all of which shares shall
be of one class designated as Common Stock.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof are as follows:
The Common Stock shall be evidenced by certificates, if paid for in cash, with
the letter "C" prefixed to the certificate number, and if paid for by exchange
of property in lieu of cash, to be evidenced by certificates with the letters
"EX" prefixed to the certificate number.
The rights of the owners of the Corporation's stock may be limited, restricted
or qualified by the provisions of this Certificate of Incorporation or by the
By-Laws of the Corporation provided reasonable notice of such limitation,
restriction or qualification appears on the certificate evidencing such stock.
Specifically, it is provided that the stock of any stockholder (a) who dies,
(b) which is made the subject of levy, seizure, foreclosure, or other judicial
or non-judicial process of involuntary alienation, (c) who has been suspended
or expelled by the National Association of Securities Dealers, the New York
Stock Exchange or the American Stock Exchange or any other securities or
<PAGE>
commodity exchange of which the Corporation is a member or at which it is
entitled to trade, (d) who has violated any agreement made by him with this
Corporation or with the National Association of Securities Dealers, the New
York Stock Exchange, the American Stock Exchange or any securities or
commodity exchange of which the Corporation is a member or at which it is
entitled to trade, (e) who shall at any time and for reason whether voluntary
or not, cease to be actively engaged in the business of the Corporation, or
(f) who intends to convey such stock to any transferee, whether by way of gift
or sale, shall be held by the owner thereof subject to an option or right on
the part of the Corporation to purchase such stock as against all others
whomsoever at any time within ninety (90) days after actual notice to the
Corporation of the event giving rise to the right to exercise such option or
right to buy such stock at a price equivalent to the then current book value
thereof. Notwithstanding any other provision of this Article Fourth, no
voluntary or involuntary conveyance of the Corporation's stock may be made
free of the Corporation's option or right to purchase such stock, unless the
Corporation has been given written notice of the proposed transfer and either
(i) ninety (90) days have elapsed from the date of the Corporation's receipt
of notice and the Corporation has not exercised its option or right to
purchase such stock, or (ii) the Corporation has validly relinquished its
option or right to purchase such stock.
It is provided, further, that at the sole option of the Corporation, the
purchase price may be paid by the corporation either in cash in a lump sum or
by issuing to the owner or his order the Corporation's non-convertible
debentures, subordinate to all obligations of the Corporation except
previously issued non-convertible subordinated debentures and outstanding
stock and payable five years after date of issue, bearing interest payable
semiannually at a rate equal to the quoted yield-to-maturity rate of five year
U.S. Treasury Notes, with the interest rate adjusted on each anniversary date
of the issuance of the debenture to a rate equal to the then quoted yield-to-
maturity rate of five year U.S. Treasury Notes, provided that in no event
shall the debenture bear interest at a rate of less than five percent (5%) per
annum nor greater than eight percent (8%) per annum, and protected both as to
principal and interest by a sinking fund into which shall be paid annually
sums not less than twenty percent (20%) of the face amount of the original
issue of such debentures.
It is further provided that within ninety (90) days following the death of any
stockholder who at any time had been actively engaged in the business of the
Corporation, such stockholder's executor, administrator or personal
representative may, by written demand upon the Corporation, require the
Corporation to purchase the stock held by such stockholder at the time of
death, at a price equivalent to the then current book value thereof. The
purchase price may be paid by the Corporation by issuing to the owner or his
order the Corporation's non-convertible debentures, subordinate to all
obligations of the Corporation except previously issued non-convertible
subordinated debentures and outstanding stock and payable five years after
date of issue, bearing interest payable semiannually at a rate equal to the
quoted yield-to-maturity rate of five year U.S. Treasury Notes, with the
interest rate adjusted on each anniversary date of the issuance of the
<PAGE>
debenture to a rate equal to the then quoted yield-to-maturity rate of five
year U.S. Treasury Notes, provided that in no event shall the debenture bear
interest at a rate of less than five percent (5%) per annum nor greater than
eight percent (8%) per annum, and protected both as to principal and interest
by a sinking fund into which shall be paid annually sums not less than twenty
percent (20%) of the face amount of the original issue of such debentures. In
no event, however, shall the Corporation be required to purchase shares to the
extent that such purchase may impair the capital of the Corporation in
violation of Delaware law or rules and regulations of the New York Stock
Exchange or the Securities and Exchange Commission. At the option of the
Corporation, it may pay the purchase price in cash in a lump sum, if such
payment would not impair the capital of the Corporation in violation of
Delaware law or rules and regulations of the New York Stock Exchange or the
Securities and Exchange Commission.
No stockholder of this Corporation shall by reason of his holding shares of
any class have any preemptive or preferential right to purchase or subscribe
to any shares of any class of this corporation, now or hereafter to be
authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the Board of Directors, in its discretion from time to time may grant, and
at such price as the Board of Directors in its discretion may fix; and the
Board of Directors may issue shares of any class of this Corporation, or any
notes, debentures, bonds, or other securities convertible into or carrying
options or warrants to purchase shares of any class, without offering any such
shares of any class, either in whole or in part, to the existing stockholders
of any class.
No dividend shall be declared or paid which shall impair the capital of the
Corporation nor shall any distribution of assets be made to any stockholder
unless the value of the assets of the Corporation remaining after such payment
or distribution, is at least equal to the aggregate of its debts and
liabilities including capital.
Second: That thereafter, pursuant to resolution of its board of directors, a
special meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation
Law of the state of Delaware at which meeting the necessary number of shares
as required by statute were voted in favor of the amendment.
Third: That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the state of Delaware.
<PAGE>
Fourth: This amendment increases the authorized capital stock of the
Corporation from 250,000 shares having aggregate par value of $1,250,000.00 to
350,000 shares having aggregate par value of $1,750,000.00.
IN WITNESS WHEREOF, Sterne, Agee & Leach, Inc. has caused this Certificate to
be signed and attested by its duly authorized officers, this 24th day of
November, 1993.
STERNE, AGEE & LEACH, INC.
By JAMES S. HOLBROOK, JR.
-------------------------------------
James S. Holbrook, Jr.
President and Chief Executive Officer
Attest:
S. ASHTON STUCKEY
- --------------------------------
Secretary
EXHIBIT 1.3
REVISED 3-11-94 TO REFLECT ALL AMENDMENTS TO DATE.
STERNE, AGEE & LEACH, INC.
BY-LAWS
ARTICLE I
OFFICERS
Section 1. The principal office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in the City of Birmingham, State of Alabama, at such
place as may be fixed from time to time by the board of directors. Meetings
of stockholders for any other purpose may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual meetings of stockholders, commencing with the
year 1991, shall be held on the second Friday of December if not a legal
holiday, and if a legal holiday, then on the next secular day following, at
3:00 p.m., at which they shall elect by a plurality vote a board of directors,
and transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting shall be given to
each stockholder entitled to vote thereat at least ten days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of the stockholders entitled to vote at said
election, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall
be open to the examination of any stockholder, during ordinary business hours,
<PAGE>
for a period of at least ten days prior to the election, either at a place
within the city, town or village where the election is to be held and which
place shall be specified in the notice of the meeting, or, if not specified,
at the place where said meeting is to be held, and the list shall be produced
and kept at the time and place of election during the whole time thereof, and
subject to the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of stockholders,
stating the time, place and object thereof, shall be given to each stockholder
entitled to vote thereat, at least one day before the date fixed for the
meeting.
Section 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the stockholders entitled
to vote thereat, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented.
At such adjourned meeting at which a quorum shall be present or represented
any business may be transacted which might have been transacted at the meeting
originally notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificates of incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three years from its date, unless the proxy provides
for a longer period, and, except where the transfer books of the corporation
have been closed or a date has been fixed as a record date for the
determination of its stockholders entitled to vote, no share of stock shall be
voted on at any election for directors which has been transferred on the books
of the corporation within twenty days next preceding such election of
directors.
<PAGE>
Section 11. Whenever the vote of stockholders at a meeting thereof
is required or permitted to be taken in connection with any corporation action
by provisions of the statutes or of the certificate of incorporation, the
meeting and vote of stockholders may be dispensed with, if all the
stockholders who would have been entitled to vote upon the action if such
meeting were held, shall consent in writing to such corporate action being
taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be eighteen. The directors shall be elected at the annual meeting
of the stockholders, except as provided in Section 2 of this Article, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum and the directors
so chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its
board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by the certificate
of incorporation or by these by-laws directed or required to be exercised or
done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 5. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote
of the stockholders at the annual meeting and no notice of such meeting shall
be necessary to the newly elected directors in order to legally constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
<PAGE>
Section 7. Special meetings of the board may be called by the
chairman on one day's notice to each director, either personally or by mail or
by telegram; special meetings shall be called by the chairman or secretary in
like manner and on like notice on the written request of two directors.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken
at any meeting of the board of directors or of any committee thereof may be
taken without a meeting, if prior to such action a written consent thereto is
signed by all members of the board or of such committee as the case may be,
and such written consent is filed with the minutes of proceedings of the board
or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee
to consist of two or more of the directors of the corporation, which, to the
extent provided in the resolution, shall have and may exercise the authority
of the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 1. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
<PAGE>
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders at
their addresses appearing on the books of the corporation. Notice by mail
shall be deemed to be given at the time when the same shall be mailed. Notice
to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chairman of the board, a president, a
managing director, a vice-president, a secretary and a treasurer. The board
of directors may elect a vice chairman and may also create several categories
of vice-presidents, and one or more assistant secretaries and assistant
treasurers. Two or more offices may be held by the same person, except that
where the offices of president and secretary are held by the same person, such
person shall not hold any other office.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, one or more vice-
presidents, a secretary and a treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of
the corporation shall be filled by the board of directors.
Section 6. The chairman of the board shall preside at all meetings
of the stockholders and the board of directors.
<PAGE>
THE PRESIDENT
Section 7. The president shall be the chief executive officer of
the corporation, shall have general and active management of the business of
the corporation, shall see that all orders and resolutions of the board of
directors are carried into effect, and he shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation.
THE VICE-PRESIDENTS
Section 8. The vice-president, or if there shall be more than one,
the vice-presidents in order determined by the board of directors, shall, in
the absence or disability of the president, perform the duties and exercise
the powers of the president and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to. affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give
general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries in order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporation
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
moneys and other valuable effects in the name and to the credit of the
<PAGE>
corporation in such depositories as may be designated by the board of
directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors,
at its regular meetings, or when the board of directors so requires, an
account of all his transactions as treasurer and of the financial condition of
the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of
directors, shall, in the absence or disability of the treasurer, perform the
duties and exercise the powers of the treasurer and shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation
by, the chairman or vice-chairman of the board of directors, the president or
a vice-president and the treasurer or an assistant treasurer, or the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by him in the corporation. If the corporation shall be authorized to
issue more than one class of stock, or more than one series of any class, the
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class of
stock, provided, however, that except as otherwise provided in Section 194 of
the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
a statement that the corporation win furnish without charge to each
stockholder who so requests, the designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
<PAGE>
Section 2. Where a certificate is signed (1) by a transfer agent or
an assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of any such chairman or vice-
chairman of the board of directors, president, vice-president, treasurer,
assistant treasurer, secretary or assistant secretary may be facsimile. In
case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such because of death, resignation or otherwise, before such certificate
or certificates may nevertheless be adopted by the corporation and be issued
and delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
Section 5. So long as the corporation is a member of the New York
Stock Exchange this certificate and the stock evidenced thereby cannot be
transferred, assigned, pledged or otherwise made subject to any lien, charge
or encumbrance except that the stock can be pledged as security for any loan
the proceeds of which are used to purchase securities issued by the
corporation. No dividend shall be declared or paid on the stock certificate
which shall impair the capital of the corporation nor shall any distribution
of assets be made to any stockholder unless the value of the assets of the
corporation remaining after such payment for distribution is at least equal to
the aggregate of its debts and liabilities, including capital.
<PAGE>
CLOSING OF TRANSFER BOOKS
Section 6. The board of directors may close the stock transfer
books of the corporation for a period not exceeding fifty days preceding the
date of any meeting of stockholders or the day for payment of any dividend or
the date for the allotment of rights or the date when any change or conversion
or exchange of capital stock shall go into effect or for a period of not
exceeding fifty days in connection with obtaining the consent of stockholders
for any purpose. In lieu of closing the stock transfer books as aforesaid,
the board of directors may fix in advance a date, not exceeding fifty days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at, any
such meetings, and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, or to give such consent, as the case
may be notwithstanding any transfer of any stock on the books of the
corporation after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the
capital stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums
<PAGE>
as the directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the corporation, or for such
other purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person
or persons as the board of directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall end the
thirtieth day of September in each year.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular
meeting of the stockholders or of the board of directors or at any special
meeting of the stockholders or of the board of directors if notice of such
alteration or repeal be contained in the notice of such special meeting. No
change of the time or place of the meeting for the election of directors shall
be made within sixty days next before the day on which such meeting is to be
held, and in case of any change of such time or place, notice thereof shall be
given to each stockholder in person or by letter mailed to his last known post
office address at least twenty days before the meeting is held.
EXHIBIT 6.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors or officers of
Sterne, Agee & Leach, Inc., a Delaware corporation, hereby constitutes and
appoints S. Ashton Stuckey and William H. Flanders, Jr. and each of them (with
full power to each of them to act alone) his/her true and lawful attorney-in-
fact and agent, for him/her and on his/her behalf and in his/her name, place
and stead, in any and all capacities, to sign, execute and affix his/her seal
thereto and file any applications for exemptive relief or other requests with
the Securities and Exchange Commission or other regulatory authority as may be
necessary, desirable or appropriate under applicable law, and one or more
Registration Statements on Form S-6 under the Securities Act of 1933 or Form
N-8B-2 or Form N-8A under the Investment Company Act of 1940, including any
amendment or amendments thereto, with all exhibits, and any and all other
documents required to be filed with respect to any other unit investment trust
sponsored by Sterne, Agee & Leach, Inc. and any successors thereof whether or
not in existence at the date hereof and which may be created after the date
hereof with any regulatory authority, federal or state, relating to the
registration thereof or the issuance of units of fractional undivided
interests therein, without limitation, granting unto said attorneys, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises in order to
effectuate the same as fully to all intents and purposes as he might or could
do if personally present, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof.
Signed this 23rd day of October, 1996.
CRAIG BARROW III LINDA M. DANIEL WILLIAM H. FLANDERS, JR.
- --------------------- ------------------- ------------------------
Craig Barrow III Linda M. Daniel William H. Flanders, Jr.
R. ANDREW GARRETT JAMES S. HOLBROOK, JR. ALONZO H. LEE, JR.
- --------------------- ------------------- ------------------------
R. Andrew Garrett James S. Holbrook, Jr. Alonzo H. Lee, Jr.
KATHRYN W. MIREE WILLIAM LEE SMITH F. EUGENE WOODHAM
- --------------------- ------------------- ------------------------
Kathryn W. Miree William Lee Smith F. Eugene Woodham
