File No. 333-14701 CIK #814151
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549-1004
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
STATE AND LOCAL TRUSTS, SERIES 1
(Exact Name of Trust)
STERNE AGEE & LEACH, INC.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
STERNE AGEE & LEACH, INC. CHAPMAN AND CUTLER
1901 Sixth Avenue North Attention: Mark J. Kneedy
Birmingham, Alabama 35203 111 West Monroe Street
Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become
effective on April 15, 1998 pursuant to paragraph (b) of Rule 485.
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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 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. As of the Date of
Deposit, none of the Bonds in the Trust were 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. 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 secondary market public offering price is 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, there will be added to the Public Offering
Price an amount equal to the accrued and undistributed interest to the date of
settlement (three business days after order). If Units were available for
purchase at the date of the "Summary of Essential Financial Information," the
Public Offering Price per Unit would have been as described therein. 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 described in the "Summary of
Essential Financial Information." Units will be offered for sale in the minimum
amount of one Unit.
DISTRIBUTIONS. Distributions of interest received by the Trust will be made
on a monthly basis (pro-rated on an annual basis). Distributions will be made
monthly on the first day of each month to record holders on the
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE 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 April 15, 1998.
STERNE, AGEE & LEACH, INC.
SPONSOR
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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 were as set forth
under "Summary of Essential Financial Information" as of the date set forth
therein. 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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STATE AND LOCAL TRUSTS, SERIES 1
TRUST ALABAMA, SERIES 7
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
As of December 31, 1997
SPONSOR AND EVALUATOR: STERNE, AGEE & LEACH, INC.
TRUSTEE: THE TRUST COMPANY OF STERNE, AGEE & LEACH, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE SPONSOR)
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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 Bid Price of Bonds in the Trust $ 2,500,866
Aggregate Bid Price of Bonds per Unit $ 965.59
Plus Sales Charge 5.90% (6.270% of the Aggregate Offering Price of the Bonds) $ 60.54
Plus Cash per Unit(2) $ 10.23
Public Offering Price per Unit(3) $ 1,036.36
Redemption Price per Unit(4) $ 975.82
Sponsor's Repurchase Price per Unit(4)(5) $ 975.82
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 60.54
Excess of Public Offering Price per Unit Over Sponsor's Repurchase Price per Unit $ 60.54
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(6)(7) 4.97%
Estimated Long-Term Return(6)(7) 4.71%
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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
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
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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.
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(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 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.
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(2) This amount represents cash held by the Trust (or an advancement of cash
to the Trust by the Trustee) is added to (or deducted from) the Public
Offering Price.
(3) 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.
(4) Plus accrued interest to the settlement date in the case of sale or to
the date of tender in the case of redemption.
(5) The Sponsor intends to maintain a secondary market for Units at prices
based on the aggregate bid price of the Bonds in the Trust.
(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 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 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 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 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 interest-
bearing obligations, including delivery statements relating to contracts for the
purchase of certain such obligations. Upon deposit of such Bonds the Trustee
delivered to the Sponsor evidence of ownership of Units for the Trust which are
offered for sale by this Prospectus. Each Unit 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. 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.
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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.
Certain of the Bonds in the Trust may be "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%), 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 24.6 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 unemployment rate for 1997 standing at 4.6%, while the 1996
unemployment rate was 5.2%. The unemployment rate for the United States was
4.7% for 1997.
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
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could have an adverse impact on the financial condition of the State and
various agencies and political subdivisions located in the State. The Sponsor
is unable to predict whether or to what extent such factors or other factors may
affect the issuers of Bonds, the market value or marketability of the Bonds or
the ability of the respective issuers of the Bonds acquired by the Trust to pay
interest on or principal of the Bonds.
Certain of the 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.
Certain 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.
Certain 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.
Certain 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 dependent on revenues from the related projects, user
fees
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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.
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.
GENERAL. Certain of the Bonds in the Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund provisions, call
provisions or extraordinary optional or mandatory redemption provisions. A
sinking fund is a reserve fund accumulated over a period of time for retirement
of debt. A callable debt obligation is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is a
method by which a debt obligation is redeemed, at or before maturity, by the
proceeds of a new debt obligation. In general, call provisions are more likely
to be exercised when the offering side valuation is at a premium over par than
when it is at a discount from par. The portfolio contains a listing of the
sinking fund and call provisions, if any, with respect to each of the debt
obligations. Extraordinary optional redemptions and mandatory redemptions
result from the happening of certain events. Generally, events that may permit
the extraordinary optional redemption of Bonds or may require the mandatory
redemption of Bonds include, among others: a final determination that the
interest on the Bonds is taxable; the substantial damage or destruction by fire
or other casualty of the project for which the proceeds of the Bonds were used;
an exercise by a local, state or Federal governmental unit of its power of
eminent domain to take all or substantially all of the project for which the
proceeds of the Bonds were used; changes in the economic availability of raw
materials, operating supplies or facilities or technological or other changes
which render the operation of the project for which the proceeds of the Bonds
were used uneconomic; changes in law or an administrative or judicial decree
which renders the performance of the agreement under which the proceeds of the
Bonds were made available to finance the project impossible or which creates
unreasonable burdens or which imposes excessive liabilities, such as taxes, 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 "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 was 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
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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.
Like other investment companies, financial and business organizations and
individuals around the world, the Trust could be adversely affected if the
computer systems used by the Sponsor, Evaluator or Trustee or other service
providers to the Trust do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." The Sponsor, Evaluator and Trustee are taking steps
that they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use and to obtain reasonable assurances
that comparable steps are being taken by the Trust's other service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact to the Trust.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of Bonds contained in the Trust, to varying degrees based upon various
factors, including, but not limited to their degree of technological
sophistication. The Sponsor is unable to predict what impact, if any, the Year
2000 Problem will have on issuers of the Bonds contained in the Trust.
OBJECTIVES OF THE TRUST
The Trust has been formed to provide residents of the State of Alabama
interest income which is exempt from Federal and Alabama state income taxes. In
addition, the Trust also has objectives which include conservation of capital
and liquidity of investment. There is no assurance that the Trust's objectives
will be met.
In selecting Bonds for the Trust, the following facts, among others, were
considered by the Sponsor: (a) either the Standard & Poor's rating of the Bonds
was in no case less than "BBB-" or the Moody's rating of the Bonds was in no
case less than "Baa3" including provisional or conditional ratings,
respectively, or, if not rated, the Bonds had, in the opinion of the Sponsor,
credit characteristics sufficiently similar to the credit characteristics of
interest-bearing tax-exempt obligations that were so rated as to be acceptable
for acquisition by the Trust (see "Description of Bond Ratings") and (b) the
prices of the Bonds relative to other bonds of comparable quality and maturity.
Medium-quality Bonds (rated BBB or A by S&P or Baa or A by Moody's) are
obligations of issuers that are considered to possess adequate, but not
outstanding, capacities to service the obligations. Investment in medium-
quality debt securities involves greater investment risk, including the
possibility of issuer default or bankruptcy, than investment in higher-quality
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
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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 date of the "Summary of Essential Financial Information," the
Estimated Current Return and the Estimated Long-Term Return were as set forth
therein. 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.
In order to acquire certain of the Bonds contracted for by the Sponsor for
deposit in the Trust, it may have been 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 was 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 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
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. Units repurchased in the secondary market may be offered
by this Prospectus at the secondary Public Offering Price in the manner
described herein.
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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.
Units will be distributed to the public by the Sponsor and through certain
dealers. Dealers will be allowed a concession equal 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 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 advanced the amount of accrued interest as of the First
Settlement Date and the same was 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 was the date of settlement for anyone ordering Units on
the Date of Deposit, no accrued interest was 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 seventh calendar 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 following month. Such principal
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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 and to the exclusion of interest
thereon from Federal gross income were rendered by bond counsel to the
respective issuing authorities. In addition, with respect to State Trusts, where
applicable, bond counsel to the issuing authorities rendered opinions as to the
exemption of interest on such Bonds when held by residents of the State in which
the issuers of such Bonds are located from state income taxes and certain state
or local intangibles and local income taxes. Neither the Sponsor nor Chapman and
Cutler have made any review of the Trust proceedings relating to the issuance of
the Bonds or of the basis of such opinions. 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 on which interest is determined to be
taxable. Gain realized on the sale or redemption of the Bonds by the Trustee or
of a
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Unit by a Unitholder is includible in gross income for Federal income tax
purposes and may be includible in gross income for state tax purposes. 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
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. For purposes of the following opinions, it is assumed that each
asset of the Trust is debt, the interest on which is excluded for Federal income
tax purposes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under existing
law as of the date of this Prospectus:
(1) Each Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on Bonds
which is excludable from gross income under the Internal Revenue Code of 1986
(the "Code") will retain its status for Federal income tax purposes, when
received by a Trust and 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"), as noted below;
(2) Each Unitholder is considered to be the owner of a pro rata portion of
each asset of the respective Trust under subpart E, subchapter J of chapter 1 of
the Code and will have a taxable event when such Trust disposes of a Bond, or
when the Unitholder redeems or sells his Units. If the Unitholder disposes of a
Unit, he is deemed thereby to have disposed of his entire pro rata interest in
all assets of the Trust involved including his pro rata portion of all the Bonds
represented by a Unit. The Taxpayer Relief Act of 1997 includes provisions that
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain as constructive sales for purposes of recognition of gain
(but not loss) and for purposes of determining the holding period. Unitholders
should consult their own tax advisors with regard to any such constructive sale
rules. Unitholders must reduce the tax basis of their Units for their share of
accrued interest received by the respective 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 (subject to various
non-recognition provisions of the Code). 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 less than or equal to his original cost;
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(3) Any proceeds paid under an insurance policy or policies dated the Date
of Deposit, issued to an Insured Trust with respect to the Bonds which represent
maturing interest on defaulted obligations held by the Trustee will be
excludable from Federal gross income if, and to the same extent as, such
interest would have been so excludable if paid in the normal course by the
issuer of the defaulted obligations provided that, at the time such policies are
purchased, the amounts paid for such policies are reasonable, customary and
consistent with the reasonable expectation that the issuer of the bonds, rather
than the insurer, will pay debt service on the bonds; and
(4) Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted Bonds held by the Trustee will be
excludable from Federal gross income if, and to the same extent as, such
interest would have been excludable if paid in the normal course by the issuer
of the defaulted Bonds provided that, at the time such policies are purchased,
the amounts paid for such policies are reasonable, customary and consistent
with the reasonable expectation that the issuer of the Bonds, rather than the
insurer, will pay debt service on the Bonds.
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. 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 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.
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 with their tax advisers 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 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 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 a 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.
The market discount rules are complex and Unitholders should consult their tax
advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depends upon
the corporation's alternative minimum taxable income, which is the corporation's
taxable income with certain adjustments. One of the adjustment items used in
computing
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the alternative minimum taxable income and the Superfund Tax of a corporation
(other than an S Corporation, Regulated Investment Company, Real Estate
Investment Trust, or REMIC) is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its
alternative minimum taxable income (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current earnings"
includes all tax exempt interest, including interest on all of the Bonds in the
Fund. Under current Code provisions, the Superfund Tax does not apply to tax
years beginning on or after January 1, 1996. Legislative proposals have been
introduced which would reinstate the Superfund Tax for taxable years beginning
after December 31, 1997 and before January 1, 2009. 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 advisers 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.
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 a
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. Legislative proposals
have been made that would extend the financial institution rules to certain
other corporations, including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should consult
their tax advisers.
In the case of certain of the Bonds in the Fund, 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.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, state or other tax purposes are the opinions of counsel and
are to be so construed.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
For taxpayers other than corporations, net capital gain (which is defined as
net long-term capital gain over net short-term capital loss for the taxable
year) is subject to a maximum marginal stated tax rate of either 28% or 20%,
depending upon the holding periods of the capital assets. Capital loss is long-
term if the holding period for the asset is more than one year, and is short-
term if the holding period for the asset is one year or less.s Generally,
capital gains realized from assets held for more than one year but not more than
18 months are taxed at a maximum marginal stated tax rate of 28% and capital
gains realized from assets (with certain exclusions)
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held for more than 18 months are taxed at maximum marginal stated tax rate of
20% (10% in the case of certain taxpayers is the lowest tax bracket). Further,
capital gains realized from assets held for one year or less are taxed at the
same rates as ordinary income. Legislation is currently pending that provides
the appropriate methodology that should be applied in netting the realized
capital gains and losses. Such legislation is proposed to be effective
retroactively for tax years ending after May 6, 1997. The Internal Revenue
Service has released preliminary guidance which provides that, in general, pass
through entities may designate their capital gain dividends as either a 20% rate
gain distribution or a 28% rate gain distribution, depending on the nature of
the gain received by the pass-through entity. Unitholders should consult their
own tax advisers as to the tax rate applicable to capital gain dividends.
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, 1996 is included as an item of tax preference. Except as
otherwise noted in Prospectus Part I, the Trusts do not include any such private
activity bonds issued on or after that date.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders should consult their tax advisers regarding
the potential effect of this provision on their investment in Units.
Section 86 of the Code provides that 50% of Social Security benefits are
includible in gross income to the extent that the sum of "modified adjusted
gross income" plus 50% of the Social Security benefits received exceeds a "base
amount". The base amount is $25,000 for unmarried taxpayers, $32,000 for married
taxpayers filing a joint return and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Modified adjusted gross income is adjusted gross income determined without
regard to certain otherwise allowable deductions and exclusions from gross
income and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any other item
of gross income.
In addition, under the Tax Act, for taxable years beginning after December
31, 1993, up to 85% of Social Security benefits are includible in gross income
to the extent that the sum of "modified adjusted gross income" plus 50% of
Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from a Trust, will be subject to tax. A taxpayer whose adjusted
gross income already exceeds the base amount 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.
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,
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financial institutions, certain insurance companies, certain S corporations,
individual recipients of Social Security or Railroad Retirement benefits and
taxpayers who may be deemed to have incurred (or continued) indebtedness to
purchase or carry tax-exempt obligations. Prospective investors should consult
their tax advisors as to the applicability of any collateral consequences.
For a discussion of the state tax status of income earned on Units of a Trust
and recent changes in Federal tax law, see Prospectus Part I. Except as noted
therein, the exemption of interest on state and local obligations for Federal
income tax purposes discussed above does not necessarily result in exemption
under the income or other tax laws of any state or city. The laws of the several
states vary with respect to the taxation of such obligations.
Alabama Taxation. In the opinion of 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.
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.
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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 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 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
secondary market transactions or redemptions occur 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
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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 days the New York Stock Exchange is open and Sponsor secondary market
transactions or redemptions occur. Each evaluation of the Trust has been and
will be determined on the basis of cash on hand in the Trust or money in the
process of being collected, the value of the Bonds in the portfolio of the Trust
based on the bid prices of the Bonds and interest accrued thereon not subject to
collection less any taxes or governmental charges payable, any accrued expenses
of the Trust and any cash held for distribution to Unitholders. The result of
that computation is then divided by the number of Units outstanding as of the
date thereof to determine the per Unit value of the Trust.
The Evaluator may determine the value of the Bonds in the portfolio of the
Trust (1) on the basis of current bid prices of the Bonds obtained from dealers
or brokers who customarily deal in bonds comparable to those held in the Trust;
(2) if bid prices are not available for any of the Bonds, on the basis of bid
prices for comparable bonds; (3) by causing the value of the Bonds to be
determined by others engaged in the practice of evaluating, quoting or
appraising comparable bonds; or (4) by any combination of the above.
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.
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In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Bonds in the Trust furnished to it by the Evaluator.
The Trustee is authorized to treat as the record owner of Units that person
who is registered as such owner on the books of the Trustee. Ownership of Units
of the Trust is evidenced in book entry form only. Units are transferable by
written request to the Trustee. A Unitholder must sign exactly as his name
appears on the books of the Trustee with the signature guaranteed by a
participant in the Securities Transfer Agents Medallion Program ("STAMP") or
such other signature guaranty program in addition to, or in substitution for,
STAMP, as may be accepted by the Trustee. In certain instances the Trustee may
require additional documents such as, but not limited to, trust instruments,
certificates of death, appointments as executor or administrator or certificates
of corporate authority. Units will be issued in denominations of one Unit or
any whole multiple thereof. Although no such charge is now made or
contemplated, the Trustee may require a Unitholder to pay a reasonable fee to be
determined by the Trustee for each Unit transferred and to pay any governmental
charge that may be imposed in connection with each such transfer or interchange.
SPONSOR INFORMATION
Sterne, Agee & Leach, Inc. was organized under the laws of the State of
Delaware in 1964. Prior to 1964 the business of the Sponsor was conducted by a
partnership originally formed in 1916. The Sponsor is a member of the New York
Stock Exchange and the National Association of Securities Dealers (NASD). In
addition to acting as sponsor of various unit investment trusts, Sterne, Agee &
Leach is engaged in a general securities business, which includes the
underwriting and distribution of municipal securities.
The Sponsor's offices are located at 1901 Sixth Avenue North, Birmingham,
Alabama 35203. As of December 31, 1997, the total equity of Sterne, Agee &
Leach, Inc. was $16,173,008. (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." In addition to that portion of the sales
commission retained by the Sponsor, the Sponsor realized a profit or sustained 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 was
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.). The Sponsor
may have also realized profits or sustained 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 participated as sole
underwriter or as manager or as a member of the underwriting syndicate from
which 18% of the original aggregate principal amount of the Bonds in the
portfolio of the Trust was acquired. The Sponsor may realize additional profit
or loss 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
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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
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.
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In accordance with the Indenture, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of every Unitholder of the Trust.
Such books and records shall be open to inspection by any Unitholder at all
reasonable times during the usual business hours. The Trustee shall make such
annual or other reports as may from time to time be required under any
applicable state or Federal statute, rule or regulation. The Trustee is
required to keep a certified copy or duplicate original of the Indenture on file
in its office available for inspection at all reasonable times during the usual
business hours by any Unitholder, together with a current list of the Bonds held
in the Trust.
Under the Indenture, the Trustee or any successor trustee may resign and be
discharged of the trust created by the Indenture by executing an instrument in
writing and filing the same with the Sponsor. The Trustee or 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.
The "Statements of Condition," "Statements of Operations and Changes in Net
Assets" and "Schedule of Investments" 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.
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The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended or withdrawn as a result of changes in, or unavailability of,
such information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
(1)Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation;
(2)Nature of and provisions of the obligation;
(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.
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MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edge." Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. Their safety is so
absolute that, with the occasional exception of oversupply in a few specific
instances, characteristically, their market value is affected solely by money
market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. Their market value is virtually immune to all but money market
influences, with the occasional exception of oversupply in few specific
instances.
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.
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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 1998 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 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 4% 41/2% 5% 51/2% 6% 61/2% 7%
IN THOUSANDS BRACKET* EQUIVALENT TAXABLE ESTIMATED CURRENT RETURNS
- ----------------------------------- -------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 25.35 $ 0 - 42.35 18.60% 4.91% 5.53% 6.14% 6.76% 7.37% 7.99% 8.60%
25.35 - 61.40 42.35 - 102.30 30.60 5.76 6.48 7.20 7.93 8.65 9.37 10.09
61.40 - 128.10 102.30 - 155.95 33.40 6.01 6.76 7.51 8.26 9.01 9.76 10.51
128.10 - 278.45 155.95 - 278.45 38.10 6.46 7.27 8.08 8.89 9.69 10.50 11.31
Over 278.45 Over 278.45 41.50 6.84 7.69 8.55 9.40 10.26 11.11 11.97
<FN>
* 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.
</TABLE>
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
Stern, 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 of STATE AND LOCAL TRUSTS, SERIES 1 (TRUST ALABAMA, SERIES 7) as
of December 31, 1997 and 1996, and the related statements of operations and
changes in net assets for the year ended December 31, 1997 and the period from
inception (December 5, 1996) to December 31, 1996. These financial statements
are the responsibility of the Sponsor (see Note 1). Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of State and Local Trusts,
Series 1 (Trust Alabama, Series 7) as of December 31, 1997 and 1996 and the
results of its operations and changes in its net assets for the year ended
December 31, 1997 and the period from inception (December 5, 1996) to December
31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
March 20, 1998
- -------------------------------------------------------------------------------
30
<PAGE>
STATE AND LOCAL TRUSTS, SERIES 1
(TRUST ALABAMA, SERIES 7)
STATEMENT OF CONDITION
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TRUST PROPERTY
ASSETS: 1997 1996
----------- -----------
<S> <C> <C>
Cash $ 26,499 $ 1,833
Investments in municipal securities,
at market value (Cost $2,446,705) (Note 1) 2,500,866 2,449,205
Accrued interest receivable 33,461 30,940
----------- -----------
Total assets $ 2,560,826 $ 2,481,978
=========== ===========
LIABILITIES:
Advances from Trustee $ 25,488 1,833
Accrued trustee and evaluator fees 663 166
Other liabilities 985 21,083
----------- -----------
Total liabilities 27,136 23,082
=========== ===========
Net assets, applicable to 2,590 units of
fractional undivided interest outstanding $ 2,533,690 $ 2,458,896
=========== ===========
NET ASSETS, REPRESENTED BY:
Cost to original investors of 2,570 units sold,
net of initial underwriting commission (Note 1) $ 2,446,705 $ 2,446,705
Undistributed net investment income (loss) 32,824 9,691
Unrealized appreciation (depreciation) of investments 54,161 2,500
----------- -----------
Total net assets $ 2,533,690 $ 2,458,896
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NET ASSET VALUE PER UNIT AS OF DECEMBER 31, 1997 AND 1996:
Net Asset Value Per Unit
-----------------------------------
Before
Units Accrued Accrued
Outstanding Interest Interest Total
----------- -------- -------- -------
<S> <C> <C> <C> <C>
1997 2,590 $975.82 $12.92 $988.74
1996 2,590 946.39 11.95 958.29
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
31
<PAGE>
STATE AND LOCAL TRUSTS, SERIES 1
(TRUST ALABAMA, SERIES 7)
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
THE PERIOD FROM THE DATE OF INCEPTION (DECEMBER 5, 1996)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS
Investment income (Note 1):
Interest income $ 160,003 $ 9,857
Expenses (Note3):
Trustee fees and expenses $ 5,490 $ 148
Evaluator fees 636 18
Other 6,096 0
----------- -----------
Total expenses $ 12,222 $ 166
=========== ===========
Net investment income $ 147,781 $ 9,691
Net change in unrealized appreciation of investments (Note 1) 51,661 2,500
Net increase (decrease) in net assets from operations $ 199,442 $ 12,191
STATEMENT OF CHANGES IN NET ASSETS
Operations:
Net investment income $ 147,781 $ 9,691
Proceeds from issuance of units 0 2,446,705
Net change in unrealized appreciation of investments 51,661 2,500
----------- -----------
Net increase in net assets from operations $ 199,442 $ 2,458,896
Distributions to unitholders from:
Net investment income $ (124,648) $ 0
Total increase in net assets $ 74,794 $ 2,458,896
=========== ===========
Net assets at beginning of year 2,458,896 0
Net assets at end of year $ 2,533,690 $ 2,458,896
=========== ===========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
TRUST ALABAMA, SERIES 7
SCHEDULE OF INVESTMENTS AT DECEMBER 31, 1997
NAME OF ISSUER, TITLE, COUPON RATE CARRYING
AND MATURITY DATE OF BONDS DEPOSITED VALUE AT
AGGREGATE IN TRUST OR REPRESENTED BY SPONSOR'S REDEMPTION MARKET
PRINCIPAL CONTRACTS TO PURCHASE BONDS RATINGS(2) PROVISION(1) (BID PRICES)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 200,000 City of Bayou La Batre, Alabama General AAA 2002 @ 102 $ 227,432
Obligation Warrants, Series 1992 (AMBAC 2004 @ 100
Insured) 7.25%, Due 9/1/2016 2013 @ 100 S.F.
300,000 Clarke-Mobile Counties Gas District Aaa# 2006 @ 100 310,500
(Alabama) Gas Revenue Bonds, Series 1996 2012 @ 100 S.F.
(MBIA Insured) 5.60%, Due 12/1/2017
@@ 125,000 Birmingham-Jefferson Civic Center AAA Noncallable 31,884(3)
Authority (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 AAA 2006 @ 102 514,250
Sewer Warrants, Series 1996 (AMBAC Insured) 2008 @ 100
5.75%, Due 9/1/2021 2015 @ 100 S.F.
@@ 250,000 Fairfield, Alabama General Obligation AAA 2002 @ 102 267,500
Warrants, Series 1992 (AMBAC Insured) 6.30%, 2004 @ 100
Due 6/1/2022
@@ 500,000 City of Fort Payne, Alabama General AAA 2006 @ 102 522,250
Obligation Warrants, Series 1996 (FSA 2008 @ 100
Insured) 5.75%, Due 5/1/2026 2017 @ 100 S.F.
@@ 350,000 Birmingham Airport Authority Airport AAA 2006 @ 102 363,300
Revenue Bonds, Series 1996 (MBIA Insured) 2008 @ 100
5.625%, Due 7/1/2026 2017 @ 100 S.F.
@@ 250,000 Bessemer, Alabama Medical Clinic Board AAA 2006 @ 102 263,750
Revenue (Bessemer Carraway Medical Center), 2008 @ 100
Series 1996 (MBIA Insured) 5.875%, 2020 @ 100 S.F.
Due 5/15/2026
- ---------- ----------
$2,475,000 $2,500,866
========== ==========
<FN>
See accompanying notes to Financial Statements and notes to Schedule of
Investments.
</TABLE>
33
<PAGE>
NOTES TO TRUST PORTFOLIO:
(1) Summary of Significant Accounting Policies:
The Trustee is responsible for maintaining the books and records of the
Trust on a cash basis and for safekeeping securities owned by the Trust.
The Sponsor is responsible for preparation of the financial statements
in accordance with generally accepted accounting principles based upon
the books and records provided by the Trustee. The following is a
summary of the significant accounting policies followed by each Trust.
Security Valuation - Bonds are reflected at market value in the
accompanying statement of condition. The Sponsor determines the market
price of the Bonds in each Trust (1) on the basis of current bid prices
of the Bonds obtained from dealers or brokers (including the Sponsor)
who customarily deal in bonds comparable to those held by the Trust,
(2) if bid prices are not available for any of the Bonds, on the basis
of bid prices for comparable bonds, (3) by causing the value of the Bonds
to be determined by others engaged in the practice of evaluating, quoting
or appraising comparable bonds, or (4) by any combination of the above.
Unit Valuation - On the Date of Deposit, the Public Offering Price of
Units was determined by adding a sales charge to the determination of the
offering price of the Bonds. The value of Units offered in the secondary
market maintained by the Sponsor is based upon the pro rata share of the
bid price of the Bonds, plus a sales charge determined as set forth under
the caption "Public Offering Information" and adjusted for cash, if any,
held or owed by such Trust.
The initial underwriting commission and investors' original cost of Units,
as shown on the statement of condition, are based upon the assumption that
the maximum sales commission was charged for each initial purchase of
Units.
Income and Expenses - Income and expenses are recognized on the accrual
basis of accounting. Gains and losses from Bond transactions are
determined on a specific identification basis.
(2) Income Tax Status:
The Trust is not an association taxable as a corporation for Federal income
tax purposes, and, therefore, has recorded no provision for Federal income
taxes. Each unitholder is considered to be the owner of a pro rata portion
of the Trust under Subpart E, subchapter J, of Chapter 1 of the Internal
Revenue Code of 1986 and will have a taxable event each time the Trust
disposes of a bond.
(3) Operating Expenses:
See "Expenses of the Trust" for information with respect to trustee and
evaluator fees and expenses.
(4) Use of Estimates:
The preparation of the Trust's financial statements in conformity with
generally accepted accounting principles requires the Sponsor to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period.
Notes to Schedule of Investments
1. The Bonds are first subject to optional redemption in the years, and at
the prices shown. Unless otherwise indicated, the Bonds, except for Bonds
issued at a substantial original issue discount, are redeemable at declining
prices (but not below par value) in subsequent years. Original issue
discount bonds are generally redeemable at prices based on the issue price
plus the amount of original issue discount accreted to redemption plus, if
applicable, some premium, the amount of which will decline in subsequent
years. The Bonds may also be subject to sinking fund redemption without
premium prior to the dates shown.
Certain Bonds may be subject to redemption without premium prior to the date
shown pursuant to special or mandatory call provisions; for example, if bond
proceeds are not able to be used as contemplated, the project is condemned or
sold, or the project is destroyed and insurance proceeds are used to redeem
the bonds. Single family mortgage revenue bonds and housing obligation bonds
are most likely to be called subject to such provisions, but other bonds may
have similar call features.
34
<PAGE>
The Trustee's determination of the offering price of Bonds in the Trust may
be greater or less than the amounts that may be received upon redemption or
maturity of such Bonds. Subject to rules concerning amortization of bond
premium and of original issue discount, gain or loss realized by the Trustee
on disposition of any Bonds will be recognized as taxable capital gain or
loss by Unitholders.
2. The ratings shown are those assigned as of the date of the Schedule of
Investments.
3. 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.
@@ This Bond was issued at an original issue discount.
35
<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>
<CAPTION>
TABLE OF CONTENTS
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 12
Accrued Interest 13
Redemption and Repurchase of Units 14
Distribution of Interest and Principal 15
Tax Status (Federal, State, Capital Gains) 16
Expenses of the Trust 21
Evaluation of the Trust 22
Other Rights of Unitholders 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
Statements of Condition 31
Statements of Operations and Changes in
Net Assets 32
Schedule of Investments 33
Notes to Financial Statements and
Schedule of Investments 34
</TABLE>
36
<PAGE>
CONTENTS OF POST-EFFECTIVE AMENDMENT
TO REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement comprises
the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, State and Local Trusts, Series 1, certifies that it meets all
of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in the City of
Birmingham and State of Alabama on the 15th day of April, 1998.
STATE and LOCAL TRUSTS, SERIES 1
(Registrant)
By STERNE, AGEE & LEACH, INC.
(Depositor)
By: Ashton Stuckey
-----------------------------
Managing Director
(Seal)
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed on April 15, 1998
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-2
<PAGE>
SIGNATURE TITLE
KATHRYN W. MIREE Director
- ------------------------
Kathryn W. Miree
WILLIAM LEE SMITH Director
- ------------------------
William Lee Smith
F. EUGENE WOODHAM Director
- ------------------------
F. Eugene Woodham
By
Ashton Stuckey
(Attorney-in-fact*)
- --------------------
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of State and Local Trusts, Series
1 (File No. 333-14701) as filed on December 5, 1996 and the same are
hereby incorporated herein by reference.
S-3
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 20, 1998 accompanying the
financial statements of State and Local Trusts, Series 1 as of
December 31, 1997, and for the period then ended, contained in this Post-
Effective Amendment No. 1 to Form S-6.
We consent to the use of the aforementioned report in the Post-
Effective Amendment and to the use of our name as it appears under the
caption "Report of Independent Public Accountants" in the Prospectus.
ARTHUR ANDERSEN LLP
Birmingham, Alabama
April 13, 1998
S-4
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> STATE AND LOCAL TRUSTS, SERIES 1
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 2,446,705
<INVESTMENTS-AT-VALUE> 2,500,866
<RECEIVABLES> 33,461
<ASSETS-OTHER> 26,499
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,560,826
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,136
<TOTAL-LIABILITIES> 27,136
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,446,705
<SHARES-COMMON-STOCK> 2,590
<SHARES-COMMON-PRIOR> 2,590
<ACCUMULATED-NII-CURRENT> 32,824
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54,161
<NET-ASSETS> 2,533,690
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 160,003
<OTHER-INCOME> 0
<EXPENSES-NET> 12,222
<NET-INVESTMENT-INCOME> 147,781
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 51,661
<NET-CHANGE-FROM-OPS> 199,442
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 124,648
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 74,794
<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>
