<PAGE>
Registration No. 33-21865
S E C U R I T I E S A N D E X C H A N G E C O M M I S
S I O
N
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
to
F O R M S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF
1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust:
SMITH BARNEY UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
(A UNIT INVESTMENT TRUST)
B.
Names of Depositors:
SMITH BARNEY INC.
<TABLE>
<S> <C>
C. Complete addresses of depositor's principal executive
office:
1345 Avenue of the Americas
New York, New York 10105
D. Names and complete addresses of agents for service:
Copy to:
THOMAS D. HARMAN, ESQ. PIERRE DE ST. PHALLE, ESQ.
Smith Barney Inc. 450 Lexington Avenue
New York, New York 10105 New York, New York 10017
</TABLE>
It is proposed that this filing will become effective January 20,
1995
pursuant to paragraph (b) of Rule 485.
<PAGE>
<TABLE>
HIGH YIELD MUNICIPAL SERIES 4
A UNIT INVESTMENT TRUST
<S> <C>
This Trust is a unit investment trust designed to provide
investors with a high level of current income exempt from
regular Federal income taxes through investment in a
diversified fixed portfolio consisting primarily of "high yield",
high risk" intermediate- and long-term municipal obligations.
On the Date of Deposit all of the obligations were rated in
the category B or better by either Standard & Poor's
Corporation or Moody's Investors Service, or had in the
opinion of the Sponsor comparable credit characteristics.
The value of Units of the Trust will fluctuate with the value
of the underlying Securities which will fluctuate with changes
in interest rates and in the credit ratings of the issuers and
other factors.
The Securities included in the Trust are commonly known as
"junk bonds" and are subject to greater market fluctuations
and risk of loss of income and principal than are investments
in lower-yielding, higher rated fixed-income securities. A
reduction in the credit rating of a Security or a general
increase in interest rates would be expected to decrease the
value of the underlying Portfolio. The securities included in
the Trust should be viewed as speculative and an investor
should review his ability to assume the risks associated with
speculative municipal bonds.
The minimum purchase is 1,000 Units.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATIONS TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Inquiries should be directed to the Sponsor 1-800-298-UNIT
Prospectus dated January 20, 1995
Read and retain this Prospectus for future reference
<PAGE>
SMITH BARNEY INC. UNIT TRUSTS, HIGH
YIELD MUNICIPAL SERIES 7
INVESTMENT SUMMARY AS OF SEPTEMBER
30, 1994 (the Evaluation Date)
<S><C><C>
Face Amount of Securities
$ 8,602,000
Number of Units
10,438,238
Face Amount of Securities per
1,000 Units
$ 824.09
Fractional Undivided Interest in
Trust Represented by Each Unit
1/10,438,238th
Public Offering Price per 1,000 Units:
Aggregate bid side evaluation of
the underlying Securities plus
any undistributed principal
$ 9,255,769
*
Divided by 10,438,238 Units
times 1,000
$ 886.72
Plus sales charge (5.5% of Public
Offering Price, 5.82% of amount
invested in Securities)**
51.61
Public Offering Price per
1,000 Units*
$ 938.33
***
Sponsor's Repurchase Price and
Redemption Price per 1,000 Units*
($51.61 less than Public Offering
Price per 1,000 Units)****
$ 886.72
***
Premium and Discount Issues in Portfolio:
Face amount of Securities with
bid side evaluation -
Over par
76%
At par
0%
Under par
24%
Calculation of Estimated Net Annual
Interest Rate per 1,000 Units:
Annual interest rate per
1,000 Units
7.31%
Less estimated annual expenses
per 1,000 Units expressed as
a percentage
0.180%
Estimated net annual interest
rate per 1,000 Units
7.13%
Daily Rate at which Estimated Net
Annual Income Accrues per
1,000 Units
0.0198%
Monthly Income Distributions per
1,000 Units
$ 5.94
Evaluation Time - 4:00 P.M. New York Time
Record Day - The fifteenth day of each month
Distribution Day - The first day of the following month
Minimum Capital Distribution
No distribution need be made from Capital Account if
balance in Account is less than $5.00 per 1,000 Units.
Mandatory Termination Date
One year after the maturity date of the last maturing Security
listed under the Portfolio (see Portfolio)
Minimum Value of Trust
Trust may be terminated if the value of the Trust is less than
40% of the face amount of Securities on the Date of Deposit.
As of the Evaluation Date the value of the Trust was 76% of
the original Face Amount of the Securities.
Trustee's Annual Fee
$0.72 per $1,000 face amount of Securities (see Expenses and
Charges)
Sponsor's Annual Fee
Maximum of $0.25 per $1,000 face amount of Securities (see
Expenses and Charges)
Evaluator's Fee for Each Evaluation
Maximum of $15 per Evaluation (see Expenses and Charges)
Number of Issues in Portfolio
24
Number of Issues/Percentage of Aggregate
Face Amount of Portfolio Rated by:*****
Standard & Poor's Corporation -
AAA
2 (10%)
BBB
11(35%)
BB
2 (4%)
B
1 (6%)
Moody's Investors Service -
Aaa
2 (9%)
Baa
3 (13%)
Ba
3 (15%)
B
3 (11%)
Number of Issues Not Rated:******
6 (39%)
Number of Issuers by Industry/
Industry Concentrations:
Hospitals
9 (47%)
Housing
1
Industrial Development Revenue
1
Miscellaneous
2
Pollution Control
1
Solid Waste Disposal
4
State/Local Municipal Electric Utilities
5
State Colleges
1
Percentage of Aggregate Face Amount of
Portfolio Comprised of:
Alternative Minimum Tax Bonds
(see Portfolio and Taxes)
17%
Obligations of issuers located in 3 States
of Texas (13%), Michigan (12%)
and Alabama (9%)
34%
<PAGE>
<FN>
On the Date of Deposit (October 13, 1988), the face amount of
Securities was $12,000,000.
On the Evaluation Date none of the Portfolio consisted of
defaulted bonds. (See Risk Factors - "High Yield" Bonds).
* Subject to changes in the prices of the underlying bonds. The
aggregate bid price of the Securities is determined on each business
day as of the Evaluation Time, effective for all sales made
subsequent to the last preceding determination and does not include
Securities received in lieu of cash interest payments which are
included in undistributed net investment income.
** The sales charge will be reduced on a graduated scale in the case
of quantity purchases of Units (see Public Sale of Units - Public
Offering Price). The resulting reduction in the Public Offering
Price will increase the effective current return on a Unit.
*** Plus accrued interest. For Units purchased or redeemed on the
Evaluation Date, accrued interest is approximately equal to the
undistributed net investment income of the Trust (see Statement of
Assets and Liabilities) divided by the number of outstanding Units
plus the estimated daily interest accrual per Unit and less the daily
expense accrual per Unit to the expected date of settlement
(normally 5 business days after purchase or redemption).
**** Based upon the aggregate bid prices of the underlying
Securities in the Trust. Upon redemption, the price to be paid will
include an amount as described under Redemption - Computation
of Redemption Price per Unit.
***** Ratings subject to change from time to time. Certain of the
ratings may be provisional or conditional. See Description of
Ratings.
****** Issues currently unrated by both Standard & Poor's and
Moody's. See Description of Ratings.
A Trust is considered to be "concentrated" in a particular category
when the Securities in that category constitute 25% or more of the
aggregate face amount of the Portfolio (see Other Risk Factors).
</TABLE>
PAGE
<PAGE>
Independent Auditors' Report
The Unit-holders, Sponsor and Trustee of
Smith Barney Shearson Unit Trusts,
High Yield Municipal Series 7:
We have audited the accompanying statement of assets and
liabilities of Smith Barney Shearson Unit Trusts, High Yield
Municipal Series 7, including the schedule of portfolio investments,
as of September 30, 1994 and the related statements of operations
and changes in net assets for the year then ended, and the selected
supplemental per-unit data for the year then ended. These financial
statements are the responsibility of the Trustee. Our responsibility
is to express an opinion on these financial statements based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our
procedures included confirmation of investments held by the
Trustee as of September 30, 1994. An audit also includes assessing
the accounting principles used and significant estimates made by the
Trustee, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Smith Barney
Shearson Unit Trusts, High Yield Municipal Series 7 as of
September 30, 1994 and the results of its operations and changes in
its net assets for the year then ended, and the selected supplemental
per-unit data for the year then ended, in conformity with generally
accepted accounting principles.
December 13, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Unitholders, Sponsor and Trustee of
Smith Barney Shearson Unit Trusts,
High Yield Municipal Series 7:
We have audited the accompanying statements
of operations and changes in net assets and the selected
supplemental per-unit data for the years ended
September 30, 1993 and 1992,of the Smith Barney
Shearson Unit Trusts,High Yield Municipal Series 7
(formerly Shearson Lehman Brothers Unit Trusts,
High Yield Municipal Series 7).
These financial statements are
the responsibility of the Trustee. Our responsibility is
to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements.An audit also includes assessing
the accounting principles used and significant estimates made
by the Trustee, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects,
the results of operations and changes in net assets
and the selected supplemental per-unit data
of the Smith Barney Shearson Unit Trusts, High Yield
Municipal Series 7 (formerly Shearson Lehman
Brothers Unit Trusts,High Yield Municipal Series 7)for
the years ended September 30, 1993 and 1992, for the years
ended September 30, 1993 and 1992, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts /s/COOPERS & LYBRAND
August 20, 1993
<PAGE>
<TABLE>
<PAGE>
SMITH BARNEY SHEARSON UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Statement of Assets and Liabilities
September 30, 1994
<S><C><C>
Assets:
Investments in securities, at value (cost $8,390,378)
(see accompanying schedule of portfolio
investments)$9,203,274
Interest receivable223,616
Cash - income account
77,124
Cash - principal account52,496
Total assets
9,556,510
Liabilities:
Accrued fees and expenses
16,676
Total liabilities
16,676
Net assets at September 30, 1994 equivalent to
$913.93 per 1,000 units on 10,438,238 units
of fractional undivided interest outstanding $
9,539,834
Net assets consist of:
Cost of 12,000,000 units at date of deposit $
12,251,365
Sales charge
(551,280)
11,700,085
Accumulated cost of bonds sold or called
(3,309,707)
Net unrealized appreciation
812,896
Undistributed net investment income
284,064
Undistributed proceeds for bonds sold or called
52,496
Net assets $
9,539,834
See accompanying notes to financial statements.<PAGE>
<PAGE>
SMITH BARNEY SHEARSON UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Statements of Operations
Years ended September 30, 1994, 1993 and 1992
199419931992
<S><C><C><C>
Income:
Interest income
$
791,455
868,846
925,947
Total income
791,455
868,846
925,947
Total expenses (note 3)
27,766
19,364
21,219
Investment income - net
763,689
849,482
904,728
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss)
101,395
(51,188)
81,847
Increase (decrease) in unrealized
appreciation of investments - net
(315,652)
558,528
504,737
Net gain (loss) on investments
(214,257)
507,340
586,584
Net increase in netassets
resulting from operations $
549,432
1,356,822
1,491,312
See accompanying notes to financial statements.<PAGE>
<PAGE>
SMITH BARNEY SHEARSON UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Statements of Changes in Net Assets
Years ended September 30, 1994, 1993 and 1992
199419931992
Operations:
Investment income - net$
763,689
849,482
904,728
Net realized gain (loss)
101,395
(51,188)
81,847
Increase (decrease) in unrealized
appreciation of investments - net
(315,652)
558,528
504,737
Net increase in net assets
resulting from operations
549,432
1,356,822
1,491,312
Distributions to Unit-holders (note 2):
Principal
(293,740)
(787,086)
(823,925)
Investment income - net
(709,418)
(848,214)
(908,123)
Total distributions
(1,003,158)
(1,635,300)
(1,732,048)
Redemption of units (note 2):
Principal
(223,564)
(133,877)
Investment income - net
(4,830)
(2,840)
Total redemptions
(228,394)
(136,717)
Decrease in net assets
(682,120)
(278,478)
(377,453)
Net assets:
Beginning of year
10,221,954
10,500,432
10,877,885
End of year$
9,539,834
10,221,954
10,500,432
Other information:
Undistributed net investment
income, end of year$
284,064
234,623
233,355
Units redeemedUts. 248,601
133,968
See accompanying notes to financial statements.<PAGE>
<PAGE>
</TABLE>SMITH BARNEY SHEARSON UNIT
TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Notes to Financial Statements
September 30, 1994
(1)Summary of Significant Accounting Policies
Smith Barney Shearson Unit Trusts, High Yield
Municipal Series 7 (the "Trust"), (formerlyEShearson
Lehman Brothers Unit Trusts, High Yield Municipal
Series 7) is registered under the Investment Company
Act of 1940 as a unit investment trust. The following is
a summary of significant accounting policies consistently
followed by the Trust:
(a)Bonds are stated at value as determined by Kenny
S&P Evaluation Services (the "Evaluator") on the basis
set forth under "Public Sale of Units - Public Offering
Price" in this Prospectus, using bid side evaluations.
Cost is based on offering side evaluations at the date of
deposit, October 13, 1988.
(b)The Trust is not an association taxable as a
corporation for Federal income tax purposes;
accordingly, no provision for taxes on income is required
(see "Taxes" in this Prospectus).
(c)Investment transactions are recorded as of the trade
date. Realized gains or losses on sales of investments
are determined on the identified cost basis for financial
reporting and tax purposes. Interest income is recorded
on the accrual basis.
(2)Distributions and Redemptions
Monthly distributions of net investment income to Unit-
holders are made in cash on the first day of each month
to holders of record as of the 15th day of the preceding
month. ReceiptsEother than interest, after deductions for
redemptions and applicable expenses, are distributed as
explained in "Administration of the Trust - Accounts and
Distributions" in this Prospectus. Units may be
redeemed upon delivery of a request for redemption to
the Trustee.
(3)Fees and Transactions with Affiliates
Sponsor
The Sponsor, Smith Barney Shearson Inc. (formerly
Shearson Lehman Brothers Inc., "Shearson") receives an
annual fee (maximum of $.25 per $1,000 face amount of
securities in the Trust) for service it renders with respect
to monitoring, and when necessary, providing advice to
the Trustee with respect to any adverse market or credit
factors concerning the security investments of the Trust
and any actions taken by the issuers of such securities
that may affect the issuer's capital structure, as provided
by the Indenture.
The Sponsor receives a sales charge applicable to
purchases of units at a rate of 5.50% of the Offering
Price.
<PAGE>
(Continued)<PAGE>
2
SMITH BARNEY SHEARSON UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Notes to Financial Statements
(3), Continued
On March 12, 1993, Primerica Corporation
("Primerica"), Smith Barney, Harris Upham & Co.
Incorporated ("Smith Barney") and Shearson signed a
definitive agreement pursuant toEwhich Primerica and
Smith Barney would acquire the assets of the domestic
retail brokerage and asset management businesses of
Shearson (the "Transaction"). On July 30, 1993, the
Transaction between Shearson, Primerica and Smith
Barney was completed. Effective as of the close of
business on that day, Smith Barney was renamed Smith
Barney Shearson Inc. and became the Sponsor of the
Trust.
Trustee
Until June 30, 1994, Boston Safe Deposit and Trust
Company ("Boston Safe") acted as Trustee and
Distribution Agent for an annual fee ($.72 per $1,000
face amount) paid monthly on the largest face amount of
securities in the Trust during the preceding month.
Effective July 1, 1994, United States Trust Company of
New York became the new trustee.
(4)Concentration of Risk
V
The Securities in the Trust are concentrated in "high
yield" municipal bonds (see "Risk Factors" in this
Prospectus).
(5)Selected Supplemental Per-Unit Data
Selected data per 1,000 units of the Trust outstanding
for each of the years in the three-year period ended
September 30, 1994 is as follows:
<TABLE>
<S><C><C><C><C>
YearUnitsNet assetIncomePrincipal
endedoutstandingvaluedistributionsdistributions
September 30, 199210,686,839$982.5684.6377.03
September 30, 199310,686,839
956.4979.3773.65
September 30, 199410,438,238
913.9367.9628.14
</TABLE>
(Continued)<PAGE>
SMITH BARNEY SHEARSON UNIT TRUSTS,
HIGH YIELD MUNICIPAL SERIES 7
Notes to Financial Statements
(6)Notes to Portfolio
(a)Commencing on the date indicated, sinking fund
redemptions are at par and generally redeem only part of
an issue. Optional refunding redemptions, which may be
exercised in whole or in part, are initially at the price
indicated in the portfolio, then subsequently at prices
declining to par. Certain bonds may provide for
redemption at par prior or in addition to any optional or
mandatory redemption dates or maturity. Some of the
securities may have mandatory sinking funds which
contain optional provisions permitting the issuer to
increase the principal amount of bonds called on a
mandatory redemption date.
(b)At September 30, 1994, the aggregate cost of
investments for Federal income tax purposes was the
same as the cost for financial reporting purposes, which
was $8,390,378.
At September 30, 1994, the net unrealized appreciation
of bonds consisted of:
Gross unrealized appreciation$
832,037
Gross unrealized depreciation
(19,141)
Net unrealized appreciation$
812,896
(c)A description of the ratings symbols and their
meanings, as described by the rating companies
themselves, appears under "Description of Ratings" in
this Prospectus.
<PAGE>
<PAGE>
<TABLE>
PORTFOLIO OF SMITH BARNEY INC.
UNIT TRUSTS,AS OF SEPTEMBER 30, 1994
HIGH YIELD MUNICIPAL SERIES 7
Ratings of
Issues(7c)
Moody's
Standard
Optional
Sinking
Portfolio No. and Title of
Investors
& Poor's
Face
Refunding
Fund
Value
Securities
Service
Corp.
Amount
Coupon
Maturities
Redemptions(7a)
Redemptions(7a)
(Notes 1 and (7b))
<S>
<C>
<C>
<C>
<C>
1.
Arizona Health Facility Authority,
Ba
NR
$300,000
10.125%
11/01/2015
11/01/1995 @ 102.000
11/01/1996
$312,000
Hospital System Revenue Refunding
Bonds (St. Luke's Health System),
Series 1985A
2.
City of East Chicago, Indiana,
Ba3
BB-
270,000
5.750
02/01/2007
02/01/1995 @ 100.000
02/01/1998
248,449
Pollution Control Revenue Bonds,
Series 1977 (Inland Steel Company
Project No. 5)
3.
City of Elizabethtown (Kentucky),
NR
NR
25,000
9.750
12/01/2001
12/01/1996 @ 103.000
- --
27,010
Industrial Building Revenue Bonds,
Series 1986A (Elizabeth Medical
Rehabilitation Center Project)*
4.
City of Elizabethtown (Kentucky),
NR
NR
750,000
10.250
12/01/2016
12/01/1996 @ 103.000
12/01/2002
809,970
Industrial Building Revenue Bonds,
Series 1986A (Elizabethtown Medical
Rebahilitation Center Project)*
5.
City of Highland Park, Hospital
B1
B
500,000
9.875
12/01/2019
12/01/1997 @ 102.500
12/01/1997
530,830
Finance Authority (Highland Park,
Michigan) Hospital Facilities Revenue
Bonds, Michigan Health Care
Corporation Project, Series 1987A
6.
City of Mansfield, Texas, Industrial
B1
NR
300,000
7.625
05/01/2009
05/01/1996 @ 103.000
- --
294,669
Development Revenue Bonds,
(United States Gypsum Company
Project) Series 1984
7.
City of Sikeston, Missouri, Electric
Aaa
AAA
710,000
6.250
06/01/2008
--
06/01/1999
701,572
System Revenue Bonds, 1987
Series A
<PAGE>
The accompanying notes are an integral part of the financial
statements.<PAGE>
PORTFOLIO OF SMITH BARNEY INC. UNIT
TRUSTS,
AS OF SEPTEMBER 30, 1994
HIGH YIELD MUNICIPAL SERIES 7 (Continued)
Ratings of
Issues(7c)
Moody's
Standard
Optional
Sinking
Portfolio No. and Title of
Investors
& Poor's
Face
Refunding
Fund
Value
Securities
Service
Corp.
Amount
Coupon
Maturities
Redemptions(7a)
Redemptions(7a)
(Notes 1 and (7b))
8.
Claiborne County, Mississippi,
Baa3
BBB-
$205,000
9.500%
04/01/2016
04/01/1996 @ 103.000
- --
$222,484
Pollution Control Revenue Bonds,
(Middle South Energy, Inc.
Project) Series 1986E
9.
Greater Detroit Resource Recovery
NR
BBB-
250,000
9.250
12/13/2008
12/13/1995 @ 103.000
12/13/1999
264,985
Authority, Michigan, Adjustable/
Fixed Rate Resource Recovery
Revenue Bonds, Series B
10.
Greater Detroit Resource Recovery
NR
BBB-
200,000
9.250
12/13/2008
12/13/1995 @ 103.000
12/13/1999
211,988
Authority, Michigan, Adjustable/
Fixed Rate Resource Recovery
Revenue Bonds, Series G
11.
Greater Detroit Resource Recovery
NR
BBB-
100,000
9.250
12/13/2008
12/13/1995 @ 103.000
12/13/1999
105,994
Authority, Michigan, Adjustable/
Fixed Rate Resource Recovery
Revenue Bonds, Series H
12.
Gulf Coast Waste Disposal Authority
B2
BB
150,000
8.125
08/15/2005
02/15/1995 @ 100.000
- --
150,666
(Texas), Pollution Control Revenue
Bonds (Armco Steel Corporation
Project), Series 1975 Prerefunded
13.
Hospital Authority of the City of
NR
BBB
160,000
8.750
02/15/2013
08/15/1998 @ 102.000
- --
183,466
Kokomo (Indiana), Hospital Revenue
Refunding Bonds Prerefunded, Series
1988 A (Saint Joseph Hospital &
Health Center of Kokomo)
14.
Indiana Educational Facilities
NR
BBB
250,000
8.400
10/01/2008
10/01/1998 @ 102.000
- --
266,467
Authority, Educational Facilities
Revenue Bonds, Series 1988
(Anderson University Project)
<PAGE>
The accompanying notes are an integral part of the financial
statements.
PORTFOLIO OF SMITH BARNEY INC. UNIT
TRUSTS,
AS OF SEPTEMBER 30, 1994
HIGH YIELD MUNICIPAL SERIES 7 (Continued)
Ratings of
Issues(7c)
Moody's
Standard
Optional
Sinking
Portfolio No. and Title of
Investors
& Poor's
Face
Refunding
Fund
Value
Securities
Service
Corp.
Amount
Coupon
Maturities
Redemptions(7a)
Redemptions(7a)
(Notes 1 and (7b))
15.
Industrial Development Corporation
Baa3
BBB-
$700,000
10.250%
06/01/2017
06/01/1997 @ 103.000
06/01/2009
$788,956
of Port of Corpus Christi, Texas,
Refunding Revenue Bonds, Series
1987A (Valero Refining and
Marketing Company Project)
16.
Jackson County, Oklahoma Memorial
NR
NR
700,000
9.000
08/01/2015
08/01/1997 @ 102.000
- --
784,875
Hospital Authority, Hospital Revenue
Refunding Bonds, (Jackson County
Memorial Hospital Project),
Prerefunded Series 1987
17.
Louisiana Public Facilities Authority,
NR
AAA
200,000
8.000
05/15/2012
--
05/15/1997
235,858
Hospital Revenue Refunding Bonds
(Southern Baptist Hospitals, Inc.
Project) Series 1986
18.
Massachusetts Industrial Finance
NR
NR
425,000
10.250
01/01/2018
01/01/1998 @ 103.000
- --
499,473
Agency, First Mortgage Revenue
Bonds Prerefunded (Brookhaven
at Lexington Retirement Community
- - 1988 Issue)
19.
Massachusetts Municipal Wholesale
A
BBB+
5,000
8.750
07/01/2018
07/01/1997 @ 102.000
- --
5,530
Electric Company, Power Supply
System Revenue Bonds, 1987
Prerefunded Series A
20.
Massachusetts Municipal Wholesale
Aaa
BBB+
110,000
8.750
07/01/2018
07/01/1997 @ 102.000
- --
122,815
Company, Power Supply System
Revenue Bonds, 1987 Prerefunded
Series A
21.
Pope County, Arkansas, Pollution
Baa2
BBB
200,000
11.000
12/01/2015
12/01/1995 @ 102.000
- --
217,338
Control Revenue Bonds, Series
1985 (Arkansas Power & Light
Company Project)
The accompanying notes are an integral part of the financial
statements.
<PAGE>
PORTFOLIO OF SMITH BARNEY INC. UNIT
TRUSTS,
AS OF SEPTEMBER 30, 1994
HIGH YIELD MUNICIPAL SERIES 7 (Continued)
Ratings of
Issues(7c)
Moody's
Standard
Optional
Sinking
Portfolio No. and Title of
Investors
& Poor's
Face
Refunding
Fund
Value
Securities
Service
Corp.
Amount
Coupon
Maturities
Redemptions(7a)
Redemptions(7a)
(Notes 1 and (7b))
22.
St. John's County, Florida,
NR
NR
$577,000
9.500%
02/01/2017
02/01/1997 @ 103.000
- --
$650,360
Industrial Development Authority,
Industrial Development Revenue
Bonds, Prerefunded Series 1987A
(Vicars Landing Project)
23.
The Industrial Development Board
Ba1
BBB
800,000
6.875
08/01/2009
02/01/1995 @ 100.500
08/01/2005
795,112
of the City of Mobile, Alabama,
Dock and Wharf Revenue Bonds,
1979 Series (Ideal Basic Industries,
Inc. Project)
24.
Wood County, West Virginia,
NR
NR
715,000
9.500
12/01/2015
12/01/1996 @ 103.000
08/01/1996
772,407
Commercial Development Revenue
Bonds (West Virginia Rehabilitation
_________
_________
Services, Inc., Project), 1986 Series*
$8,602,000
$9,203,274
The accompanying notes are an integral part of the financial
statements.
_____
*
Alternative Minimum Tax Bond (see Other Risk Factors - Alternative
Minimum Tax Bonds on p.18).
</TABLE>
<PAGE>
<PAGE>
TRUST STRUCTURE
This Series (the "Trust") of Smith Barney Unit Trusts is a
"unit investment trust" created under New York law by a Trust
Indenture (the "Indenture") among the Sponsor, the Trustee
and the Evaluator. To the extent that references in this
Prospectus are to articles and sections of the Indenture, which
are incorporated by reference into this Prospectus, the
statements made herein are qualified in their entirety by this
reference. The Securities listed under Portfolio have been
deposited with the Trustee.
Certain of the Securities in the Trust may have been valued at
a market discount. Securities trade at less than par value
because the interest rates on the securities are lower than
interest on comparable debt securities being issued at
currently prevailing interest rates. The current returns of
securities trading at a market discount are lower than the
current returns of comparably rated debt securities of a similar
type issued at currently prevailing interest rates because
discount securities tend to increase in market value as they
approach maturity and the full principal amount becomes
payable. If currently prevailing interest rates for newly issued
and otherwise comparable securities increase, the market
discount of previously issued securities will become deeper,
and if currently prevailing interest rates for newly issued
comparable securities decline, the market discount of
previously issued securities will be reduced, other things being
equal. Market discount attributable to interest rate changes
does not indicate a lack of market confidence in the issue.
Certain of the Securities in the Trust may have been valued at
a market premium. Securities trade at a premium because the
interest rates on the Securities are higher than interest on
comparable debt securities being issued at currently prevailing
interest rates. The current returns of securities trading at a
market premium are higher than the current returns of
comparably rated debt securities of a similar type issued at
currently prevailing interest rates because premium securities
tend to decrease in market value as they approach maturity
when the face amount becomes payable. Because part of the
purchase price is returned not at maturity but through current
income payments, an early redemption of a premium security
at par will result in a reduction in yield. If currently prevailing
interest rates for newly issued and otherwise comparable
securities increase, the market premium of previously issued
securities will decline and if currently prevailing interest rates
for newly issued comparable securities decline, the market
premium of previously issued securities will increase, other
things being equal. Market premium attributable to interest
rate changes does not indicate market confidence in the issue.
The holders ("Holders") of Units will have the right to have
their Units redeemed (see Redemption) at a price based on
the aggregate bid side evaluation of the Securities
("Redemption Price per Unit") if they cannot be sold in the
over-the-counter market that the Sponsor proposes to
maintain (see Market for Units). The Trust will not
continuously offer Units for sale to the public. On the
Evaluation Date each unit of interest ("Unit") represented the
fractional undivided interest in the Securities and net income
of the Trust set forth under Investment Summary. Thereafter,
if any Units are redeemed, the face amount of Securities in
the Trust will be reduced, and the fractional undivided interest
represented by each remaining Unit in the balance will be
increased. Units will remain outstanding until redeemed upon
tender to the Trustee by any Holder (which may include the
Sponsor) or until the termination of the Indenture (see
Redemption; Administration of the Trust--Amendment and
Termination).
<PAGE>
RISK FACTORS
"High Yield" Bonds
An investment in Units of the Trust should be made with an
understanding of the risks that an investment in "high yield",
fixed-rate intermediate- and long-term municipal debt
obligations or "junk bonds" may entail, including increased
credit risks and the risk that the value of the Units will
decline, and may decline precipitously, with increases in
interest rates or reductions in the credit quality of the
underlying Securities. In recent years, there have been wide
fluctuations in interest rates and thus in the value of fixed-rate
debt obligations generally. Securities such as those included in
the Trust are, under most circumstances, subject to greater
market fluctuations and risk of loss of income and principal
than are investments in lower yielding, higher rated securities,
and their value may decline precipitously because of increases
in interest rates, not only because the increases in rates
generally decrease values but also because increased rates may
indicate a slowdown in the economy and a decrease in the
value of assets generally that may adversely affect the credit of
issuers of high yield securities resulting in a higher incidence
of default among high yield securities. The Sponsor cannot
predict future economic policies or their consequences, or
therefore, the course or extent of any similar market
fluctuations in the future. To the extent that payment of
amounts due on the Securities depends on revenue from
publicly held corporations, an investor should realize that
these Securities, in many cases, do not have the benefit of
covenants that would prevent the corporations from engaging
in capital restructurings which could have the effect of
reducing the ability of the issuer to meet its obligations and
might result in the ratings of the Securities and the value of
the underlying Portfolio being reduced.
The Trust portfolio contains "high yield" municipal bonds.
"High yield" or "junk" bonds, the generic names for bonds
that, if rated, are rated below BBB by Standard & Poor's or
Baa by Moody's. Trading of high yield bonds takes place
primarily in over-the-counter markets consisting of groups of
dealer firms that are typically major securities firms. Because
the high yield bond market is a dealer market, rather than an
auction market, no single obtainable price for a given bond
prevails at any given time. Prices are determined by
negotiation between traders. The existence of a liquid trading
market for the Securities may depend on whether dealers will
make a market in the Securities. There can be no assurance
that a market will be made for any of the Securities, that any
market for the Securities will be maintained or of the liquidity
of the Securities in any markets made. Not all dealers
maintain markets in all high yield bonds. Therefore, since
there are fewer traders in these bonds than there are in
"investment grade" bonds, the bid-offer spread is usually
greater for high yield bonds than it is for investment grade
bonds. In addition, the Trust may be restricted under the
Investment Company Act of 1940 from selling Securities to
the Sponsor. The price at which the Securities may be sold to
meet redemptions and the value of the Trust will be adversely
affected if trading markets for the Securities are limited or
absent. If the rate of redemptions is great, the value of the
Trust may decline to a level that requires liquidation (see
Amendment and Termination).
Lower-rated and comparable non-rated securities tend to offer
higher yields than higher-rated securities with the same
maturities because the creditworthiness of the issuers of lower-
rated securities may not be as strong as that of other issuers.
Because investors generally perceive that there are greater
risks associated with the lower-rated and non-rated securities
in the Trust, the yields and prices of these securities tend to
fluctuate more than higher-rated securities with changes in the
perceived quality of the credit of their issuers. In addition,
the market value of high yield, fixed-
<PAGE>
income securities may fluctuate more than the market value of
higher-rated securities since high yield, fixed-income securities
tend to reflect short-term credit developments to a greater
extent than higher-rated securities. Also, because high yield
bonds may be more sensitive to adverse changes in credit
status than bonds of investment grade, sales of Securities from
the Portfolio may occur more frequently than sales of
portfolio securities from trusts invested in higher-rated bonds;
this could result in possible loss of principal and a more rapid
decline in the size of the Trust than otherwise would be the
case. Lower-rated and non-rated securities generally involve
greater risks of loss of income and principal than higher-rated
securities, and recent studies have indicated that the number
of defaults by issuers and the amount of debt in default have
increased substantially in the past few years. The issuers of
lower-rated and non-rated securities may possess less
creditworthy characteristics than the issuers of higher-rated
securities and, especially in the case of issuers whose
obligations or credit standing have recently been downgraded,
may be subject to claims by debtholders, owners of property
leased to the issuer or others that, if sustained, would make it
more difficult for the issuers to meet their payment
obligations. High yield bonds are also affected by variables
such as interest rates, inflation rates and real growth in the
economy. Therefore, investors should consider carefully the
relative risks associated with investment in securities which
carry lower ratings or which are not rated. Finally, the value
of the Units reflects the value of the portfolio securities,
including the value (if any) of securities in default. Should
any Security default in the payment of principal or interest,
the Trust may incur additional expenses seeking payment on
the defaulted Security. Because amounts (if any) recovered by
the Trust in payment under the defaulted Security may not be
reflected in the value of the Units until actually received by
the Trust, and depending upon when a Holder purchases or
sells his Units, it is possible that a Holder would bear a
portion of the cost of recovery without receiving any portion
of the payment recovered.
Securities that are rated lower than BBB or Baa should be
considered speculative as such ratings indicate a quality of less
than investment grade. Securities that are not rated by either
Standard & Poor's or Moody's should also be considered
speculative. There is no established retail secondary market
for many of these Securities. The Sponsor does not anticipate
that these Securities could be sold other than to institutional
investors. However, the Sponsor expects that there is a
readily available market among institutional investors for these
Securities in the event it is necessary to sell such Securities to
meet redemptions of Units. The limited market for these
Securities may affect the price of the particular Security to be
sold for purposes of redemption and the amount actually
realized by the Trust upon a sale. Any sale may therefore
result in a loss to the Trust. Investors should carefully review
the objective of the Trust and consider their ability to assume
the risks involved before making an investment in the Trust.
(See Description of Ratings for a description of speculative
ratings issued by Standard & Poor's and Moody's.)
Other Risk Factors
As set forth under Investment Summary and Portfolio, the
Trust may contain or be concentrated* in one or more of the
classifications of Securities referred to below. Percentages of
any concentrations for this Trust are set forth under
Investment Summary. An investment in Units of the Trust
should be made with an understanding of the risks which
these investments may entail, certain of which are described
below.
__________
* A Trust is considered to be "concentrated" in a particular
category when the Securities in that category constitute 25%
or more of the aggregate face amount of the Portfolio.
<PAGE>
General Obligation Bonds. Certain of the Debt Obligations in
the Trust may be general obligations of a governmental entity.
General obligation bonds are backed by the issuer's pledge of
its full faith, credit and taxing power for the payment of
principal and interest. However, the taxing power of any
governmental entity may be limited by provisions of state
constitutions or laws and an entity's credit will depend on
many factors, including an erosion of the tax base due to
population declines, natural disasters, declines in the state's
industrial base or inability to attract new industries, economic
limits on the ability to tax without eroding the tax base, the
extent to which the entity relies on Federal or state aid, and
access to capital markets or other factors beyond the entity's
control.
In addition, certain of the Debt Obligations in the Trust may
be obligations of issuers that rely in whole or in part on ad
valorem real property taxes as a source of revenue. Certain
proposals, in the form of state legislative proposals or voter
initiatives, to limit ad valorem real property taxes have been
introduced in various states. The Sponsor cannot predict the
final impact of future legislative or constitutional measures on
school districts and local governments or on their abilities to
make future payments on their outstanding debt obligations.
Moral Obligation Bonds. The Trust may also include "moral
obligation" bonds. If an issuer of moral obligation bonds is
unable to meet its obligations, the repayment of the bonds
becomes a moral commitment but not a legal obligation of the
state or municipality in question. Even though the state may
be called on to restore any deficits in capital reserve funds of
the agencies or authorities which issued the bonds, any
restoration generally requires appropriation by the state
legislature and accordingly the statutes do not constitute a
legally enforceable obligation or debt of the state. The
agencies or authorities generally have no taxing power.
Pollution Control Revenue Bonds. Pollution control revenue
bonds are a type of industrial revenue bond ("IRBs"). IRBs
are tax exempt securities issued by states, municipalities,
public authorities or similar entities ("issuers") to finance the
cost of acquiring, constructing or improving various projects,
including pollution control facilities and certain industrial
development facilities. These projects are usually operated by
corporate entities. IRBs are not general obligations of
governmental entities backed by their taxing power. Issuers
are only obligated to pay amounts due on the IRBs to the
extent that funds are available from the unexpended proceeds
of the IRBs or receipts or revenues of the issuer under
arrangements between the issuer and the corporate operator
of a project. These arrangements may be in the form of a
lease, installment sale agreement, conditional sale agreement
or loan agreement, but in each case the payments to the issuer
are designed to be sufficient to meet the payments of amounts
due on the IRBs.
IRBs are generally issued under bond resolutions, agreements
or trust indentures pursuant to which the revenues and
receipts payable under the issuer's arrangements with the
corporate operator of a particular project have been assigned
and pledged to the holders of the IRBs or a trustee for the
benefit of the holders of the IRBs. In certain cases, a
mortgage on the underlying project has been assigned to the
holders of the IRBs or a trustee as additional security for the
IRBs. In addition, IRBs are frequently directly guaranteed by
the corporate operator of the project or by another affiliated
company. Regardless of the structure, payment of IRBs is
solely dependent upon the creditworthiness of the corporate
operator of the project or corporate guarantor. Corporate
operators or guarantors that are industrial companies may be
affected by many factors which may have an adverse impact
on the credit quality of the particular company or industry.
These include cyclicality of revenues and earnings, regulatory
and environmental restrictions, litigation resulting
<PAGE>
from accidents or environmentally-caused illnesses, extensive
competition (including that of low-cost foreign companies),
unfunded pension fund liabilities or off-balance sheet items,
and financial deterioration resulting from leveraged buy-outs
or takeovers.
Alternative Minimum Tax Bonds. Interest from alternative
minimum tax bonds (generally called private activity bonds in
the Code), other than from bonds issued for charitable,
educational and certain other purposes, is exempt from the
regular Federal income tax for individuals and corporations.
However, such interest is a preference item for purposes of
the alternative minimum tax for individuals and corporations.
Investors should be aware that available returns from newly
issued Debt Obligations acquired by the Trust that are not
alternative minimum tax bonds may be lower than those from
alternative minimum tax bonds due to the possibility of
Federal tax liability on interest arising from alternative
minimum tax bonds. (See Taxes.)
Debt Obligations of Utilities. The ability of investor-owned
and municipal utilities to meet their obligations with respect
to revenue bonds issued on their behalf is dependent on
various factors, including the rates they may charge their
customers, the demand for a utility's services and the cost of
providing those services. Utilities, in particular investor-
owned utilities, are subject to extensive regulation relating to
the rates which they may charge customers. Utilities can
experience regulatory, political and consumer resistance to
rate increases. Utilities engaged in long-term capital projects
are especially sensitive to regulatory lags in granting rate
increases. Any difficulty in obtaining timely and adequate rate
increases could adversely affect a utility's results of operations.
The demand for a utility's services is influenced by, among
other factors, competition, weather conditions and economic
conditions. Electric utilities, for example, have experienced
increased competition as a result of the availability of other
energy sources, the effects of conservation on the use of
electricity, self-generation by industrial customers and the
generation of electricity by co-generators and other
independent power producers. Also, increased competition
will result if Federal regulators determine that utilities must
open their transmission lines to competitors. Utilities which
distribute natural gas also are subject to competition from
alternative fuels, including fuel oil, propane and coal.
The utility industry is an increasing cost business making the
cost of generating electricity more expensive and heightening
its sensitivity to regulation. A utility's costs are influenced by
the utility's cost of capital, the availability and cost of fuel
and other factors. In addition, natural gas pipeline and
distribution companies have incurred increased costs as a
result of long-term natural gas purchase contracts containing
"take or pay" provisions which require that they pay for
natural gas even if natural gas is not taken by them. There
can be no assurance that a utility will be able to pass on these
increased costs to customers through increased rates. Utilities
incur substantial capital expenditures for plant and equipment.
In the future, they will also incur increasing capital and
operating expenses to comply with environmental legislation
such as the Clean Air Act of 1990, and other energy,
licensing and other laws and regulations relating to, among
other things, air emissions, the quality of drinking water,
waste water discharge, solid and hazardous substance
handling and disposal, and citing and licensing of facilities.
Environmental legislation and regulations are changing rapidly
and are the subject of current public policy debate and
legislative proposals. It is increasingly likely that some or
many utilities will be subject to more stringent environmental
standards in the future that could result in significant capital
expenditures. Future legislation and regulation could include,
among other things, regulation of so-called electromagnetic
<PAGE>
fields associated with electric transmission and distribution
lines as well as emissions of carbon dioxide and other so-
called greenhouse gases associated with the burning of fossil
fuels. Compliance with these requirements may limit a
utility's operations or require substantial investments in new
equipment and, as a result, may adversely affect a utility's
results of operations.
The electric utility industry in general is subject to various
external factors including (a) the effects of inflation upon the
costs of operation and construction, (b) substantially
increased capital outlays and longer construction periods for
larger and more complex new generating units, (c)
uncertainties in predicting future load requirements, (d)
increased financing requirements coupled with limited
availability of capital, (e) exposure to cancellation and penalty
charges on new generating units under construction, (f)
problems of cost and availability of fuel, (g) compliance with
rapidly changing and complex environmental, safety and
licensing requirements, (h) litigation and proposed legislation
designed to delay or prevent construction of generating and
other facilities, (i) the uncertain effects of conservation on the
use of electric energy, (j) uncertainties associated with the
development of a national energy policy, (k) regulatory,
political and consumer resistance to rate increases and (l)
increased competition as a result of the availability of other
energy sources. These factors may delay the construction and
increase the cost of new facilities, limit the use of, or
necessitate costly modifications to, existing facilities, impair
the access of electric utilities to credit markets, or
substantially increase the cost of credit for electric generating
facilities. The Sponsors cannot predict at this time the
ultimate effect of such factors on the ability of any issuers to
meet their obligations with respect to Bonds.
The National Energy Policy Act ("NEPA"), which became law
in October, 1992, makes it mandatory for a utility to permit
non-utility generators of electricity access to its transmission
system for wholesale customers, thereby increasing
competition for electric utilities. NEPA also mandated
demand-side management policies to be considered by
utilities. NEPA prohibits the Federal Energy Regulatory
Commission from mandating electric utilities to engage in
retail wheeling, which is competition among suppliers of
electric generation to provide electricity to retail customers
(particularly industrial retail customers) of a utility. However,
under NEPA, a state can mandate retail wheeling under
certain conditions.
There is a concern by the public, the scientific community, and
the U.S. Congress regarding environmental damage resulting
from the use of fossil fuels. Congressional support for the
increased regulation of air, water, and soil contaminants is
building and there are a number of pending or recently
enacted legislative proposals which may affect the electric
utility industry. In particular, on November 15, 1990,
legislation was signed into law that substantially revises the
Clean Air Act (the "1990 Amendments"). The 1990
Amendments seek to improve the ambient air quality
throughout the United States by the year 2000. A main
feature of the 1990 Amendments is the reduction of sulphur
dioxide and nitrogen oxide emissions caused by electric utility
power plants, particularly those fueled by coal. Under the
1990 Amendments the U.S. Environmental Protection Agency
("EPA") must develop limits for nitrogen oxide emissions by
1993. The sulphur dioxide reduction will be achieved in two
phases. Phase I addresses specific generating units named in
the 1990 Amendments. In Phase II the total U.S. emissions
will be capped at 8.9 million tons by the year 2000. The 1990
Amendments contain provisions for allocating allowances to
power plants based on historical or calculated levels. An
allowance is defined as the authorization to emit one ton of
sulphur dioxide.
<PAGE>The 1990 Amendments also provide for possible
further regulation of toxic air emissions from electric
generating units pending the results of several federal
government studies to be conducted over the next three to
four years with respect to anticipated hazards to public health,
available corrective technologies, and mercury toxicity.
Electric utilities which own or operate nuclear power plants
are exposed to risks inherent in the nuclear industry. These
risks include exposure to new requirements resulting from
extensive federal and state regulatory oversight, public
controversy, decommissioning costs, and spent fuel and
radioactive waste disposal issues. While nuclear power
construction risks are no longer of paramount concern, the
emerging issue is radioactive waste disposal. In addition,
nuclear plants typically require substantial capital additions
and modifications throughout their operating lives to meet
safety, environmental, operational and regulatory
requirements and to replace and upgrade various plant
systems. The high degree of regulatory monitoring and
controls imposed on nuclear plants could cause a plant to be
out of service or on limited service for long periods. When a
nuclear facility owned by an investor-owned utility or a state
or local municipality is out of service or operating on a
limited service basis, the utility operator or its owners may be
liable for the recovery of replacement power costs. Risks of
substantial liability also arise from the operation of nuclear
facilities and from the use, handling, and possible radioactive
emissions associated with nuclear fuel. Insurance may not
cover all types or amounts of loss which may be experienced
in connection with the ownership and operation of a nuclear
plant and severe financial consequences could result from a
significant accident or occurrence. The Nuclear Regulatory
Commission has promulgated regulations mandating the
establishment of funded reserves to assure financial capability
for the eventual decommissioning of licensed nuclear
facilities. These funds are to be accrued from revenues in
amounts currently estimated to be sufficient to pay for
decommissioning costs.
The ability of state and local joint power agencies to make
payments on bonds they have issued is dependent in large part
on payments made to them pursuant to power supply or
similar agreements. Courts in Washington, Oregon and Idaho
have held that certain agreements between the Washington
Public Power Supply System ("WPPSS") and the WPPSS
participants are unenforceable because the participants did not
have the authority to enter into the agreements. While these
decisions are not specifically applicable to agreements entered
into by public entities in other states, they may cause a
reexamination of the legal structure and economic viability of
certain projects financed by joint power agencies, which might
exacerbate some of the problems referred to above and
possibly lead to legal proceedings questioning the
enforceability of agreements upon which payment of these
bonds may depend.
Single Family and Multi-Family Housing Obligations. Multi-
family housing revenue bonds and single family mortgage
revenue bonds are state and local housing issues that have
been issued to provide financing for various housing projects.
Multi-family housing revenue bonds are payable primarily
from the revenues derived from mortgage loans to housing
projects for low to moderate income families. Single-family
mortgage revenue bonds are issued for the purpose of
acquiring from originating financial institutions notes secured
by mortgages on residences.
Housing obligations are not general obligations of the issuer
although certain obligations may be supported to some degree
by Federal, state or local housing subsidy programs.
Budgetary constraints experienced by these programs as well
as the failure by a state or local housing issuer to satisfy the
qualifications required for coverage under these programs or
any legal or administrative determinations that the coverage of
these programs is not available to a housing issuer, probably
will <PAGE>result in a decrease or elimination of subsidies
available for payment of amounts due on the housing issuer's
obligations. The ability of housing issuers to make debt
service payments on their obligations will also be affected by
various economic and non-economic developments including,
among other things, the achievement and maintenance of
sufficient occupancy levels and adequate rental income in
multi-family projects, the rate of default on mortgage loans
underlying single family issues and the ability of mortgage
insurers to pay claims, employment and income conditions
prevailing in local markets, increases in construction costs,
taxes, utility costs and other operating expenses, the
managerial ability of project managers, changes in laws and
governmental regulations and economic trends generally in the
localities in which the projects are situated. Occupancy of
multi-family housing projects may also be adversely affected
by high rent levels and income limitations imposed under
Federal, state or local programs.
All single family mortgage revenue bonds and certain multi-
family housing revenue bonds are prepayable over the life of
the underlying mortgage or mortgage pool, and therefore the
average life of housing obligations cannot be determined.
However, the average life of these obligations will ordinarily
be less than their stated maturities. Single-family issues are
subject to mandatory redemption in whole or in part from
prepayments on underlying mortgage loans; mortgage loans
are frequently partially or completely prepaid prior to their
final stated maturities as a result of events such as declining
interest rates, sale of the mortgaged premises, default,
condemnation or casualty loss. Multi-family issues are
characterized by mandatory redemption at par upon the
occurrence of monetary defaults or breaches of covenants by
the project operator. Additionally, housing obligations are
generally subject to mandatory partial redemption at par to
the extent that proceeds from the sale of the obligations are
not allocated within a stated period (which may be within a
year of the date of issue). To the extent that these obligations
were valued at a premium when a Holder purchased Units,
any prepayment at par would result in a loss of capital to the
Holder and, in any event, reduce the amount of income that
would otherwise have been paid to Holders.
The tax exemption for certain housing revenue bonds depends
on qualification under Section 143 of the Internal Revenue
Code of 1986, as amended (the "Code"), in the case of single
family mortgage revenue bonds or Section 142(a)(7) of the
Code or other provisions of Federal law in the case of certain
multi-family housing revenue bonds (including Section 8
assisted bonds). These sections of the Code or other
provisions of Federal law contain certain ongoing
requirements, including requirements relating to the cost and
location of the residences financed with the proceeds of the
single family mortgage revenue bonds and the income levels of
tenants of the rental projects financed with the proceeds of
the multi-family housing revenue bonds. While the issuers of
the bonds and other parties, including the originators and
servicers of the single-family mortgages and the owners of the
rental projects financed with the multi-family housing revenue
bonds, generally covenant to meet these ongoing requirements
and generally agree to institute procedures designed to ensure
that these requirements are met, there can be no assurance
that these ongoing requirements will be consistently met. The
failure to meet these requirements could cause the interest on
the bonds to become taxable, possibly retroactively from the
date of issuance, thereby reducing the value of the bonds,
subjecting the Holders to unanticipated tax liabilities and
possibly requiring the Trustee to sell the bonds at reduced
values. Furthermore, any failure to meet these ongoing
requirements might not constitute an event of default under
the applicable mortgage or permit the holder to accelerate
payment of the bond or require the issuer to redeem the
bond. In any event, where the mortgage is insured by the
Federal Housing administration, its consent may be required
before insurance proceeds would become payable to redeem
the mortgage bonds.
<PAGE>Revenue Bonds of Hospitals and Health Care
Facilities. The ability of hospitals and other health care
facilities to meet their obligations with respect to revenue
bonds issued on their behalf is dependent on various factors,
including the level of payments received from private third-
party payors and government programs and the costs of
providing health care services.
A significant portion of the revenues of hospitals and other
health care facilities is derived from private third-party payors
and government programs, including the Medicare and
Medicaid programs. Both private third-party payors and
government programs have undertaken cost containment
measures designed to limit payments made to health care
facilities. Furthermore, government programs are subject to
statutory and regulatory changes, retroactive rate adjustments,
administrative rulings and government funding restrictions, all
of which may materially decrease the rate of program
payments for health care facilities. There can be no assurance
that payments under governmental programs will remain at
levels comparable to present levels or will, in the future, be
sufficient to cover the costs allocable to patients participating
in such programs. In addition, there can be no assurance that
a particular hospital or other health care facility will continue
to meet the requirements for participation in such programs.
The costs of providing health care services are subject to
increase as a result of, among other factors, changes in
medical technology and increased labor costs. In addition,
health care facility construction and operation is subject to
federal, state and local regulations relating to the adequacy of
medical care, equipment, personnel, operating policies and
procedures, rate-setting, and compliance with building codes
and environmental laws. Facilities are subject to periodic
inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for
licensing and accreditation. These regulatory requirements
are subject to change and, to comply, it may be necessary for
a hospital or other health care facility to incur substantial
capital expenditures or increased operating expenses to effect
changes in its facilities, equipment, personnel and services.
Hospitals and other health care facilities are subject to claims
and legal actions by patients and others in the ordinary course
of business. Although these claims are generally covered by
insurance, there can be no assurance that a claim will not
exceed the insurance coverage of a health care facility or that
insurance coverage will be available to a facility. In addition, a
substantial increase in the cost of insurance could adversely
affect the results of operations of a hospital or other health
care facility. The Clinton Administration may impose
regulations which could limit price increases for hospitals, the
level of reimbursements for third-party payors or other
measures to reduce health care costs and make health care
available to more individuals, which would reduce profits for
hospitals. Some states, such as New Jersey, have significantly
changed their reimbursement systems. If a hospital cannot
adjust to the new system by reducing expenses or raising
rates, financial difficulties may arise. Also, Blue Cross has
denied reimbursements for some hospitals for services other
than emergency room services. The lost volume would
reduce revenue unless replacement patients were found.
Certain hospital bonds may provide for redemption at par at
any time upon the sale by the issuer of the hospital facilities
to a nonaffiliated entity or in other circumstances. For
example, certain hospitals may have the right to call bonds at
par if the hospital may legally be required because of the
bonds to perform procedures against specified religious
principles. Certain FHA-insured bonds may provide that all
or a portion of those bonds, otherwise callable at a premium,
can be called at par in certain circumstances. If a hospital
defaults upon a bond obligation, the <PAGE>realization of
Medicare and Medicaid receivables may be uncertain and, if
the bond obligation is secured by the hospital facilities, legal
restrictions on the ability to foreclose upon the facilities and
the limited alternative uses to which a hospital can be put may
reduce severely its collateral value.
The Internal Revenue Service is currently engaged in a
program of intensive audits of certain large tax-exempt
hospital and health care facility organizations. Although these
audits have not yet been completed, it has been reported that
the tax-exempt status of some of these organizations may be
revoked. At this time, it is uncertain whether any of the
hospital and health care facility obligations held by the Trust
will be affected by such audit proceedings.
Lease Rental Obligations. Lease rental obligations are issued
for the most part by governmental authorities that have no
taxing power or other means of directly raising revenues.
Rather, the authorities are financing vehicles created solely for
the construction of buildings (administrative offices,
convention centers and prisons, for example) or the purchase
of equipment (police cars and computer systems, for example)
that will be used by a state or local government (the "lessee").
Thus, the obligations are subject to the ability and willingness
of the lessee government to meet its lease rental payments
which include debt service on the obligations. Lease rental
obligations are subject, in almost all cases, to the annual
appropriation risk, i.e., the lessee government is not legally
obligated to budget and appropriate for the rental payments
beyond the current fiscal year. These obligations are also
subject to the risk of abatement in many states -- rental
obligations cease in the event that damage, destruction or
condemnation of the project prevents its use by the lessee.
(In these cases, insurance provisions designed to alleviate this
risk become important credit factors.) In the event of default
by the lessee government, there may be significant legal and
or practical difficulties involved in the re-letting or sale of the
project. Some of these issues, particularly those for
equipment purchase, contain the so-called "substitution
safeguard", which bars the lessee government, in the event it
defaults on its rental payments, from the purchase or use of
similar equipment for a certain period of time. This safeguard
is designed to insure that the lessee government will
appropriate necessary funds even though it is not legally
obligated to so do, but its legality remains untested in most, if
not all, states.
Facility Revenue Bonds Dependent on User Fees. Certain
facility revenue bonds are payable from and secured by the
revenues from the ownership and operation of particular
facilities, such as airports (including airport terminals and
maintenance facilities) marine terminals, bridges, turnpikes
and port authorities. For example, the major portion of gross
airport operating income is generally derived from fees
received from signatory airlines pursuant to use agreements
which consist of annual payments for airport use, occupancy of
certain terminal space, facilities, service fees, concessions and
leases. Airport operating income may therefore be affected by
the ability of the airlines to meet their obligations under the
use agreements. The air transport industry is experiencing
significant variations in earnings and traffic, due to increased
competition, excess capacity, increased aviation fuel and other
costs, deregulation, traffic constraints, the current recession
and other factors. As a result, several airlines are
experiencing severe financial difficulties. Several airlines
including Trans World Airlines, Inc., Continental Airlines,
Inc., and Braniff International Inc., have sought protection
from their creditors under Chapter 11 of the Bankruptcy
Code. In addition, other airlines, such as Pan American
Corporation and Midway Airlines, Inc. have recently been
liquidated. The Sponsor cannot predict what effect these
industry conditions may have on airport revenues which are
dependent for payment on the financial condition of the
airlines and their usage of the particular airport facility.
<PAGE>
Similarly, payment on bonds related to other facilities is
dependent on revenues from the projects, such as user fees
from ports, tolls on turnpikes and bridges and rents from
buildings. Therefore, payment may be adversely affected by
reduction in revenues due to such factors as increased cost of
maintenance or decreased use of a facility, lower cost of
alternative modes of transportation or scarcity of fuel and
reduction or loss of rents.
Solid Waste Disposal Bonds. Bonds issued for solid waste
disposal facilities are generally payable from user fees and
from revenues that may be earned by the facility on the sale
of electrical energy generated in the combustion of waste
products. The ability of solid waste disposal facilities to meet
their obligations depends upon the continued use of the
facility, the successful and efficient operation of the facility
and the continued ability of the facility to generate electricity
on a commercial basis. All of these factors may be affected by
a failure of municipalities to fully utilize the facilities, an
insufficient supply of waste for disposal due to economic or
population decline, rising construction and maintenance costs,
any delays in construction of facilities and lower-cost
alternative modes of waste processing. Because of the
relatively short history of this type of financing, there may be
technological risks involved in the satisfactory construction or
operation of the projects exceeding those associated with most
municipal enterprise projects. Increasing environmental
regulation on the federal, state and local level has a significant
impact on waste disposal facilities. While regulation requires
more waste producers to use waste disposal facilities, it also
imposes significant costs on the facilities. These costs include
compliance with frequently changing and complex regulatory
requirements, the cost of obtaining construction and operating
permits, the cost of conforming to prescribed and changing
equipment standards and required methods of operation and
the cost of disposing of the waste residue that remains after
the disposal process in an environmentally safe manner. In
addition, waste disposal facilities frequently face substantial
opposition by environmental groups and officials to their
location and operation, to the possible adverse effects upon
the public health and the environment that may be caused by
wastes disposed of at the facilities and to alleged improper
operating procedures. Waste disposal facilities benefit from
laws which require waste to be disposed of in a certain
manner but any relaxation of these laws could cause a decline
in demand for the facilities' services. Finally, waste disposal
facilities are concerned with many of the same issues facing
utilities insofar as they derive revenues from the sale of energy
to local power utilities (see the discussion of Utility
Obligations above).
Special Tax Bonds. Special tax bonds are payable from and
secured by the revenues derived by a municipality from a
particular tax such as a tax on the rental of a hotel room, on
the purchase of food and beverages, on the rental of
automobiles or on the consumption of liquor. Special tax
bonds are not secured by the general tax revenues of the
municipality, and they do not represent general obligations of
the municipality. Therefore, payment on special tax bonds
may be adversely affected by a reduction in revenues realized
from the underlying special tax due to a general decline in the
local economy or population or due to a decline in the
consumption, use or cost of the goods and services that are
subject to taxation. Also, should spending on the particular
goods or services that are subject to the special tax decline,
the municipality may be under no obligation to increase the
rate of the special tax to ensure that sufficient revenues are
raised from the shrinking taxable base.
Transit Authority Obligations. Mass transit is generally not
self-supporting from fare revenues. Therefore, additional
financial resources must be made available to ensure
operation of mass transit systems as well as the timely
payment of debt service. Often such financial resources
<PAGE>include Federal and state subsidies, lease rentals
paid by funds of the state or local government or a pledge of
a special tax such as a sales tax or a property tax. If fare
revenues or the additional financial resources do not increase
appropriately to pay for rising operating expenses, the ability
of the issuer to adequately service the debt may be adversely
affected.
Water and Sewer Revenue Bonds. Water and sewer bonds
are generally payable from user fees. The ability of state and
local water and sewer authorities to meet their obligations
may be affected by failure of municipalities to utilize fully the
facilities constructed by these authorities, economic or
population decline and resulting decline in revenue from user
charges, rising construction and maintenance costs and delays
in construction of facilities, impact of environmental
requirements, failure or inability to raise user charges in
response to increased costs, the difficulty of obtaining or
discovering new supplies of fresh water, the effect of
conservation programs and the impact of "no growth" zoning
ordinances. In some cases this ability may be affected by the
continued availability of Federal and state financial assistance
and of municipal bond insurance for future bond issues.
Revenue Obligations of Universities and Colleges. The ability
of universities and colleges to meet their obligations is
dependent upon various factors, including the size and
diversity of their sources of revenues, enrollment, reputation,
management expertise, the availability and restrictions on the
use of endowments and other funds, the quality and
maintenance costs of campus facilities, and, in the case of
public institutions, the financial condition of the relevant state
or other governmental entity and its policies with respect to
education. The institution's ability to maintain enrollment
levels will depend on such factors as tuition costs, geographic
location, geographic diversity and quality of the student body,
quality of the faculty and the diversity of program offerings.
Statistics and projections developed by the Center for
Education Statistics, a unit within the United States
Department of Education's Office of Education Research and
Improvement, indicate that enrollment in postsecondary
education institutions peaked in 1983, declined in 1984 and
increased in 1985, 1986 and 1987, and is expected to increase
in the next several years. On the other hand, a study
performed by the Western Interstate Commission for Higher
Education in 1984 projects a steady decline in the number of
high school graduates nationally through 1992, falling from
projected levels of 2.54 million in 1987 to 2.29 million in 1992.
This latter study forecasts a return by 1998 to projected 1987
levels of high school graduates.
Legislative or regulatory action in the future at the Federal,
state or local level may directly or indirectly affect eligibility
standards or reduce or eliminate the availability of funds for
certain types of student loans or grant programs, including
student aid, research grants and work-study programs, and
may affect indirect assistance for education.
Litigation and Legislation
To the best knowledge of the Sponsor, there was no litigation
pending as of the Date of Deposit with respect to any Debt
Obligations that might reasonably be expected to have a
material adverse effect upon the Trust. At any time litigation
may be initiated on a variety of grounds with respect to the
Debt Obligations. Litigation, for example, challenging the
issuance of pollution control revenue bonds under recently-
enacted environmental protection statutes may affect the
validity of Debt Obligations or the tax-free nature of their
interest. While the outcome of litigation of this nature can
never be entirely predicted, opinions of bond counsel are
delivered on the date of issuance of each Debt Obligation to
the effect that the Debt Obligation has been validly issued and
that the <PAGE>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
make payments due on Debt Obligations.
Under the Federal Bankruptcy Act, a political subdivision or
public agency or instrumentality of any state, including
municipalities, may proceed to restructure or otherwise alter
the terms of its obligations, including those of the type of
which the Trust is comprised. The Sponsor is unable to
predict what effect, if any, this legislation will have on the
Trust.
From time to time Congress considers proposals to tax the
interest on State and local obligations, such as the Debt
Obligations. The Supreme Court clarified in South Carolina
v. Baker (decided April 20, 1988) that the U.S. Constitution
does not prohibit Congress from passing a non-discriminatory
tax on State and local obligations. This type of legislation, if
enacted into law, could adversely affect an investment in
Units. Holders are urged to consult their own tax advisors.
DESCRIPTION OF THE TRUST
Payment of the Securities and Life of the Trust
Because certain of the Securities from time to time may be
redeemed or prepaid or will mature in accordance with their
terms or may be sold under certain circumstances described
herein, no assurance can be given that the Trust will retain for
any length of time its present size and composition (see
Redemption). Many of the Securities may be subject to
redemption prior to their stated maturity dates pursuant to
optional refunding or sinking fund redemption provisions or
otherwise. In general, optional refunding redemption
provisions are more likely to be exercised when the offering
side evaluation is at a premium over par than when it is at a
discount from par. Generally, the offering side evaluation of
Securities will be at a premium over par when market interest
rates fall below the coupon rate on the Securities. The
percentage of the face amount of Securities in the Portfolio
which were at a bid side evaluation in excess of par is set forth
under Investment Summary. Certain Securities in the
Portfolio may be subject to sinking fund provisions. These
provisions are designed to redeem a significant portion of an
issue gradually over the life of the issue; obligations to be
redeemed are generally chosen by lot. The Portfolio contains a
listing of the sinking fund and optional redemption provisions
with respect to the Securities.
Tax Exemption
In the opinion of bond counsel rendered on the date of
issuance of each Security, the interest on the Securities is
excludable from gross income under then existing law for
regular Federal income tax purposes (except in certain
circumstances depending on the Holder) but may be subject to
state and local taxes and may be a preference item for
purposes of the alternative minimum tax. As discussed under
Description of the Trust--Taxes, interest on some or all of the
Securities may become subject to regular Federal income tax,
perhaps retroactively to their date of issuance, as a result of
changes in Federal law or as a result of the failure of issuers
(or other users of the proceeds of the municipal
organizations) to comply with certain ongoing requirements.
The Internal Revenue Service announced on June 14, 1993
that it will be expanding its examination program with respect
to tax-exempt bonds. The expanded examination program will
consist of, among other measures, increased enforcement
against abusive transactions, broader audit <PAGE>coverage
(including the expected issuance of audit guidelines) and
expanded compliance achieved by means of expected revisions
to the tax-exempt bond information return forms. At this
time, it is uncertain whether the tax exempt status of any of
the Debt Obligations would be affected by the expanded
examination program, or whether such effect, if any, would be
retroactive.
In certain cases, a Security may provide that if the interest on
the Security should ultimately be determined to be taxable,
the Security would become due and payable by its issuer, and,
in addition, may provide that any related letter of credit or
other security could be called upon if the issuer failed to
satisfy all or part of its obligation. In other cases, however, a
Security may not provide for the acceleration or redemption
of the Security or a call upon the related letter of credit or
other security upon a determination of taxability. In those
cases in which a Security does not provide protection from a
determination of taxability or in which both the issuer and the
bank or other entity issuing the letter of credit or other
security are unable to meet their obligations to pay the
amounts due on the Security as a result of a determination of
taxability, the Trustee would be obligated to sell the Security
and, since it would be sold as a taxable security, it is expected
that it would have to be sold at a substantial discount from
current market price. In addition, as mentioned above,
Holders might be required to pay income tax on interest
received prior to the date of the determination of taxability.
The Portfolio
The Portfolio contains different issues of municipal debt
obligations with fixed final maturity dates, which on the Date
of Deposit were either rated in the category B or better by
either Standard & Poor's or Moody's or had, in the opinion of
the Sponsor, comparable credit characteristics. As used
herein the term "Securities" means the debt obligations
initially deposited in the Trust and described under Portfolio
and any substitute Securities acquired and held by the Trust
pursuant to the provisions of the Indenture (see
Administration of the Trust--Trust Supervision). See
Investment Summary for a summary of particular matters
relating to the Portfolio.
In selecting Securities for deposit in the Trust, the Sponsor
considered the following factors, among others: (i) whether
the Securities were rated in the category B or better by
Standard & Poor's or Moody's or, if unrated, had, in the
opinion of the Sponsor, comparable credit characteristics, (ii)
the yield and price of the Securities relative to other
comparable debt securities, (iii) the diversification of the
Portfolio as to various classifications, taking into account the
availability in the market of issues which meet the Trust's
criteria. Subsequent to the Date of Deposit, a Security may
cease to be rated by Standard & Poor's or Moody's or its
rating or ranking may be reduced. Neither event requires
elimination of that Security from the Portfolio, but may be
considered in the Sponsor's determination to direct the
disposal of the Security (see Administration of the Trust--
Trust Supervision).
The Sponsor has the power but not the obligation to direct
the disposition of Debt Obligations upon institution of certain
legal proceedings, default under certain documents adversely
affecting future declaration or payment of anticipated interest,
or a substantial decline in price or the occurrence of other
materially adverse market or credit factors, that in the opinion
of the Sponsor would make the retention of such Debt
Obligations detrimental to the interests of the Holders
(Section 3.09).
<PAGE>The yields on debt obligations of the type deposited
in the Trust are dependent on a variety of factors, including
general money market conditions, general conditions of the
municipal bond market, size of a particular offering, the
maturity of the obligation and rating of the issue. The ratings
represent the opinions of the rating organizations as to the
quality of the debt obligations which they undertake to rate.
It should be emphasized, however, that ratings are general and
are not absolute standards of quality. Investors should be
aware that credit ratings of debt securities evaluate the ability
of the issuer to pay interest and principal but do not evaluate
the risk of decline in the market value of the debt securities
for other reasons. Consequently, debt obligations with the
same maturity, coupon and rating may have different yields,
while debt obligations of the same maturity and coupon with
different ratings may have the same yield.
The Trust consists of the Securities listed under Portfolio
(including any substitute debt obligations deposited in the
Trust pursuant to the terms of the Indenture) as long as they
may continue to be held from time to time in the Trust
together with accrued and undistributed interest thereon and
undistributed and uninvested cash realized from the
disposition or redemption of Securities (see Administration of
the Trust--Trust Supervision).
Income; Estimated Current Return; Estimated Long-Term
Return
The estimated net annual interest rate per 1,000 Units on the
Evaluation Date is set forth under Investment Summary. This
rate shows the percentage return based on face amount per
1,000 Units after deducting estimated annual fees and
expenses expressed as a percentage and assumes the timely
payment of all interest. This rate will change as Securities
mature, are exchanged, redeemed, paid or sold or as the
expenses of the Trust change.
Normally, interest on the Securities in the Trust is paid on a
semi-annual (or less frequently, annual) basis. Because
interest on the Securities is not received by the Trust at a
constant rate throughout the year, any Monthly Income
Distribution may be more or less than the interest actually
received by the Trust. In order to eliminate fluctuations, the
Trustee is required to advance the amounts necessary to
provide approximately equal Monthly Income Distributions.
The Trustee will be reimbursed, without interest, for these
advances from interest received on the Securities.
In addition to the Public Offering Price, the price of a Unit
includes accrued interest on the Securities. Because of the
varying payment dates of the Securities, accrued interest at
any time will be greater than the amount of interest actually
received by the Trust and distributed to Holders. Therefore,
accrued interest (if any) is always added to the value of the
Units. If a Holder sells all or a portion of his Units, he will
receive his proportionate share of the accrued interest from
the purchaser of his Units. Similarly, if a Holder redeems all
or a portion of his Units, the Redemption Price per Unit will
include accrued interest on the Securities.
Interest on the Securities in the Trust, less estimated fees of
the Trustee and Sponsor and certain other expenses, is
expected to accrue at the daily rate (based on a 360-day year)
shown under Investment Summary. The actual daily rate will
vary as Securities are exchanged, redeemed, paid or sold or as
the expenses of the Trust change.
Estimated Current Return and Estimated Long Term Return
give different information about the return to investors.
Estimated Current Return on a Unit represents annual cash
receipts from <PAGE>coupon-bearing debt obligations in
the Portfolio (after estimated annual expenses) divided by the
Public Offering Price (including the sales charge).
Unlike Estimated Current Return, Estimated Long Term
Return is a measure of the estimated return to the investor
earned over the estimated life of the Trust. The Estimated
Long Term Return represents an average of the yields to
maturity (or earliest call date for obligations trading at prices
above the particular call price) of the Debt Obligations in the
Portfolio, calculated in accordance with accepted bond
practice and adjusted to reflect expenses and sales charges.
Under accepted bond practice, bonds are customarily offered
to investors on a "yield price" basis, which involves
computation of yield to maturity (or earlier call date), and
which takes into account not only the interest payable on the
bonds but also the amortization or accretion to a specified
date of any premium over or discount from the par (maturity)
value in the bond's purchase price. In calculating Estimated
Long Term Return, the average yield for the Portfolio is
derived by weighting each Debt Obligation's yield by the
market value of the Debt Obligation and by the amount of
time remaining to the date to which the Debt Obligation is
priced. Once the average Portfolio yield is computed, this
figure is then adjusted for estimated expenses and the effect of
the maximum sales charge paid by investors. The Estimated
Long Term Return calculation does not take into account
certain delays in distributions of income and the timing of
other receipts and distributions on Units and may, depending
on maturities, over or understate the impact of sales charges.
Both of these factors may result in a lower figure.
Both Estimated Current Return and Estimated Long Term
Return are subject to fluctuation with changes in Portfolio
composition (including the redemption, sale or other
disposition of Debt Obligations in the Portfolio), changes in
market value of the underlying Debt Obligations and changes
in fees and expenses, including sales charges. The size of any
difference between Estimated Current Return and Estimated
Long Term Return can also be expected to fluctuate at least
as frequently. In addition, both return figures may not be
directly comparable to yield figures used to easure other
investments, and since the return figures are based on certain
assumptions and variables the actual returns received by a
Unitholder may be higher or lower.
The Public Offering Price of Units will vary in accordance
with fluctuations in the prices of the Securities and the
applicable sales charges. Any change in either the net annual
interest rate per Unit or the Public Offering Price will result
in a change in the current return.
TAXES
The following discussion addresses only the tax consequences
of Units held as capital assets and does not address the tax
consequences of Units held by dealers, financial institutions or
insurance companies.
On the Date of Deposit for the Trust, Davis Polk &
Wardwell, special counsel for the Sponsor, rendered an
opinion under then existing law substantially to the effect
that:
The Trust is not an association taxable as a corporation for
Federal income tax purposes, and income received by the
Trust will be treated as the income of the Holders in the
manner set forth below.
<PAGE> Each Holder will be considered the owner of a
pro rata portion of each Debt Obligation in the Trust under
the grantor trust rules of Sections 671-679 of the Internal
Revenue Code of 1986, as amended (the "Code"). The total
cost to a Holder of his Units, including sales charges, is
allocated among his pro rata portion of each Security (in
proportion to the fair market values thereof on the date the
Holder purchases his Units) in order to determine his tax cost
for his pro rata portion of each Security.
Each Holder will be considered to have received the interest
on his pro rata portion of each Debt Obligation when interest
on the Debt Obligation is received by the Trust. In the
opinion of bond counsel (delivered on the date of issuance of
the Debt Obligation), such interest will be excludable from
gross income for regular Federal income tax purposes (except
in certain limited circumstances referred to below). Amounts
received by the Trust pursuant to a bank letter of credit,
guarantee or insurance policy with respect to payments of
principal, premium or interest on a Debt Obligation will be
treated for Federal income tax purposes in the same manner
as if such amounts were paid by the issuer of the Debt
Obligation.
The Trust may contain Debt Obligations which were originally
issued at a discount ("original issue discount"). In general,
original issue discount is defined as the difference between the
price at which a debt obligation was issued and its stated
redemption price at maturity. Original issue discount on a
tax-exempt obligation issued after September 3, 1982, and
acquired after March 1, 1984, is deemed to accrue as tax-
exempt interest over the life of the obligation under a formula
based on the compounding of interest. Original issue discount
on a tax-exempt obligation issued before July 1, 1982 is
deemed to accrue as tax-exempt interest ratably over the life
of the obligation. Original issue discount on any other tax-
exempt obligation is also deemed to accrue as tax-exempt
interest over the life of the obligation, although it is not clear
whether such accrual is ratable or is determined under a
formula based on the compounding of interest. If a Holder's
tax cost for his pro rata portion of a Debt Obligation issued
with original issue discount is greater than the "revised issue
price" thereof but less than its stated redemption price at
maturity, the Holder will be considered to have purchased his
pro rata portion of the Debt Obligation at an "acquisition
premium". Increases to the Holder's tax basis in his pro rata
portion of the Debt Obligation resulting from the accrual of
original issue discount will be reduced by the amount of such
acquisition premium. The above principles will apply to each
Holder's pro rata portion of any Debt Obligation originally
issued at a discount.
If a Holder's tax cost for his pro rata portion of a Debt
Obligation exceeds the redemption price at maturity thereof,
the Holder will be considered to have purchased his pro rata
portion of the Debt Obligation at a "premium". The Holder is
required to amortize the premium prior to the maturity of the
Debt Obligation. Such amortization is only an adjustment to
basis (i.e., a reduction of the Holder's tax cost) for his pro
rata portion of the Debt Obligation and does not result in any
deduction against the Holder's income. Therefore, under some
circumstances, a Holder may recognize taxable gain when his
pro rata portion of a Debt Obligation is disposed of for an
amount equal to or less than his original tax cost therefor.
A Holder will recognize taxable gain or loss when all or part
of his pro rata portion of a Debt Obligation is disposed of for
an amount greater or less than his original tax cost therefor
plus any accrued original issue discount or minus any
amortized premium. Under current law, any gain recognized
on the disposition of a Holder's pro rata portion of a Debt
Obligation will be capital gain. However, under legislation
currently pending in the U.S. Congress, any gain from the
disposition <PAGE>of a Holder's pro rata portion of a Debt
Obligation acquired by the Holder at a "market discount" (i.e.,
where the Holder's original cost for his pro rata portion of the
Debt Obligation (plus any original issue discount which will
accrue thereon until its maturity) is less than its stated
redemption price at maturity) would be treated as ordinary
income to the extent the gain does not exceed the accrued
market discount attributable to the period during which the
Holder is treated as owning such Debt Obligation. Capital
gains are generally taxed at the same rate as ordinary income.
However, the excess of net long-term capital gains over net
short-term capital losses may be taxed at a lower rate than
ordinary income for certain noncorporate taxpayers.
Moreover, under the currently pending legislation, the
maximum rate of income tax on ordinary income for
noncorporate taxpayers would be increased to 36 percent,
subject to a 10% surtax on incomes over $250,000. Under
such legislation, the maximum rate for net long-term gain over
net short-term capital loss would remain at 28 percent, subject
to a 10% surtax on incomes over $250,000. A capital gain or
loss is long-term if the asset is held for more than one year
and short-term if held for one year or less. The deduction of
capital losses is subject to limitations. A Holder will be
considered to have disposed of all or part of his pro rata
portion of each Debt Obligation when he sells or redeems all
or some of his Units or when all or part of the Debt
Obligation is sold by the Trust or is redeemed or paid at
maturity.
Under Section 265 of the Code, a Holder (except a corporate
Holder) will not be entitled to deduct his pro rata share of
fees and expenses of the Trust because the fees and expenses
are incurred in connection with the production of tax-exempt
income. Further, if borrowed funds are used by a Holder to
purchase or carry Units, interest on this indebtedness will not
be deductible for Federal income tax purposes. In addition,
under rules used by the Internal Revenue Service, the
purchase of Units may be considered to have been made with
borrowed funds even though the borrowed funds are not
directly traceable to the purchase of Units.
Under the income tax laws of the State and City of New York,
the Trust is not an association taxable as a corporation and
income received by the Trust will be treated as the income of
the Holders in the same manner as for Federal income tax
purposes, but will not necessarily be tax-exempt.
From time to time proposals are introduced in Congress and
State legislatures which, if enacted into law, could have an
adverse impact on the tax-exempt status of Debt Obligations.
It is impossible to predict whether any legislation in respect of
the tax status of interest on such obligations may be proposed
and eventually enacted at the Federal or state level.
The foregoing discussion relates only to Federal and New
York State and City income taxes. Holders may be subject to
state and local taxation in New York or in other jurisdictions
and should consult their own tax advisers in this regard.
* * *
The Trust may include Debt Obligations issued after August 7,
1986. Interest on certain of these Debt Obligations (including
any original issue discount) is a preference item for purposes
of the alternative minimum tax ("AMT") for individuals and
corporations. See Investment Summary and Portfolio. In
addition, a corporate holder should be aware that the accrual
or receipt of tax-exempt interest not otherwise subject to the
AMT nonetheless may give rise to an alternative minimum tax
liability (or increase an existing liability) because the interest
income will be included <PAGE>in the corporation's
"adjusted current earnings" for purposes of the adjustment to
alternative minimum taxable income required by Section 56(g)
of the Code, and will be taken into account for purposes of
the environmental tax on corporations under Section 59A of
the Code, which is based on alternative minimum taxable
income. In addition, interest on the Debt Obligations must
be taken into consideration in computing the portion, if any,
of social security benefits that will be included in an
individual's gross income and subject to Federal income tax.
Holders are urged to consult their own tax advisers
concerning an investment in Units.
At the time of issuance of each Debt Obligation, an opinion
relating to the validity of the Debt Obligation and to the
exemption of interest thereon from regular Federal income
taxes was or will be rendered by bond counsel. Neither the
Sponsor nor Davis Polk & Wardwell have made or will make
any review of the proceedings relating to the issuance of the
Debt Obligations or the basis for these opinions. In the case
of certain Debt Obligations, the tax exemption is dependent
upon the issuer's (and other users') compliance with certain
ongoing requirements, and the opinion of bond counsel
assumes that these requirements will be complied with.
However, there can be no assurance that the issuer (and other
users) will comply with these requirements, in which event the
interest on the Debt Obligation could be determined to be
taxable, in most cases retroactively from the date of issuance.
In the case of certain of the Debt Obligations, the opinions of
bond counsel indicate that interest on these Debt Obligations
received by a "substantial user" of the facilities being financed
with the proceeds of these Debt Obligations, or persons
related thereto, for periods while these Debt Obligations are
held by such a user or related person, will not be exempt from
regular Federal income taxes, although interest on these Debt
Obligations received by others would be exempt from regular
Federal income taxes. "Substantial user" is defined under U.S.
Treasury Regulations to include only a person whose gross
revenue derived with respect to the facilities financed by the
issuance of bonds is more than 5% of the total revenue
derived by all users of these facilities, or who occupies more
than 5% of the usable area of these facilities or for whom
these facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" are defined to
include certain related natural persons, affiliated corporations,
partners and partnerships.
After the end of each calendar year, the Trustee will furnish
to each Holder an annual statement containing information
relating to the interest received by the Trust on the Debt
Obligations, the gross proceeds received by the Trust from the
disposition of any Debt Obligation (resulting from redemption
or payment at maturity of any Debt Obligation or the sale by
the Trust of any Debt Obligation), and the fees and expenses
paid by the Trust. The Trustee will also furnish annual
information returns to each Holder and to the Internal
Revenue Service. Holders are required to report to the
Internal Revenue Service the amount of tax-exempt interest
received during the year.
PUBLIC SALE OF UNITS
Public Offering Price
The Public Offering Price of the Units is computed by adding
to the bid side evaluation of the Securities (as determined by
the Evaluator), divided by the number of Units outstanding,
the sales charge at the applicable percentage of the bid side
evaluation per Unit. A proportionate share of accrued and
undistributed interest on the Securities to the date of delivery
of the Units to the purchaser is added to the Public Offering
Price. The Public Offering Price on the date of this
<PAGE>Prospectus or on any subsequent date will vary from
the Public Offering Price on the Evaluation Date (set forth
under Investment Summary) in accordance with fluctuations in
the aggregate bid side evaluation of the underlying Securities.
The applicable percentage of sales charge and the concession
to dealers referred to below under Public Distribution is
reduced on a graduated scale for sales to any purchaser of at
least 100,000 Units and will be applied on whichever basis is
more favorable to the purchaser. Sales charges are as follows:
Sales ChargeSales Charge
as Percent ofas Percent of
Bid Side PublicNet Amount
Number of UnitsOffering PriceInvested
1,000-99,9995.50%5.820%
100,000-249,9995.005.263
250,000-499,9994.504.172
500,000-999,9994.004.167
1,000,000 or more3.503.627
The above graduated sales charges will apply on all
purchases on any one day by the same purchaser of
Units only in the amounts stated. For this purpose
purchases of one or more Series sponsored by the
Sponsor that have the same rates of sales charge will
be aggregated with concurrent purchases of any other
unit trusts sponsored by the Sponsor. Units held in
the name of the spouse of the purchaser or in the
name of a child of the purchaser under 21 years of age
are deemed to be registered in the name of the
purchaser. The graduated sales charges are also
applicable to a trustee or other fiduciary purchasing
securities for a single trust estate or single fiduciary
account.
Employees of the Sponsor and its affiliates may
purchase Units of this Trust at a price equal to the bid
side evaluation of the Securities, divided by the
number of Units outstanding, plus a reduced sales
charge of 1.5%.
The aggregate bid side evaluations of the Securities
are determined by the Evaluator, taking into account
the same factors referred to under Redemption--
Computation of Redemption Price per Unit. This
determination is made each business day as of the
Evaluation Time set forth under Investment Summary,
effective for all sales made since the last of these
evaluations. The term "business day", as used herein
and under "Redemption", shall exclude Saturdays,
Sundays and the following holidays as observed by the
New York Stock Exchange: New Year's Day,
Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving and
Christmas.
Comparison of Public Offering Price,
Sponsor's Repurchase Price and Redemption Price
On the Evaluation Date, the Public Offering Price per
1,000 Units (which includes the sales charge) exceeded
the Sponsor's Repurchase Price and the Redemption
Price per 1,000 Units by the amount set forth under
Investment Summary.
<PAGE>In the past, the bid prices of publicly
offered issues of "high yield" bonds have been lower
than the offering prices by as much as 1.50% or more
of face amount in the case of inactively traded issues
and as little as .25% in the case of actively traded
issues, but the difference between the offering and bid
prices has averaged about 1.00% of face amount. For
this and other reasons (including fluctuations in the
market prices of the Securities, and the fact that the
Public Offering Price includes the sales charge), the
amount realized by a Holder upon any redemption of
Units may be less than the price paid by him for the
Units.
Public Distribution
Units may be offered directly to the public by this
Prospectus at the Public Offering Price determined in
the manner provided above.
The Sponsor has qualified Units in all states in the
U.S. in which qualification is deemed necessary for
sale by itself and by dealers who are members of the
National Association of Securities Dealers, Inc. Sales
to individuals in California are restricted to persons
who have (i) annual income of at least $30,000 and a
net worth of at least $30,000, exclusive of home, home
furnishings and automobiles or (ii) net worth of at
least $75,000, exclusive of home, home furnishings and
automobiles. The Sponsor does not intend to qualify
Units for sale in any foreign countries and this
Prospectus does not constitute an offer to sell Units in
any country where Units cannot lawfully be sold.
Sales to dealers, if any, will initially be made at prices
which represent a concession of the amount per 1,000
Units specified in the table above, but the Sponsor
reserves the right to change the amount of the
concession to dealers from time to time. Any dealer
may reallow a concession not in excess of the
concession to dealers.
Sponsor's Profits
Upon sale of the Units, the Sponsor will receive sales
charges at the rates set forth in the table above. Cash,
if any, made available by buyers of Units to the
Sponsor prior to the settlement date for purchase of
Units may be used in the Sponsor's business subject to
the limitations of Rule 15c3-3 under the Securities
Exchange Act of 1934 and may be of benefit to the
Sponsor. In maintaining a market for the Units (see
Market for Units), the Sponsor will also realize profits
or sustain losses in the amount of any difference
between the prices at which it buys Units and the
prices at which it resells these Units (which include
the sales charge) or the prices at which it redeems the
Units (based on the bid side evaluation of the
Securities), as the case may be.
MARKET FOR UNITS
Although the Sponsor is not obligated to do so, it
intends to maintain a secondary market for Units of
this Series and continuously to offer to purchase Units
of this Series at prices, subject to change at any time,
which will be computed on the basis of the bid side of
the market, taking into account the same factors
referred to in determining the bid side evaluation of
Securities for purposes of redemption (see
Redemption). The Sponsor may discontinue
purchases of Units of this Series should the supply of
Units exceed demand or for other business reasons.
In this event the Sponsor may nonetheless under
certain circumstances purchase Units, as a service to
Holders, at prices based on the current redemption
prices for those Units (see Redemption). The
Sponsor, of course, does <PAGE>not in any way
guarantee the enforceability, marketability or price of
any Securities in the Portfolio or of the Units.
The Sponsor may redeem any Units it has purchased
in the secondary market if it determines that it is
undesirable to continue to hold these Units in its
inventory. Factors which the Sponsor will consider in
making this determination will include the number of
units of all series of all trusts that it holds in its
inventory, the saleability of the units and its estimate
of the time required to sell the units and general
market conditions. For a description of certain
consequences of any redemption for remaining
Holders, see Redemption.
Holders who wish to dispose of their Units should
inquire of the Trustee or their bank or broker as to
current market prices in order to determine if there
exist over-the-counter prices in excess of the
redemption price and the repurchase price.
REDEMPTION
Although it is anticipated that Units in most cases can
be sold in the over-the-counter market at a price per
1,000 Units that will at least equal the Redemption
Price per 1,000 Units (see Market for Units), Units
may be redeemed at the office of the Trustee upon
delivery on any business day, as defined under Public
Sale of Units--Public Offering Price, of a request for
redemption, and payment of any relevant tax, without
any other fee (Section 5.02). In certain instances the
Trustee may require additional documents including,
but not limited to, trust instruments, certificates of
death, appointments as executor or administrator or
certificates of corporate authority.
On the seventh calendar day following the tender (or
if the seventh calendar day is not a business day on
the first business day prior thereto), the Holder will be
entitled to receive the proceeds of the redemption in
an amount per 1,000 Units equal to the Redemption
Price per 1,000 Units (see below) as determined as of
the Evaluation Time next following the tender. So
long as the Sponsor is maintaining a market at prices
equal to or in excess of the Redemption Price per
1,000 Units, the Sponsor will repurchase any Units
tendered for redemption no later than the close of
business on the second business day following the
tender (see Market for Units). The Trustee is
authorized in its discretion, if the Sponsor does not
elect to repurchase any Units tendered for redemption
or if the Sponsor tenders Units for redemption, to sell
the Units in the over-the-counter market at prices
which will return to the Holder a net amount in cash
equal to or in excess of the Redemption Price per
1,000 Units for the Units (Section 5.02).
The Trustee is empowered to sell Securities in order
to make funds available for redemption (Section 5.02)
if funds are not otherwise available in the Capital and
Income Accounts to meet redemptions (see
Administration of the Trust--Accounts and
Distributions). The Securities to be sold will be
selected from a list supplied by the Sponsor. Securities
will be chosen for this list by the Sponsor on the basis
of those market and credit factors as it may determine
are in the best interests of the Trust. Provision is
made under the Indenture for the Sponsor to specify
minimum face amounts in which blocks of Securities
are to be sold in order to obtain the best price for the
Trust.
To the extent that Securities are sold, the size and
diversity of the Trust will be reduced. Sales will
usually be required at a time when Securities would
not otherwise be sold and may result in lower prices
than might otherwise be realized. The price received
upon redemption may be more or less than the
amount paid by the Holder depending on the value of
the Securities in the Portfolio <PAGE>at the time of
redemption. In addition, because of the minimum
face amounts in which Securities are required to be
sold, the proceeds of sale may exceed the amount
required at the time to redeem Units; these excess
proceeds will be distributed to Holders (see
Administration of the Trust--Trust Supervision).
The right of redemption may be suspended and
payment postponed (1) for any period during which
the New York Stock Exchange, Inc. is closed other
than for customary weekend and holiday closings, (2)
for any period during which, as determined by the
Securities and Exchange Commission, (i) trading on
that Exchange is restricted or (ii) an emergency exists
as a result of which disposal or evaluation of the
Securities is not reasonably practicable or (3) for any
other periods which the Commission may by order
permit (Section 5.02).
Computation of Redemption Price per 1,000 Units
Redemption Price per 1,000 Units is computed by the
Trustee, as of the Evaluation Time, on each June 30
and December 31 (or the last business day prior
thereto), on any business day as of the Evaluation
Time next following the tender of any Unit for
redemption, and on any other business day desired by
the Trustee or the Sponsor, by adding (a) the
aggregate bid side evaluation of the Securities, (b)
cash on hand in the Trust (other than cash covering
contracts to purchase Securities), (c) accrued and
unpaid interest on the Securities up to but not
including the date of redemption and (d) all other
assets of the Trust; deducting therefrom the sum of (x)
taxes or other governmental charges against the Trust
not previously deducted, (y) accrued fees and expenses
of the Trustee (including legal and auditing expenses),
the Sponsor, the Evaluator and counsel, and certain
other expenses and (z) cash held for distribution to
Holders of record as of a date prior to the evaluation;
and dividing the result by the number of Units
outstanding as of the date of computation (Section
5.01).
The current aggregate bid side evaluation of the
Securities is determined by the Evaluator in the
following manner: if the Securities are listed on a
national securities exchange ("high yield" bonds are
usually not so listed), this evaluation is generally based
on the closing sale prices on that exchange (unless the
Evaluator deems these prices inappropriate as a basis
for valuation). If the Securities are not so listed or, if
so listed and the principal market therefor is other
than on the exchange or there are no closing sale
prices on the exchange, the evaluation shall generally
be based on the closing sale prices on the over-the-
counter market (unless the Evaluator deems these
prices inappropriate as a basis for evaluation). If
closing sale prices are unavailable, the evaluation is
generally determined (a) on the basis of current bid
side prices for the Securities, (b) if bid side prices are
not available for any Securities, on the basis of current
bid prices for comparable securities, (c) by appraising
the value of the Securities on the bid side of the
market or (d) by any combination of the above.
Among the factors which will be considered in
determining the value of any Restricted Securities are
(i) an estimate of the existence and extent of any
available market therefor, (ii) the extent of any
discount at which these Securities were acquired by
the Trust, (iii) the estimated period of time during
which these Securities will not be freely marketable,
(iv) the estimated expenses of qualifying these
Securities for public sale, (v) estimated underwriting
commissions, if any, and (vi) any credit or other
factors affecting the issuer or the guarantor of these
Securities. In making evaluations, opinions of counsel
may be relied upon as to whether any Securities are
Restricted Securities.
EXPENSES AND CHARGES
<PAGE>Fees
The Trustee's, Sponsor's and Evaluator's fees are set
forth under Investment Summary. The Sponsor's fee,
which is earned for trust supervisory services, is based
on the face amount of Securities in the Trust at the
beginning of each annual period. The Sponsor's fee,
which is not to exceed the maximum amount set forth
under Investment Summary, may exceed the actual
costs of providing supervisory services for this Trust,
but at no time will the total amount it receives for
trust supervisory services rendered to all series of
Smith Barney Unit Trusts in any calendar year exceed
the aggregate cost to it of supplying these services in
that year (Section 7.04). The Sponsor may also be
reimbursed for bookkeeping and other administrative
services provided to the Trust in amounts not
exceeding its costs of providing these services. The
Trustee's fees, payable in monthly installments, are
based on the face amount of Securities in the Trust at
the beginning of each monthly period. Certain regular
and recurring expenses of the Trust, including the
Evaluator's fee and certain mailing and printing
expenses, are borne by the Trust (Section 3.14). The
Trustee also receives benefits to the extent that it
holds funds on deposit in the various non-interest
bearing accounts created under the Indenture. The
foregoing fees may be adjusted for inflation in
accordance with the terms of the Indenture without
approval of Holders (Sections 4.02, 7.06 and 8.05).
Other Charges
These include: (a) fees of the Trustee for
extraordinary services (Section 8.05), (b) certain
expenses of the Trustee (including legal and auditing
expenses) and of counsel designated by the Sponsor
(Sections 3.04, 3.08, 8.01 and 8.05), (c) various
governmental charges (Sections 3.03 and 8.01 (h)), (d)
expenses and costs of action taken to protect the Trust
(Section 8.01 (d)), (e) indemnification of the Trustee
for any losses, liabilities and expenses incurred without
gross negligence, bad faith or wilful misconduct on its
part (Section 8.05), (f) indemnification of the Sponsor
for any losses, liabilities and expenses incurred without
gross negligence, bad faith, wilful misconduct or
reckless disregard of its duties (Section 7.03(b)) and
(g) expenditures incurred in contacting Holders upon
termination of the Trust (Section 9.02). The amounts
of these charges and fees are secured by a lien on the
Trust and, if the balances in the Income and Capital
Accounts (see below) are insufficient, the Trustee has
the power to sell Securities to pay these amounts
(Section 8.05).
ADMINISTRATION OF THE TRUST
Records
The Trustee keeps a register of the names, addresses
and holdings of all Holders. The Trustee also keeps
records of the transactions of the Trust, including a
current list of the Securities and a copy of the
Indenture, which are available to Holders for
inspection at the office of the Trustee at reasonable
times during business hours (Sections 6.01, 8.02 and
8.04).
Accounts and Distributions
Interest received is credited to an Income Account
and other receipts to a Capital Account (Sections 3.01
and 3.02). The Monthly Income Distribution for each
Holder as of each Record Day will be made on the
following Distribution Day or shortly thereafter and
shall consist of an amount <PAGE>substantially
equal to one-twelfth of the Holder's pro rata share of
the estimated annual income to the Income Account,
after deducting estimated expenses, plus that Holder's
pro rata share of the distributable cash balance of the
Capital Account computed as of the close of business
on the preceding Record Day. Estimates of the
amounts of the Monthly Income Distributions are set
forth under Investment Summary. Proceeds received
from the disposition, payment or prepayment of any of
the Securities subsequent to a Record Day and prior
to the succeeding Distribution Day will be held in the
Capital Account to be distributed on the second
succeeding Distribution Day. The first distribution for
persons who purchase Units between a Record Day
and a Distribution Day will be made on the second
Distribution Day following their purchase of Units.
No distribution need be made from the Capital
Account if the balance therein is less than the amount
set forth under Investment Summary (Section 3.04). A
Reserve Account may be created by the Trustee by
withdrawing from the Income or Capital Accounts,
from time to time, those amounts as it deems requisite
to establish a reserve for any taxes or other
governmental charges that may be payable out of the
Trust (Section 3.03). Funds held by the Trustee in the
various accounts created under the Indenture do not
bear interest (Section 8.01).
Trust Supervision
The Trust is a unit investment trust and is not a
managed fund. Traditional methods of investment
management for a managed fund typically involve
frequent changes in a portfolio of securities on the
basis of economic, financial and market analyses. The
Portfolio of the Trust, however, will not be managed
and therefore the adverse financial condition of an
issuer will not necessarily require the sale of its
securities from the Portfolio. However, the Sponsor
may direct the disposition of Securities upon default in
payment of amounts due on any of the Securities,
institution of certain legal proceedings, default in
payment of amounts due on other securities of the
same issuer or guarantor, or decline in price or the
occurrence of other market or credit factors that in
the opinion of the Sponsor would make the retention
of these Securities detrimental to the interest of the
Holders (Section 3.06). If a default in the payment of
amounts due on any Security occurs and if the
Sponsor fails to give instructions to sell or hold that
Security, the Indenture provides that the Trustee,
within 30 days of that failure by the Sponsor, shall sell
the Security (Section 3.10).
The Sponsor is required to instruct the Trustee to
reject any offer made by an issuer of any of the
Securities to issue new Securities in exchange or
substitution for any Securities pursuant to a refunding
or refinancing plan, except that the Sponsor may
instruct the Trustee to accept or reject any offer or to
take any other action with respect thereto as the
Sponsor may deem proper if (a) the issuer is in
default with respect to these Securities or (b) in the
written opinion of the Sponsor the issuer will probably
default with respect to these Securities in the
reasonably foreseeable future. Any Securities 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 Securities originally
deposited thereunder. Within five days after the
deposit of Securities in exchange or substitution for
underlying Securities, the Trustee is required to give
notice thereof to each Holder, identifying the
Securities eliminated and the Securities substituted
therefor (Section 3.07). Except as stated herein, the
acquisition by the Trust of any securities other than
the Securities initially deposited is prohibited.
Reports to Holders
The Trustee will furnish Holders with each
distribution a statement of the amounts of interest and
the amounts of other receipts, if any, which are being
distributed, expressed in each case as a
<PAGE>dollar amount per Unit. After the end of
each calendar year, the Trustee will furnish to each
person who at any time during the calendar year was a
Holder of record, a statement (i) summarizing
transactions for that year in the Income and Capital
Accounts, (ii) identifying Securities sold and purchased
during the year and listing Securities held and the
number of Units outstanding at the end of that
calendar year, (iii) stating the Redemption Price per
Unit based upon the computation thereof made at the
end of that calendar year and (iv) specifying the
amounts distributed during that calendar year from
the Income and Capital Accounts (Section 3.06). The
accounts of the Trust shall be audited at least annually
by independent certified public accountants designated
by the Sponsor and the report of the accountants shall
be furnished by the Trustee to Holders upon request
(Section 8.01 (e)).
In order to enable them to comply with Federal and
state tax reporting requirements, Holders will be
furnished upon request to the Trustee with evaluations
of Securities furnished to it by the Evaluator (Section
4.02).
Evidence of Ownership
Each purchaser is entitled to receive, on request,
without charge (except perhaps a small mailing
charge) a registered Certificate for his Units. These
Certificates are transferable or interchangeable upon
presentation at the office of the Trustee, with a
payment of $2.00 if required by the Trustee (or other
amounts specified by the Trustee and approved by the
Sponsor) for each new Certificate and any sums
payable for taxes or other governmental charges
imposed upon the transaction (Section 6.01) and
compliance with the formalities necessary to redeem
Certificates (see Redemption). Mutilated, destroyed,
stolen or lost Certificates will be replaced upon
delivery of satisfactory indemnity and payment of
expenses incurred (Section 6.02).
Amendment and Termination
The Sponsor and Trustee may amend the Indenture,
without the consent of the Holders, (a) to cure any
ambiguity or to correct or supplement any provision
thereof which may be defective or inconsistent, (b) to
change any provision thereof as may be required by
the Securities and Exchange Commission or any
successor governmental agency or (c) to make any
other provisions which do not materially adversely
affect the interest of the Holders (as determined in
good faith by the Sponsor). The Indenture may also
be amended in any respect by the Sponsor and the
Trustee, or any of the provisions thereof may be
waived, with the consent of the Holders of 51% of the
Units, provided that none of these amendments or
waivers will reduce the interest in the Trust of any
Holder without the consent of the Holder or reduce
the percentage of Holders of Units required to
consent to any of these amendments or waivers
without the consent of all Holders (Section 10.01).
The Indenture will terminate upon the earlier of the
disposition of the last Security held thereunder or the
mandatory termination date. The Indenture may be
terminated by the Sponsor if the value of the Trust is
less than the minimum value set forth under
Investment Summary, and may be terminated at any
time by Holders of 51% of the Units (Sections 8.01
(g) and 9.01). The Trustee will deliver written notice
of any termination to each Holder within a reasonable
period of time prior to the termination. Within a
reasonable period of time after the termination, the
Trustee must sell all of the Securities then held and
distribute to each Holder, after deductions for accrued
but unpaid fees, taxes and governmental and other
charges, the Holder's interest in the Income and
Capital Accounts (Section 9.01). This distribution will
normally be made by mailing a check in the amount
<PAGE>of each Holder's interest in these accounts
to the address of the Holder appearing on the record
books of the Trustee.
<PAGE>
<PAGE>
RESIGNATION, REMOVAL AND LIMITATIONS
ON LIABILITY
Trustee
The Trustee or any successor may resign upon notice
to the Sponsor. The Trustee may be removed upon
the direction of the Holders of 51% of the Units at
any time or by the Sponsor without the consent of any
of the Holders if the Trustee becomes incapable of
acting or becomes bankrupt or its affairs are taken
over by public authorities. The resignation or removal
shall become effective upon the acceptance of
appointment by the successor. In case of resignation
or removal the Sponsor is to use its best efforts to
appoint a successor promptly and if upon resignation
of the Trustee no successor has accepted appointment
within thirty days after notification, the Trustee may
apply to a court of competent jurisdiction for the
appointment of a successor (Section 8.06). The
Trustee shall be under no liability for any action taken
in good faith in reliance on prima facie properly
executed documents or for the disposition of moneys
or Securities, nor shall it be liable or responsible in
any way for depreciation or loss incurred by reason of
the sale of any Security. This provision, however, shall
not protect the Trustee in cases of wilful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations and duties. In the event of the failure of
the Sponsor to act, the Trustee may act under the
Indenture and shall not be liable for any of these
actions taken in good faith. The Trustee shall not be
personally liable for any taxes or other governmental
charges imposed upon or in respect of the Securities
or upon the interest thereon. In addition, the
Indenture contains other customary provisions limiting
the liability of the Trustee (Sections 3.06, 3.09, 8.01
and 8.05).
Evaluator
The Evaluator may resign or may be removed,
effective upon the acceptance of appointment by its
successor, by the Sponsor, who is to use its best efforts
to appoint a successor promptly. If upon resignation
of the Evaluator no successor has accepted
appointment within thirty days after notification, the
Evaluator may apply to a court of competent
jurisdiction for the appointment of a successor
(Section 4.04). Determinations by the Evaluator under
the Indenture shall be made in good faith upon the
basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability
to the Trustee, the Sponsor or the Holders for errors
in judgment. This provision, however, shall not
protect the Evaluator in cases of wilful misfeasance,
bad faith, gross negligence or reckless disregard of its
obligations and duties (Section 4.04). The Trustee,
the Sponsor and the Holders may rely on any
evaluation furnished by the Evaluator and shall have
no responsibility for the accuracy thereof.
Sponsor
The Sponsor may resign at any time if a successor
Sponsor is appointed by the Trustee in accordance
with the Indenture. Any new Sponsor must have a
minimum net worth of $2,000,000 and must serve at
rates of compensation deemed by the Trustee to be
reasonable and as may not exceed amounts prescribed
by the Securities and Exchange Commission. If the
Sponsor fails to perform its duties or becomes
incapable of acting or becomes bankrupt or its affairs
are taken over by public authorities, then the Trustee
may (1) appoint a successor Sponsor at rates of
compensation deemed by the Trustee to be reasonable
and as may not exceed amounts prescribed by the
Securities <PAGE>and Exchange Commission, (2)
terminate the Indenture and liquidate the Trust or (3)
continue to act as Trustee without terminating the
Indenture.
The Sponsor is under no liability to the Trust or to the
Holders for taking any action or for refraining from
taking any action in good faith or for errors in
judgment and will not be liable or responsible in any
way for depreciation of any Security or Units or loss
incurred in the sale of any Security or Units. This
provision, however, will not protect the Sponsor in
cases of wilful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations and duties
(Section 7.03). The Sponsor may transfer all or
substantially all of its assets to a corporation or
partnership which carries on its business and duly
assumes all of its obligations under the Indenture and
in that event it will be relieved of all further liability
under the Indenture.
MISCELLANEOUS
Trustee
The Trustee is United States Trust Company of New
York, with its principal place of business at 114 West
47th Street, New York, New York 10036. United
States Trust Company of New York has, since its
establishment in 1853, engaged primarily in the
management of trust and agency accounts for
individuals and corporations. The Trustee is a
member of the New York Clearing House Association
and is subject to supervision and examination by the
Superintendent of Banks of the State of New York,
the Federal Deposit Insurance Corporation and the
Board of Governors of the Federal Reserve System.
In connection with the storage and handling of
certain Bonds deposited in any of the State Trusts, the
Trustee may use the services of the Depository Trust
Company. These services may include safekeeping of
the Bonds and coupon-clipping, computer book-entry
transfer and institutional delivery services. The
Depository Trust Company is a limited purpose trust
company organized under the Banking Law of the
State of New York, a member of the Federal Reserve
System and a clearing agency registered under the
Securities Exchange Act of 1934.
Legal Opinion
The legality of the Units has been passed upon by
Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York 10017, as counsel for the Sponsor.
Auditors
The financial statements included in this Prospectus
have been included in reliance upon the report of
Coopers & Lybrand, independent accountants, given
on the authority of that firm as experts in accounting
and auditing.
Sponsor
The Sponsor, Smith Barney Inc. ("Smith Barney"), an
investment banking and securities broker-dealer firm,
is a member of the New York Stock Exchange, Inc.,
other major securities exchanges and commodity
exchanges, and the National Association of Securities
Dealers, Inc. Smith Barney is an indirect wholly-
owned subsidiary of The Travelers Inc. In July, 1993,
Smith Barney, Harris Upham & Co. Incorporated and
Primerica Corporation (now The Travelers Inc.)
<PAGE>acquired the assets of the domestic retail
brokerage and asset management business of Shearson
Lehman Brothers Inc., previously the Sponsor of this
Trust. Smith Barney was incorporated in 1960 under
the laws of the State of Delaware and its history can
be traced through predecessor partnerships to 1873.
Smith Barney is engaged in the securities
underwriting and securities and commodities
brokerage business with over 100 branch offices
throughout the world and more than 6,000
employees. It acts as sponsor of numerous unit
investment trust funds and as a principal underwriter
of other investment companies. Smith Barney acts as
investment adviser to various individual and
institutional clients whose portfolios include corporate,
United States Government and municipal securities.
Affiliates of Smith Barney are investment managers
of other investment companies, including money
market funds, with assets in excess of $50 billion. The
principal executive offices of Smith Barney are
located at 1345 Avenue of the Americas, New York,
New York 10105.
DESCRIPTION OF RATINGS (as described by the
rating companies themselves)
Standard & Poor's Corporation
A--Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in
higher rated categories.
BBB--Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal.
Whereas it normally exhibits 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 debt in
this category than in higher rated categories.
BB, B, CCC, CC--Debt rated BB, B, CCC and CC is
regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay
principal in accordance with the terms of the
obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation.
Although such bonds will likely have some quality and
protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse
conditions.
BB--Debt rated `BB' has less near-term vulnerability
to default than other speculative issues. However, it
faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions
which could lead to inadequate capacity to meet
timely interest and principal payments. The `BB' rating
category is also used for debt subordinated to senior
debt that is assigned an actual or implied `BBB -'
rating.
B--Debt rated `B' has a greater vulnerability to default
but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay
principal. The `B' rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied `BB' or `BB -' rating.
CCC--Debt rated `CCC' has a currently identifiable
vulnerability to default, and is dependent upon
favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial,
or economic conditions, it is not <PAGE>likely to
have the capacity to pay interest and repay principal.
The `CCC' rating category is also used for debt
subordinated to senior debt that is assigned an actual
or implied `B' or `B -' rating.
CC--the rating `CC' is typically applied to debt
subordinated to senior debt that is assigned an actual
or implied `CCC' rating.
C--The rating `C' is typically applied to debt
subordinated to senior debt which is assigned an
actual or implied `CCC -' debt rating. The `C' rating
may be used to cover a situation where a bankruptcy
petition has been filed, but debt service payments are
continued.
CI--The rating `CI' is reserved for income bonds on
which no interest is being paid.
D--Debt rated `D' is in payment default. The `D'
rating category is used when interest payments or
principal payments are not made on the date due even
if the applicable grace period has not expired, unless
S&P believes that such payments will be made during
such grace period. The `D' rating also will be used
upon the filing of a bankruptcy petition if debt service
payments are jeopardized.
NR--Indicates that no rating has been requested, that
there is insufficient information on which to base a
rating or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
The ratings may be modified by the addition of a plus
or minus sign to show relative standing within the
major rating categories.
A provisional rating, indicated by "p" following a
rating, assumes the successful completion of the
project being financed by the issuance of the debt
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, makes no comment on the
likelihood of, or the risk of default upon failure of,
such completion.
Moody's Investors Service
A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as
upper medium grade obligations. Factors giving
security to principal and interest are considered
adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as
medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and
principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of
time. Such bonds lack outstanding investment
characteristics and in fact have speculative
characteristics as well.
Ba--Bonds which are rated Ba are judged to have
speculative elements; their future cannot be
considered as well-assured. Often the protection of
interest and principal may be very moderate
<PAGE>and thereby not well safeguarded during
both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B--Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance
of interest and principal payments or of maintenance
of other terms of the contract over any long period of
time may be small.
Caa--Bonds which are rated Caa are of poor standing.
Such issues may be in default or there may be present
elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues
are often in default or have other marked
shortcomings.
C--Bonds which are rated C are the lowest rated class
of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real
investment standing.
NR--Should no rating be assigned, the reason may be
one of the following: (a) an application for rating was
not received or accepted; (b) the issue or issuer
belongs to a group of securities that are not rated as a
matter of policy; (c) there is a lack of essential data
pertaining to the issue or issuer; or (d) the issue was
privately placed, in which case the rating is not
published in Moody's publications.
Moody's applies numerical modifiers 1, 2, and 3 in
generic rating classifications in its corporate bond
rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating
category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Conditional ratings, indicated by "Con", are given to
bonds for which the security depends upon the
completion of some act or the fulfillment of some
condition. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects
unseasoned in operating experience, (c) rentals which
begin when facilities are completed, or (d) payments
to which some other limiting condition attaches. A
parenthetical rating denotes probable credit stature
upon completion of construction or elimination of
basis of condition.
<PAGE>
<TABLE>
HIGH YIELD MUNICIPAL SERIES 7
A UNIT INVESTMENT TRUST
PROSPECTUS
This Prospectus does not contain all of the information
set forth in the registration statements and exhibits
relating thereto which have been 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.
Index
<S><C>
Investment Summary2
Independent Auditors Report3
Report of Independent Accountants4
Financial Statements5
Portfolio12
Trust Structure13
Risk Factors14
Description of the Trust25
Taxes28
Public Sale of Units31
Market for Units33
Redemption34
Expenses and Charges35
Administration of the Trust36
Resignation, Removal and Limitations on Liability39
Miscellaneous40
Description of Ratings41
<S><C><C><C>
Sponsors:Evaluator:Trustee:Independent Auditors:
Smith Barney Inc.Kenny S&P EvaluationUnited States Trust KPMG Peat
Marwick LLP
Unit Trust Department Services Company of New York345 Park Avenue
Two World Trade Center65 Broadway114 West 47th StreetNew York, NY
10154
101st FloorNew York, New York 10006New York, NY 10036(212) 758-
9700
New York, New York 10048(212) 208-85801(800) 257-2356
1(800) 298-UNIT
No person is authorized to give any information or to make any
representations with respect to this investment company not contained in
this Prospectus, and any information or representations not contained
herein must not be relied upon as having been authorized. 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.
<PAGE>
</TABLE>
CONTENTS OF REGISTRATION STATEMENT
This Post-Effective Amendment to the Registration Statement
on Form S-6 comprises the following papers and documents:
The facing Sheet on Form S-6.
The cross-reference sheet(incorporated by reference to
the Cross-Reference Sheet to the Registration Statement
of High Yield Municipal Series 1, 1933
Act File No.33-15191).
The Prospectus.
The Signatures.
The following exhibits:
Consent of the Evaluator
Consent of KPMG Peat Marwick
Consent of Coopers & Lybrand
II-1
<PAGE>SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, High Yield Municipal Series 7 (a Unit Investment
Trust) certifies that it meets all the requirements for
effectiveness of this Post-Effective Amendment pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to be signed on its
behalf by the undersigned thereunto duly authorized, in the
City of New York, and State of New York on the 31st day of
October, 1994.
Signatures appear on pages II-3
A majority of the members of the Board of Directors of Smith
Barney Inc. have signed this Post-Effective Amendment
pursuant to Powers of Attorney authorizing the person signing
this Post-Effective Amendment to do so on behalf of such
members.
<PAGE>
TAX EXEMPT SECURITIES TRUST
BY SMITH BARNEY INC.
By
_________________________________________
(George S. Michinard, Jr.)
By the following persons*, who constitute a majority of
the
directors of Smith Barney Inc.:
Steven D. Black
James S. Boshart III
Robert A. Case
James Dimon
Robert Druskin
Robert F. Greenhill
Jeffrey B. Lane
Robert H. Lessin
John F. Lyness
Jack L. Rivkin
By
_________________________________________
(George S. Michinard, Jr.
Attorney-in-Fact)
* Pursuant to Powers of Attorney previously filed.
II-3
<PAGE>
KENNY S&P EVALUATION SERVICES
A Division of Kenny Information Systems, Inc.
65 Broadway
New York, New York, 10006-2511
Telephone 212/770-4000
Smith Barney Inc.
1345 Avenue of the Americas
New York, NY 10105
RE:High Yield Muni
Series 7
Gentlemen:
We have examined the post-effective Amendment
to the
Registration Statement File No. 33-21865 for the
above-captioned
trust. We hereby acknowledge that Kenny S&P
Evaluation Services,
a division of Kenny Information Systems, Inc. is currently
acting
as the evaluator for the trust. We hereby consent to the
use in
the Amendment of the reference to Kenny S&P
Evaluation Services,
a division of Kenny Information Systems, Inc. as
evaluator.
In addition, we hereby confirm that the ratings
indicated in the above-referenced Amendment to the
Registration
Statement for the respective bonds comprising the trust
portfolio
are the ratings currently indicated in our KENNYBASE
database.
You are hereby authorized to file a copy of this
letter
with the Securities and Exchange Commission.
Sincerely,
John R. Fitzgerald
Vice President
Chief Financial Officer
<PAGE>
CONSENT OF Independent AUDITORS
We consent to the use of our report dated December 13,
1994, on the statement of assets and liabilities of Smith
Barney Shearson Unit Trusts, High Yield Municipal
Series 7, including the schedule of portfolio investments,
as of September 30, 1994, and the related statements of
operations and changes in net assets for the year then
ended, and the selected supplemental per-unit data for
the year then ended, included herein and to the reference
to our firm under the heading "AUDITORS" in the
prospectus.
KPMG Peat Marwick LLP
New York, New York
December 22, 1994
<PAGE>
CONSENT OF INDEPENDENT
ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment
No. 6
to the Registration Statement on Form S-6 (File No.
33-21865)
of our report dated November 26, 1993, on our audit of
the
statements of operations and changes in net assets and
selected supplemental per-unit data of Smith Barney
Shearson Unit Trusts,High Yield Municipal Series 7
(formerly Shearson Lehman Brothers Unit Trusts,
High Yield Municipal Series 7). We also consent to
the reference to our firm under the caption
"Miscellaneous-Auditors."
COOPERS & LYBRAND
/s/COOPERS & LYBRAND
Boston, Massachusetts
January 12, 1995
