File No. 333-14701
CIK NO. 814151
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
Amendment No. 1
to
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. CHAPMAN AND CUTLER
Attention: Ashton Stuckey Attention: Mark J. Kneedy
1901 Sixth Avenue North 111 West Monroe Street
Birmingham, Alabama 35203 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: Not Applicable
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 securities ) 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 Public
) Accountants
) Statement of Condition
- --------------------------
* Inapplicable, answer negative or not required.
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STATE AND LOCAL TRUSTS, SERIES 1
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 $2,475,000 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 the Federal
alternative minimum tax and other state and local taxes. Capital gains, if
any, are subject to tax. The Trust will hold no more than 20% of its net
assets in Securities which are subject to the Federal alternative minimum tax.
As of the Date of Deposit, none of the principal amount of the Bonds in the
Trust was subject to the Federal alternative minimum 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 5.90% of the Public Offering Price
(6.270% 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 December
6, 1996, there will be added an amount equal to the accrued interest from
December 10, 1996 to the date of settlement (three business days after order)
less distributions from the Interest Account subsequent to December 10, 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 $999.65.
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 December 5, 1996.
STERNE, AGEE & LEACH, INC.
SPONSOR
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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.
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
$955.60 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 January 1, 1997 to holders of
record on December 15, 1996, and thereafter distributions will be made monthly
on the first day of each month to record holders on the fifteenth day of the
preceding month. Distributions of funds in the Principal Account, if any,
will also be made monthly on the first day of each month to record holders on
the fifteenth day of the preceding 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 December 4, 1996, the business day prior to the Date of Deposit
SPONSOR AND EVALUATOR: 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(1) $ 2,475,000
Number of Units 2,590
Fractional Undivided Interest in Trust per Unit 1/2,590
Principal Amount (Par Value) of Bonds per Unit(1) $ 955.60
Aggregate Offering Price of Bonds in the Trust $ 2,446,705
Aggregate Offering Price of Bonds per Unit $ 944.67
Plus Sales Charge 5.50% (5.820% of the
Aggregate Offering Price of the Bonds) $ 54.98
Public Offering Price per Unit(2) $ 999.65
Redemption Price per Unit(3) $ 933.41
Sponsor's Initial Repurchase Price per Unit(3)(4) $ 944.67
Excess of Public Offering Price per Unit Over
Redemption Price per Unit $ 66.24
Excess of Public Offering Price per Unit Over
Sponsor's Initial Repurchase Price per Unit $ 54.98
Estimated Annual Interest Income per Unit $ 53.64
Less: Estimated Annual Expense per Unit $ 2.78
Estimated Annual Net Interest Income per Unit $ 50.96
Estimated Daily Rate of Net Interest Income Accrual per Unit $ .1415
Estimated Current Return(5)(6)(7) 5.10%
Estimated Long-Term Return(5)(6)(7) 5.00%
Initial Distribution(January 1, 1997) $0.71 per Unit
Date of Deposit December 5, 1996
First Settlement Date December 10, 1996
Minimum Principal Distribution $1.00 per Unit
Mandatory Termination Date July 1, 2026
Minimum Market Value of Bonds Under Which Indenture
May Be Terminated $495,000
Distribution Dates First day of every month commencing January 1, 1997
Trustee's Annual Fee $1.22 per $1,000 principal amount of Bonds,
exclusive of expenses of the Trust.
Evaluator's Annual Fee $.25 per $1,000 principal amount of Bonds
Annual Audit Fee $.38 per Unit
</TABLE>
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.
(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.
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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. However, in the case of
corporations, interest on all obligations held by the Trust may be subject to
the alternative minimum tax for Federal income tax purposes. Accordingly, the
Trust may be appropriate only for investors who are not subject to the
alternative minimum 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 thereby reducing the net worth of the
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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 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 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 5% 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 8 obligations of issuers located in the
State of Alabama. Four 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:
Transportation, 1 (14.1%), Electric Utility, 1 (12.1%); Health Care, 1
(10.1%); and Civic Center, 1 (5.1%). The dollar weighted average maturity of
the Bonds in the Trust is 25.9 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 (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).
Estimated expenditures for the 1997 budget call for $3.5 billion from the
Special Education Trust Fund and $875.1 million from the General Fund.
Revenues from the two funds for 1995 were $4,078 million and are projected to
be over $4.2 billion for 1996. Unemployment has declined slightly in the most
recent period, with the average rate for 1996 standing at 5.2%, while the 1995
unemployment rate was 5.9%.
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
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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.
Approximately 14% of the aggregate principal amount of Bonds in the Trust
are transportation revenue bonds. Payment on such bonds is dependent on
revenues from projects such as tolls on turnpikes. Therefore, payment may be
adversely affected by a reduction in revenues due to such factors as
competition from toll-free vehicular bridges and roads, increased cost of
maintenance, lower cost of alternative modes of transportation and a reduction
in the availability of fuel to motorists or significant increases in the costs
thereof.
Approximately 12% 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 10% 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 5% of the aggregate principal amount of the Bonds in the
Trust consists of obligations which are payable from and secured by revenues
primarily derived from the ownership and operation of facilities such as civic
centers, convention centers, stadiums and arenas. Payment on such Bonds is
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<PAGE>
dependent on revenues from the related projects, user fees from facilities and
rents from buildings. Therefore, payment may be adversely affected by
reduction in revenues due to such factors as increased cost of maintenance,
decreased use of a facility, lower cost of alternative facilities and
reduction or loss of rents.
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.
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
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<PAGE>
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,
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.
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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
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.
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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.
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 5.90% of the Public Offering Price (equivalent to 6.270% 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.
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During the initial offering period, Units will be distributed to the
public by the Sponsor and through certain dealers. 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 4.00%
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
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.
Broker-dealers of the Trust may be 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 trusts 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 a 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 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 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.
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.
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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
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. The Trustee is empowered 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.
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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.
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 first day of
each month on a pro rata basis to Unitholders of record as of the preceding
record date (which is the fifteenth day of the preceding month). All
distributions will be net of applicable expenses. The pro rata share of cash
in the Principal Account will be computed on the fifteenth day of each month
and will be distributed to the Unitholders as of the first day of the
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following 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 fifteenth day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (see
"Expenses of the Trust"). The Trustee may also withdraw from said accounts an
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
procedures.
TAX STATUS (FEDERAL, STATE, CAPITAL GAINS)
Federal Income Taxation. At the respective times of issuance of the
Bonds, opinions relating to the validity thereof, to the exclusion of interest
thereon from Federal gross income 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 income tax purposes and may be includable in gross income for
state tax purposes. It should be noted in this connection that such gain does
not include any amounts received in respect of accrued interest or accrued
original issue discount, if any. If a Bond is acquired with accrued interest,
that portion of the price paid for the accrued interest is added to the tax
basis of the Bond. When this accrued interest is received, it is treated as a
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return of capital and reduces the tax basis of the Bond. If a Bond is
purchased for a premium, the amount of the premium is added to the tax basis
of the Bond. Bond premium is amortized over the remaining term of the Bond,
and the tax basis of the Bond is reduced each tax year by the amount of the
premium amortized in that tax year. 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; however, such interest may be taken into account in computing
the alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"); 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 his Units. Unitholders must reduce the tax
basis of their Units for their share of accrued interest received by the
Trust, if any, on Bonds delivered after the Unitholders pay for their
Units to the extent that such interest accrued on such Bonds before the
date the Trust acquired ownership of the Bonds (and the amount of this
reduction may exceed the amount of accrued interest paid to the seller)
and, consequently, such Unitholders may have an increase in taxable gain
or reduction in capital loss upon the disposition of such Units. Gain or
loss upon the sale or redemption of units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the Units.
If the Trustee disposes of 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 accrued 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
valuation date nearest the date of acquisition of the Units. The tax
basis reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unitholder realizing
a taxable gain when his Units are sold or redeemed for an amount equal to
or less than his original cost.
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 upon its issue price (its
"adjusted issue price") to prior owners. The application of these rules will
also vary depending on the value of the Bond on the date a Unitholder acquires
his Units and the price the Unitholder pays for his Units. Unitholders should
consult their tax advisors regarding these rules and their application.
"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
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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.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or carry
Units of the Trust is not deductible for Federal income tax purposes. The
Internal Revenue Service has taken the position that such indebtedness need
not be directly traceable to the purchase or carrying of Units (however, these
rules generally do not apply to interest paid on indebtedness incurred to
purchase or improve a personal residence). Also, under Section 265 of the
Code, certain financial institutions that acquire Units would generally not be
able to deduct any of the interest expense attributable to ownership of such
Units. On December 7, 1995, the U.S. Treasury Department released proposed
legislation that, if adopted, would generally extend the financial institution
rules to all corporations effective for obligations acquired after the date of
announcement. Investors with questions regarding these issues should consult
with their tax advisers.
In the case of certain of the Bonds in the Trust, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user"
of the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or
related person, will not be excludable from Federal gross income, although
interest on such Bonds received by others would be excludable from Federal
gross income. "Substantial user" and "related person" are defined under the
Code and U.S. Treasury Regulations. Any person who believes that he or she
may be a "substantial user" or a "related person" as so defined should contact
his or her tax adviser.
In general, Section 86 of the Code provides that 50% of Social Security
benefits are includable in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security benefits
received exceeds the "base amount." The base amount is $25,000 for unmarried
taxpayers, $32,000 for married taxpayers filing a joint return and zero for
married taxpayers who do not live apart at all times during the taxable year
and who file separate returns. Modified adjusted gross income is adjusted
gross income determined without regard to certain otherwise allowable
deductions and exclusions from gross income and by including tax exempt
interest. To the extent that Social Security benefits are includable in gross
income, they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after December
31, 1993, up to 85% of Social Security benefits are includable in gross income
to the extent that the sum of "modified adjusted gross income" plus 50% of
Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not
live apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
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that received from the Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his Social Security benefits
in gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits
in gross income.
For purposes of computing the alternative minimum tax for individuals and
corporations and the Superfund Tax for corporations, interest on certain
private activity bonds (which includes most industrial and housing revenue
bonds) issued on or after August 8, 1986 is included as an item of tax
preference.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%, effective for long-term capital gains realized
in taxable years beginning on or after January 1, 1993. For taxpayers other
than corporations, net capital gains (which is defined as net long term
capital gain over net short-term capital loss for a taxable year) are subject
to a maximum stated marginal tax rate of 28%. However, it should be noted that
legislative proposals are introduced from time to time that affect tax rates
and could affect relative differences at which ordinary income and capital
gains are taxed. Under the Code, taxpayers must disclose to the Internal
Revenue Service the amount of tax-exempt interest earned during the year.
The alternative minimum tax and the Superfund Tax for taxable years
beginning after December 31, 1986 depend upon the corporation's alternative
minimum taxable income ("AMTI"), which is the corporation's taxable income
with certain adjustments. One of the adjustment items used in computing the
AMTI 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 AMTI (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. Under current Code provisions, the Superfund Tax does not apply to
tax years beginning on or after January 1, 1996. However, the Superfund Tax
could be extended retroactively. Under the provisions of Section 884 of the
Code, a branch profits tax is levied on the "effectively connected earnings
and profits" of certain foreign corporations which include tax-exempt interest
such as interest on the Bonds in the Trust. Unitholders should consult their
tax advisors with respect to the particular tax consequences to them,
including the corporate alternative minimum tax, the Superfund Tax and the
branch profits tax imposed by Section 884 of the Code.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers
who may be deemed to have incurred (or continued) indebtedness to purchase or
carry tax-exempt obligations. Prospective investors should consult their tax
advisers as to the applicability of any such collateral consequences.
Alabama Taxation. In the opinion of Balch & Bingham, Birmingham, Alabama,
Special Counsel to the Fund 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.
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Income of the Trust, to the extent it is taxable, will be taxable to the
Unitholders, not the Trust.
Each Unitholder's 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 of the State of Alabama and subdivisions thereof
and on bona fide tax-exempt obligations of the United States' Possessions held
by the Trust which is exempt from 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.
For information with respect to the Federal income tax status and other
tax matters, see "Federal Income Taxation" above.
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 has borne the costs of establishing the Trust, including the
cost of initial preparation, printing and execution of the Indenture and the
certificates, legal and accounting expenses, advertising expenses, selling
expenses, expenses of the Trustee, initial fees for evaluations and other out-
of-pocket expenses, at no cost to the Trust.
The Sponsor will not receive any fees in connection with activities
relating to the Trust. 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
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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."
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.
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 Ranson & Associates, Inc., 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
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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
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.
For as long as the Sponsor deems it to be in the best interest of the
Unitholders, the accounts of the Trust shall be audited, not less frequently
than annually, by independent certified public accountants.
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
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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 total equity of Sterne, Agee &
Leach, Inc. was $11,530,727. (This paragraph relates only to the Sponsor and
not to any Series of the Trust or to any other dealer. The information is
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 Ranson &
Associates, Inc.). See "Schedule of Investments." 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 18% 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 5.90%). 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
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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 or 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 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.
25
<PAGE>
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 any successor
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.
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.
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. Certain matters relating to Alabama tax
law have been passed upon by Balch & Bingham, Birmingham, Alabama.
The "Statement of Condition" and "Schedule of Investments" at the Date of
Deposit included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in giving said report.
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
26
<PAGE>
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;
(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
27
<PAGE>
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.
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 marginal Federal tax rates and marginal
Alabama tax rates currently available and 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 table assumes that
federal taxable income is equal to state income subject to tax, and for cases
in which more than one state rate falls within a federal bracket, the highest
28
<PAGE>
state rate corresponding to the highest income within that Federal bracket is
used. The combined Federal and state tax brackets shown were computed by
taking into account the cross-deductibility of each tax in determining the
other. The table does not reflect any local taxes or any taxes other than
personal income taxes. The table illustrates approximately what you would
have to earn on taxable investments to equal the tax-exempt estimated current
return for your income tax bracket. Locate your income (after deductions and
exemptions), then locate your tax bracket based on joint or single tax filing.
Read across to the equivalent taxable estimated current return you would need
to match the tax-free income.
<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>
* The table does not reflect any federal or state limitations on the amounts
of allowable itemized deductions, phase-outs of personal or dependent
exemption credits. Such limitations were designed to phase-out certain
benefits of these deductions for higher income taxpayers.
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.
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Sterne, Agee & Leach, Inc. and Unitholders of
State and Local Trusts, Series 1 (Trust Alabama, Series 7):
We have audited the accompanying statement of condition and the schedule of
investments at the date of deposit of State and Local Trusts, Series 1 (Trust
Alabama, Series 7), as of December 5, 1996. This statement of condition is
the responsibility of the Sponsor. Our responsibility is to express an
opinion on this statement of condition based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of deposited securities and cash for the
purchase of securities, described in Note (1) to the statement of condition,
by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Sponsor, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statement of condition and the schedule of investments at
the date of deposit referred to above present fairly, in all material
respects, the financial position of State and Local Trusts, Series 1 (Trust
Alabama, Series 7) as of December 5, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
December 5, 199
30
<PAGE>
STATE AND LOCAL TRUSTS, SERIES 1
(TRUST ALABAMA, SERIES 7)
STATEMENT OF CONDITION
AS OF DECEMBER 5, 1996
<TABLE>
<CAPTION>
TRUST PROPERTY
<S> <C>
Bonds deposited $ 2,146,705
Sponsor's contract to purchase Bonds, backed by cash (1) (2) 300,000
Accrued interest to December 5, 1996 on underlying Bonds (1) 21,083
-----------
TOTAL $ 2,467,788
===========
<CAPTION>
LIABILITY AND INTEREST OF UNITHOLDERS
<S> <C>
Liability:
Accrued interest to December 5, 1996 on underlying Bonds (3) $ 21,083
Interest of Unitholders:
Units of fractional undivided interest outstanding (2,590)
Cost to investors (4) $ 2,589,106
Less: Gross underwriting commission (5) 142,401
Net amount applicable to investors $ 2,446,705
-----------
TOTAL $ 2,467,788
===========
- -------------------------------
</TABLE>
NOTES:
(1) Represented by contracts to purchase Bonds which include "when issued" or
"regular way" or "delayed delivery" contracts for which cash has been
deposited with the Trustee on the Date of Deposit. The amount of such cash
deposited equals the amount necessary for the purchase of the Bonds plus
accrued interest to the Date of Deposit. At the Date of Deposit, Bonds may
have been delivered to the Sponsor pursuant to certain of these contracts;
the Sponsor has assigned to the Trustee all of its rights, title and interest
in and to such Bonds.
(2) Aggregate value (at offering prices) as of the Date of Deposit of the
Bonds listed under "Schedule of Investments" herein, and their aggregate
cost to the Trust are the same. Such offering prices were determined by
Ranson & Associates, Inc. as of the close of business on the business day
prior to the Date of Deposit. See "Evaluation of the Trust".
(3) Representing, as set forth in "Accrued Interest", advancement by the
Trustee of an amount equal to the accrued Bond interest as of the Date of
Deposit.
(4) Aggregate Public Offering Price (exclusive of accrued interest) computed
as set forth under "Public Offering Information".
(5) The gross underwriting commission of 5.50% of the Public Offering Price
has been calculated on the assumption that the Units sold are not subject
to a reduction of sales charge for quantity purchases. In single
transactions involving 150 Units or more, the sales charge is reduced.
(See "Public Offering Information".
31
<PAGE>
TRUST ALABAMA, SERIES 7
SCHEDULE OF INVESTMENTS AT THE DATE OF DEPOSIT, DECEMBER 5, 1996
<TABLE>
<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>
$ 200,000 City of Bayou La Batre, Alabama General Obligation AAA 2002 @ 102 $ 225,200
Warrants, Series 1992 (AMBAC Insured) 7.25%, 2004 @ 100
Due 9/1/2016 2013 @ 100 S.F.
* 300,000 Clarke-Mobile Counties Gas District (Alabama) Gas Aaa# 2006 @ 100 300,000
Revenue Bonds, Series 1996 (MBIA Insured) 5.60%, 2012 @ 100 S.F.
Due 12/1/2017
@@ 125,000 Birmingham-Jefferson Civic Center Authority AAA Noncallable 36,068(6)
(Jefferson County Alabama) Refunding and Capital
Outlay Special Tax Bonds, Series 1992 (MBIA
Insured) 0.00%, Due 9/1/2018
@@ 500,000 City of Oxford, Alabama General Obligation Sewer AAA 2006 @ 102 506,340
Warrants, Series 1996 (AMBAC Insured) 5.75%, 2008 @ 100
Due 9/1/2021 2015 @ 100 S.F.
@@ 250,000 Fairfield, Alabama General Obligation Warrants, AAA 2002 @ 102 269,242
Series 1992 (AMBAC Insured) 6.30%, Due 6/1/2022 2004 @ 100
@@ 500,000 City of Fort Payne, Alabama General Obligation AAA 2006 @ 102 506,225
Warrants, Series 1996 (FSA Insured) 5.75%, 2008 @ 100
Due 5/1/2026 2017 @ 100 S.F.
@@ 350,000 Birmingham Airport Authority Airport Revenue Bonds, AAA 2006 @ 102 350,000
Series 1996 (MBIA Insured) 5.625%, Due 7/1/2026 2008 @ 100
2017 @ 100 S.F.
@@ 250,000 Bessemer, Alabama Medical Clinic Board Revenue AAA 2006 @ 102 253,630
(Bessemer Carraway Medical Center), Series 1996 2008 @ 100
(MBIA Insured) 5.875%, Due 5/15/2026 2020 @ 100 S.F.
- ----------- -----------
$ 2,475,000 $ 2,446,705
=========== ===========
</TABLE>
See "Notes to Trust Portfolio.
32
<PAGE>
See "Notes to Trust Portfolio.
NOTES TO TRUST PORTFOLIO:
(1) Contracts to acquire Bonds were entered into by the Sponsor during the
period September 24, 1996 through November 26, 1996. All Bonds have been
delivered to the Trust on the Date of Deposit, except for one Bond which is
expected to settle on December 19, 1996, the performance of which cash 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>
$2,438,213 $8,493 $138,925 $2,417,525
</TABLE>
The Sponsor has entered into contracts which hedge interest rate fluctuations
on certain Bonds. The cost of any such contracts and the corresponding gain
or loss is included in the Cost of Bonds to Sponsor.
(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 5% of the aggregate
principal amount of the Bonds in the Trust are "zero coupon" bonds.
(7) None of the aggregate principal amount of the Bonds in the Trust are
subject to the alternative minimum tax. The interest income from each such
Bond will be treated as an item of tax preference for purposes of
computing the alternative minimum tax of all Unitholders of the Trust.
Each such Bond is identified in the portfolio with a "##".
%% 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>
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 11
Estimated Current Return and Estimated Long-Term Return 12
Public Offering Information 13
Accrued Interest 14
Redemption and Repurchase of Units 15
Distribution of Interest and Principal 16
Tax Status (Federal, State, Capital Gains) 17
Expenses of the Trust 21
Evaluation of the Trust 22
Other Rights of Certificateholders 23
Sponsor Information 24
Trustee Information 25
Legal and Auditing Matters 26
Description of Bond Ratings 26
Tax-Exempt/Taxable Estimated Current Return Equivalents 29
Report of Independent Public Accountants 30
Statement of Condition 31
Schedule of Investments 32
Notes to Schedule of Investments 33
</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.
1.1.1 Standard Terms and Conditions of Trust. Reference is made to Exhibit
1.1.1 to the Registration Statement on Form S-6 for the Trust
(Registration No. 333-14701) as filed on October 23, 1996.
1.2 Articles of Incorporation of Sterne, Agee & Leach, Inc. Reference is
made to Exhibit 1.2 to the Registration Statement on Form S-6 for the
Trust (Registration No. 333-14701) as filed on October 23, 1996.
1.3 By-laws of Sterne, Agee & Leach, Inc. Reference is made to Exhibit 1.3
to the Registration Statement on Form S-6 for the Trust (Registration
No. 333-14701) as filed on October 23, 1996.
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion and consent of counsel as to Federal income tax status of
securities being registered.
3.3 Opinion and consent of counsel as to Alabama tax status of securities
being registered.
4.1 Consent of Ranson & Associates, Inc.
4.2 Consent of Arthur Andersen LLP.
6.1 Power of Attorney. Reference is made to Exhibit 6.1 to the
Registration Statement on Form S-6 for the Trust (Registration
No. 333-14701) as filed on October 23, 1996.
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 4th day of December, 1996.
STATE AND LOCAL TRUSTS, SERIES 1
By STERNE, AGEE & LEACH, INC., Depositor
By ASHTON STUCKEY
-----------------------------------
Ashton Stuckey
Managing Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on December 4, 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
ASHTON STUCKEY
------------------------------
Ashton Stuckey
(Attorney-in-fact*)
- -------------------
* The power of attorney is incorporated herein by reference to the
Registration Statement on Form S-6 for the Trust (File No. 333-14701)
as filed on October 23, 1996.
S-4
EXHIBIT 1.1
STATE AND LOCAL TRUST, SERIES 1
TRUST AGREEMENT
Dated: December 5, 1996
This Trust Agreement between Sterne, Agee & Leach, Inc., as Depositor,
Evaluator, and Supervisor, and The Trust Company of Sterne, Agee & Leach,
Inc., as Trustee, sets forth certain provisions in full and incorporates other
provisions by reference to the document entitled "Standard Terms and
Conditions of Trust For Sterne, Agee & Leach, Inc. Tax-Exempt Trust, Dated
October 23, 1996" (herein called the "Standard Terms and Conditions of
Trust"), and such provisions as are set forth in full and such provisions as
are incorporated by reference constitute a single instrument. All references
herein to Articles and Sections are to Articles and Sections of the Standard
Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor, Evaluator, Supervisor and the Trustee agree as
follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions contained in
the Standard Terms and Conditions of Trust are herein incorporated by
reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Section 1.01(4), listed in the Schedules
hereto, have been deposited in the Trusts under this Trust Agreement.
(b) The fractional undivided interest in and ownership of the
various Trusts represented by each Unit thereof is the amount set forth under
"Summary of Essential Financial Information_Fractional Undivided Interest in
the Trust per Unit" in the Prospectus.
<PAGE>
(c) The First General Record Date and the amount of the second
distribution of funds from the Interest Account of the Trust shall be the
record date for the Interest Account set forth under "Distributions" on page 2
of the Prospectus and that amount set forth under "Summary of Essential
Financial Information_Initial Distribution" in the Prospectus.
(e) The First Settlement Date shall be the date set forth under
"Summary of Essential Financial Information_First Settlement Date" in the
Prospectus.
(f) The Evaluation Time for purpose of sale, purchase or redemption
of Units shall be that time set forth under "Summary of Essential Financial
Information" in the Prospectus.
(g) As set forth in Section 3.05, the Record Dates and Distribution
Dates for each Trust are those dates set forth under "Distributions" on page 2
of the Prospectus.
(h) As set forth in Section 3.15, the Supervisor's annual fee shall
be that amount set forth in "Summary of Essential Financial Information_
Supervisor's Annual Fee" in the Prospectus.
(i) As set forth in Section 4.03, the Evaluator's annual fee shall
be that amount set forth in "Summary of Essential Financial Information_
Evaluator's Annual Fee" in the Prospectus.
(j) As set forth under Section 6.04, the Trustee's annual fee shall
be that amount as set forth in "Summary of Essential Financial Information_
Trustee's Annual Fee" in the Prospectus.
2
<PAGE>
IN WITNESS WHEREOF, Sterne, Agee & Leach, Inc. and The Trust Company of
Sterne, Agee & Leach, Inc., have caused this Trust Agreement to be executed by
their respective Presidents or one of their respective 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
----------------------------
<PAGE>
SCHEDULE TO TRUST AGREEMENT
SECURITIES DEPOSITED
STATE AND LOCAL TRUST, SERIES 1
(Note: Incorporated herein and made a part hereof is the "Schedule of
Investments" of the Trust as set forth in the Prospectus.)
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 West Monroe Street
Chicago, Illinois 60603
December 5, 1996
Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Birmingham, Alabama 35203
Re: State and Local Trusts, Series 1
Gentlemen:
We have served as counsel for Sterne, Agee & Leach, Inc., Sponsor and
Depositor of State and Local Trusts, Series 1 (hereinafter referred to as the
"Fund"), in connection with the preparation, execution and delivery of a Trust
Agreement dated December 5, 1996 between Sterne, Agee & Leach, Inc., as
Depositor, Evaluator and Supervisor, and The Trust Company of Sterne, Agee &
Leach, Inc., as Trustee, pursuant to which the Depositor has delivered to and
deposited Bonds listed in the Schedules to the Trust Agreement with the
Trustee and pursuant to which the Trustee has issued to or on the order of the
Depositor documentation representing Units of fractional undivided interest in
and ownership of the Trust of said Fund (hereinafter referred to as the
"Units") created under said Trust Agreement.
In connection therewith, we have examined such pertinent records and documents
and matters of law as we have deemed necessary in order to enable us to
express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of documentation evidencing the Units in the Trust of
the Fund have been duly authorized; and
2. The evidence of ownership of the Units in the Trust of the Fund
when duly executed and delivered by the Depositor and the Trustee in
accordance with the aforementioned Trust Agreement, will constitute valid and
binding obligations of such Trust and the Depositor in accordance with the
terms thereof.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-14701 relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
MJK/cjw
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 West Monroe Street
Chicago, Illinois 60603
December 5, 1996
Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Birmingham, Alabama 35203
The Trust Company of Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Birmingham, Alabama 35203
Re: State and Local Trusts, Series 1
Gentlemen:
We have acted as counsel for Sterne, Agee & Leach, Inc., Depositor of State
and Local Trusts, Series 1 (the "Fund") consisting of Trust Alabama, Series 7
(the "Trust"), in connection with the issuance of Units of fractional
undivided interest in the Trust of said Fund under a Trust Agreement dated
December 5, 1996 (the "Indenture") between Sterne, Agee & Leach, Inc., as
Depositor, Evaluator and Supervisor, and The Trust Company of Sterne, Agee &
Leach, Inc., as Trustee.
In this connection, we have examined the Registration Statement, the form of
Prospectus proposed to be filed with the Securities and Exchange Commission,
the Indenture and such other instruments and documents as we have deemed
pertinent.
Based upon the foregoing and upon an investigation of such matters of law as
we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trust is not an association taxable as a corporation but
will be governed by the provisions of subchapter J (relating to trusts) of
chapter 1, Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share of
each asset of the Trust in the proportion that the number of Units of the
Trust held by him bears to the total number of Units of the Trust outstanding.
Under subpart E, subchapter J of chapter 1 of the Code, income of the Trust
will be treated as income of each Unitholder of the Trust in the proportion
described, and an item of Trust income will have the same character in the
hands of a Unitholder as it would have in the hands of the Trustee.
Accordingly, to the extent that the income of the Trust consists of interest
<PAGE>
and original issue discount excludable from gross income under Section 103 of
the Code, such income will be excludable from Federal gross income of the
Unitholders, except in the case of a Unitholder who is a substantial user (or
a person related to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity bonds held by the
Trust. In the case of such Unitholder (and no other) interest received with
respect to his Units attributable to such industrial development bonds or such
private activity bonds is includable in his gross income. To the extent the
Trust holds bonds that are "specified private activity bonds" within the
meaning of Section 57(a)(5) of the Code, a Unitholder's pro rata portion of
the income on such Bonds will be included as an item of tax preference in the
computation of the alternative minimum tax applicable to taxpayers (including
non-corporate taxpayers) subject to the alternative minimum tax. In the case
of certain corporations, interest on the Bonds is included in computing the
alternative minimum tax pursuant to Section 56(c) of the Code, the
environmental tax (the "Superfund Tax") imposed by Section 59A of the Code,
and the branch profits tax imposed by Section 884 of the Code with respect to
U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon redemption
or sale of his Units. Such gain or loss is measured by comparing the proceeds
of such redemption or sale with the adjusted basis of the Units. Unitholders
must reduce the tax basis of their Units for their share of accrued interest
received by the Trust, if any, on Bonds delivered after the Unitholders pay
for their Units to the extent that such interest accrued on such Bonds before
the date the Trust acquired ownership of the Bonds (and the amount of this
reduction may exceed the amount of accrued interest paid to the seller) and,
consequently, such Unitholders may have an increase in taxable gain or
reduction in capital loss upon the disposition of such Units. In addition,
such basis will be increased by the Unitholder's aliquot share of the accrued
original issue discount (and market discount, if the Unitholder elects to
include market discount in income as it accrues) with respect to each Bond
held by the Trust with respect to which there was original issue discount at
the time the Bond was issued (or which was purchased with market discount) and
reduced by the annual amortization of bond premium, if any, on Bonds held by
the Trust.
(iv) If the Trustee disposes of a Trust asset (whether by sale,
payment on maturity, redemption or otherwise) gain or loss is recognized to
the Unitholder and the amount thereof is measured by comparing the
Unitholder's aliquot share of the total proceeds from the transaction with his
basis for his fractional interest in the asset disposed of. Such basis is
ascertained by apportioning the tax basis for his Units among each of the
Trust assets (as of the date on which his Units were acquired) ratably
according to their values as of the valuation date nearest the date on which
he purchased such Units. A Unitholder's basis in his Units and of his
fractional interest in each Trust asset must be reduced by the amount of his
aliquot share of accrued interest received by the Trust, if any, on Bonds
delivered after the Unitholders pay for their Units to the extent that such
interest accrued on the Bonds before the date the Trust acquired ownership of
the Bonds (and the amount of this reduction may exceed the amount of accrued
<PAGE>
interest paid to the seller), must be reduced by the annual amortization of
bond premium, if any, on Bonds held by the Trust and must be increased by the
Unitholder's share of the accrued original issue discount (and market
discount, if the Unitholder elects to include market discount in income as it
accures) with respect to each Bond which, at the time the Bond was issued, had
original issue discount (or which was purchased with market discount).
(v) In the case of any Bond held by the Trust where the "stated
redemption price at maturity" exceeds the "issue price", such excess shall be
original issue discount. With respect to each Unitholder, upon the purchase
of his Units subsequent to the original issuance of Bonds held by the Trust,
Section 1272(a)(7) of the Code provides for a reduction in the accrued "daily
portion" of such original issue discount upon the purchase of a Bond
subsequent to the Bond's original issue, under certain circumstances. In the
case of any Bond held by the Trust the interest on which is excludable from
gross income under Section 103 of the Code, any original issue discount which
accrues with respect thereto will be treated as interest which is excludable
from gross income under Section 103 of the Code.
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 upon 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.
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 ("AMTI") which is the
corporation's taxable income with certain adjustments. Pursuant to Section
56(c) of the Code, one of the adjustment items used in computing AMTI and the
Superfund Tax of a corporation (other than an S corporation, Regulated
Investment Company, Real Estate Investment Trust or REMIC) for taxable years
beginning after 1989, is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its AMTI
(before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all Bonds in the Trust, and tax-exempt original issue
discount. Under current Code provisions, the Superfund Tax does not apply to
tax years beginning on or after January 1, 1996. However, the Superfund Tax
could be extended retroactively.
Effective for tax returns filed after December 31, 1987, all taxpayers are
required to disclose to the Internal Revenue Service the amount of tax-exempt
interest earned during the year.
<PAGE>
Section 265 of the Code provides for a reduction in each taxable year of 100
percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section
593 of the Code applies, to purchase or carry obligations acquired after
August 7, 1986, the interest on which is exempt from Federal income taxes for
such taxable year. Under rules prescribed by Section 265, the amount of
interest otherwise deductible by such financial institutions in any taxable
year which is deemed to be attributable to tax-exempt obligations acquired
after August 7, 1986, will be the amount that bears the same ratio to the
interest deduction otherwise allowable (determined without regard to Section
265) to the taxpayer for the taxable year as the taxpayer's average adjusted
basis (within the meaning of Section 1016) of tax-exempt obligations acquired
after August 7, 1986, bears to such average adjusted basis for all assets of
the taxpayer, unless such financial institution can otherwise establish, under
regulations to be prescribed by the Secretary of the Treasury, the amount of
interest on indebtedness incurred or continued to purchase or carry such
obligations. On December 7, 1995 the U.S. Treasury Department released
proposed legislation that, if adopted, would generally extend the financial
institution rules to all corporations, effective for obligations acquired
after the date of announcement.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units is
not 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 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.
"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 the Trust pays for Bonds
or the price a Unitholder 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 his
or her Units, unless a Unitholder elects to include market discount in taxable
income as it accrues.
<PAGE>
We have not examined any of the Bonds to be deposited and held in the Trust or
the proceedings for the issuance thereof or the opinions of bond counsel with
respect thereto, and therefore express no opinion as to the exemption from
State income taxes of interest on the Bonds if received directly by a
Unitholder.
Very truly yours,
CHAPMAN AND CUTLER
MJK/cjw
EXHIBIT 3.3
BALCH & BINGHAM
P.O. Box 306
Birmingham, Alabama 35201
December 5, 1996
Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Birmingham, Alabama 35203
The Trust Company of Sterne, Agee & Leach, Inc.
1901 Sixth Avenue North
Birmingham, Alabama 35203
Re: State and Local Trusts, Series 1
Gentlemen:
We have acted as special Alabama tax counsel with respect to the State and
Local Trusts, Series 1 (the "Fund"), which contains Trust Alabama, Series 7,
an individual trust containing certain debt obligations and other securities
(the "Trust"). You have asked that we, acting in such capacity, render an
opinion with respect to the treatment, under the income tax laws of the State
of Alabama, of the Trust and of the units of fractional undivided interest
therein (the "Units") to be issued pursuant to a Registration Statement on
Form S-6 (the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended
(the "Securities Act"). You have advised us that the Trust is created under a
Trust Agreement between Sterne, Agee & Leach, Inc., as Sponsor, and The Trust
Company of Sterne, Agee & Leach, Inc., as Trustee.
In giving our opinions set forth hereunder, we have relied upon certain
additional facts and conclusions provided to us by you, including the
following: (1) the Trust consists solely of interest-bearing obligations
issued by the State of Alabama, and counties, municipalities or other
political subdivisions thereof, and may also include interest-bearing
obligations issued by one or more "Possessions" (as hereinafter defined) of
the United States (collectively, the "Bonds") the interest on which is exempt
from Federal income taxation; (2) at the respective dates of issuance of the
Bonds, opinions relating to the validity thereof and to the exemption of
interest thereon from Federal and Alabama income tax were rendered by bond
counsel to the respective issuing authority; (3) each Unit in the Trust
represents a fractional undivided interest in the principal and net income of
the Trust; (4) the Trust and any other trust included in the Fund will each be
administered as a separate and distinct entity for all purposes, each having
its own separate assets, accounts and certificates; (5) the Trust will have no
income other than interest on the Bonds and gain on the disposition of the
<PAGE>
Bonds; (6) insurance guaranteeing the payment of all principal and interest on
the obligations held by the Trust has been obtained by either the Sponsor or
the issuer or the underwriter of the respective obligations; and (7) all of
the income of the Trust will be distributed at least semiannually to the
holders of Units ("Unitholders").
In rendering our opinion, we have relied upon, with yours and their
permission, the opinion of Messrs. Chapman and Cutler that for Federal income
tax purposes the Trust will not be classified as an association, but will be
governed by the provisions of Subchapter J of Chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"), relating to trusts. We have
also assumed that "Possessions" of the United States as used herein and in the
Registration Statement shall have the same meaning as provided in the Code and
that although not defined by Alabama income tax law, regulations, or
decisions, such term would be given the same meaning for Alabama income
taxation as provided in the Code.
Based upon, and subject to the foregoing, it is our opinion that under
existing Alabama law:
1. The Trust is not taxable as a corporation for purposes of the Alabama
income tax.
2. Income of the Trust, to the extent it is taxable, will be taxable to
the Unitholders, not to the Trust.
3. Each Unitholder's distributive share of the Trust's net income will
be treated as income of the Unitholder for purposes of Alabama income tax.
4. Interest on obligations of the State of Alabama and subdivisions
thereof and on bona fide tax-exempt obligations of the United States'
Possessions held by the Trust which is exempt from Alabama income tax will
retain its tax-exempt character when the distributive share thereof is
distributed or deemed distributed to each Unitholder. Any proceeds paid to
the Trust under insurance policies issued to the Sponsor or under individual
policies obtained by the Sponsor, the issuer or underwriter of the respective
obligations which represent maturing interest on defaulted obligations held by
the Trustee will be exempt from Alabama income tax if and to the same extent
as such interest would be exempt from such taxes if paid directly by the
issuer of such obligations.
5. 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 Unitholder.
6. Gains realized upon the sale or redemption of Units by
Unitholders who are subject to Alabama income tax will be includable in the
Alabama income of such Unitholders.
<PAGE>
We have not examined any of the Bonds to be deposited in the Fund or any legal
or tax opinions rendered in connection therewith, and express no opinion as to
whether the interest on any such Bonds is, in fact, exempt from Federal or
Alabama income taxation; nor have we made any review of the proceedings
relating to the issuance of such obligations or the basis for bond counsel's
opinions with respect thereto.
We render no opinion herein as to any fund or series of the Trust other than
State and Local Trusts, Series 1.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our Firm and a summary of this
opinion to be included in such Registration Statement. In giving this
consent, we do not thereby admit that we are in the category of persons whose
consent is required by Section 7 of the Securities Act or by the Commission's
Rules and Regulations thereunder.
Very truly yours,
Balch & Bingham
EXHIBIT 4.1
RANSON
& ASSOCIATES, INC.
December 4, 1996
Mr. Scott Anderson
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Re: The State and Local Trusts, Series 1
(Trust Alabama, Series 7)
Dear Scott:
It is our understanding that a Registration Statement has been filed with the
Securities and Exchange Commission relating to units of the above-referenced
Trust. Attached you will find our initial evaluation. Pursuant to said
evaluation, the total bid side value of the Bonds in The Trust Alabama,
Series 7 is $2,417,525; the ask side value is $2,446,705.
This letter will evidence our consent to the use of our name on the subject
registration statement as the initial evaluator of the securities in the
portfolio of the subject trust.
Sincerely,
/s/ ALEX R. MEITZNER
Alex R. Meitzner
Chairman of the Board
ARM/dw
Enc.
EXHIBIT 4.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
December 5, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Amendment number 1 to form S-6 and is qualified in its entirety by
reference to such Amendment number 1 to form S-6
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> ALABAMA TRUST
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-5-1996
<PERIOD-START> DEC-5-1996
<PERIOD-END> DEC-5-1996
<INVESTMENTS-AT-COST> 2,446,705
<INVESTMENTS-AT-VALUE> 2,446,705
<RECEIVABLES> 21,083
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,467,788
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,083
<TOTAL-LIABILITIES> 21,083
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,446,705
<SHARES-COMMON-STOCK> 2,590
<SHARES-COMMON-PRIOR> 2,590
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,446,705
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
