<PAGE>
Registration No. 33-28531
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. 4
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 12
(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 December 20,
1994
pursuant to paragraph (b) of Rule 485.
<PAGE>
<TABLE>
HIGH YIELD MUNICIPAL SERIES 12
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 December 20, 1994
Read and retain this Prospectus for future reference
<PAGE>
</TABLE>
<TABLE>
SMITH BARNEY INC. UNIT TRUSTS, HIGH
YIELD MUNICIPAL SERIES 12
INVESTMENT SUMMARY AS OF JUNE 30, 1994
(the Evaluation Date)
<S> <C>
Face Amount of SecuritiesA. . . . . . . . . . . . . $ 6,119,000AA
Number of Units . . . . . . . . . . . . . . . . . . 8,286,219
Face Amount of Securities per
1,000 Units. . . . . . . . . . . . . . . . . . . . $ 738.45
Fractional Undivided Interest in
Trust Represented by Each Unit . . . . . . . . . . 1/8,286,219th
Public Offering Price per 1,000 Units:
Aggregate bid side evaluation of
the underlying Securities plus
any undistributed principal . . . . . . . . . . $ 6,588,370*
Divided by 8,286,219 Units
times 1,000 . . . . . . . . . . . . . . . . . . $ 795.10
Plus sales charge (5.5% of Public
Offering Price, 5.82% of amount
invested in Securities)** . . . . . . . . . . . 46.27
Public Offering Price per
1,000 Units*. . . . . . . . . . . . . . . . . . $ 841.37***
Sponsor's Repurchase Price and
Redemption Price per 1,000 Units*
($60.65 less than Public Offering
Price per 1,000 Units)**** . . . . . . . . . . . . $ 1,042.02***
Premium and Discount Issues in Portfolio:
Face amount of Securities with
bid side evaluation -
Over par . . . . . . . . . . . . . . . . . . 75%
At par . . . . . . . . . . . . . . . . . . . 0%
Under par. . . . . . . . . . . . . . . . . . 25%
Calculation of Estimated Net Annual
Interest Rate per 1,000 Units:
Annual interest rate per
1,000 Units . . . . . . . . . . . . . . . . . . 6.29%
Less estimated annual expenses
per 1,000 Units expressed as
a percentage. . . . . . . . . . . . . . . . . . 0.204%
Estimated net annual interest
rate per 1,000 Units. . . . . . . . . . . . . . 6.086%
Daily Rate at which Estimated Net
Annual Income Accrues per
1,000 Units. . . . . . . . . . . . . . . . . . . . 0.0169%
Monthly Income Distributions per
1,000 Units. . . . . . . . . . . . . . . . . . . . $ 5.07
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.<PAGE>
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.A As of the Evaluation Date the value of the Trust
was 66% 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 . . . . . . . . . . . . . . . . 17
Number of Issues/Percentage of Aggregate
Face Amount of Portfolio Rated by:*****
Standard & Poor's Corporation -
AAA. . . . . . . . . . . . . . . . . . . . . . . . . . 1 (2%)
BBB. . . . . . . . . . . . . . . . . . . . . . . . . . 4 (20%)
BB . . . . . . . . . . . . . . . . . . . . . . . . . . 2 (12%)
B. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (8%)
Moody's Investors Service -
Aaa. . . . . . . . . . . . . . . . . . . . . . . . . . 1 (2%)
Baa. . . . . . . . . . . . . . . . . . . . . . . . . . 4 (19%)
Ba . . . . . . . . . . . . . . . . . . . . . . . . . . 3 (20%)
B. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 (3%)
Number of Issues Not Rated:****** . . . . . . . . . . . . . . 7 (51%)
Number of Issuers by Industry/
Industry Concentrations:
Hospitals. . . . . . . . . . . . . . . . . . . . . . . . . 4 (34%)
Housing. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Industrial Development Revenue . . . . . . . . . . . . . . 1
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . 2
Pollution Control. . . . . . . . . . . . . . . . . . . . . 2
Solid Waste Disposal . . . . . . . . . . . . . . . . . . . 1
State/Local Municipal Electric Utilities . . . . . . . . . 6
Percentage of Aggregate Face Amount of
Portfolio Comprised of:
Alternative Minimum Tax Bonds
(see Portfolio and Taxes) . . . . . . . . . . . . . . . . 0%
Obligations of issuers located in 3 States
of New Mexico (13%), Massachusetts (12%)
and Michigan (9%) . . . . . . . . . . . . . . . . . . . . 34%
<FN>
A On the Date of Deposit (April 21, 1989), the face
amount of Securities was $10,250,000.
AA 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>
Independent Auditors' Report
The Unitholders, Sponsor and Trustee of
Smith Barney Shearson Unit Trusts,
High Yield Municipal Series 12:
We have audited the accompanying statement of assets and
liabilities of Smith Barney Shearson Unit Trusts, High Yield
Municipal Series 12, including the schedule of portfolio investments,
as of June 30, 1994, 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 June 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 12 as of June
30, 1994, 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.
KPMG Peat Marwick LLP
October 28, 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Unitholders, Sponsor and Trustee of
Smith Barney Shearson Unit Trusts,
High Yield Municipal Series 12:
We have audited the accompanying statements
of operations and changes in net assets and the selected
supplemental per-unit data for the years ended
June 30, 1993 and 1992,of the Smith Barney
Shearson Unit Trusts,High Yield Municipal Series 12
(formerly Shearson Lehman Brothers Unit Trusts,
High Yield Municipal Series 12).
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 12 (formerly Shearson Lehman
Brothers Unit Trusts,High Yield Municipal Series 12)for
the years ended June 30, 1993 and 1992, for the years
ended June 30, 1993 and 1992, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts /s/COOPERS & LYBRAND
August 20, 1993
<PAGE>
<TABLE>
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
Statement of Assets and Liabilities
June 30, 1994
Assets:
<S> <C>
Investments in securities, at value (cost $5,949,588)
(see accompanying schedule of portfolio investments) $
6,588,304
Interest receivable 130,691
Cash - income account 96,715
Cash - principal account 67
Total assets 6,815,777
Liabilities:
Accrued fees and expenses 18,720
Accrued income distribution 42,094
Total liabilities 60,814
Net assets at June 30, 1994 equivalent to
$815.20 per 1,000 units on 8,286,219 units
of fractional undivided interest outstanding $6,754,963
Net assets consist of:
Cost of 10,250,000 units at date of deposit 10,557,139
Sales charge (475,088)
10,082,051
Accumulated cost of bonds sold or called (4,132,463)
Net unrealized appreciation 638,716
Undistributed net investment income 166,593
Undistributed proceeds from bonds sold or called 66
Net assets $6,754,963
See accompanying notes to financial statements.
PAGE
<PAGE>
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
Statements of Operations
Years ended June 30, 1994, 1993 and 1992
<S> <C> <C><C>
1994 1993 1992
Income:
Interest income $599,961 705,218 756,996
Total income 599,961 705,218 756,996
Total expenses (note 3) 23,921 18,222 20,214
Investment income - net 576,040 686,996 736,782
Realized and unrealized gain (loss)
on investments:
Net realized gain 58,290 53,647
Increase (decrease) in unrealized
appreciation of investments - net (127,263) 570,020 360,206
Net gain (loss) on investments (68,973) 570,020 413,853
Net increase in net assets
resulting from operations $507,067 1,257,016 1,150,635
See accompanying notes to financial statements.
PAGE
<PAGE>
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
Statements of Changes in Net Assets
Years ended June 30, 1994, 1993 and 1992
1994 1993 1992
Operations:
Investment income - net $576,040 686,996 736,782
Net realized gain 58,290 53,647
Increase (decrease) in unrealized
appreciation of investments - net (127,263) 570,020 360,206
Net increase in net assets
resulting from operations 507,067 1,257,016 1,150,635
Distributions to Unitholders (note 2):
Principal (1,979,890) (53,170) (299,950)
Investment income - net (584,431) (686,718) (740,193)
Total distributions (2,564,321) (739,888) (1,040,143)
Redemption of units (note 2):
Principal (19,567) (799,788)
Investment income - net (402) (17,431)
Total redemptions 19,969 (817,219)
Increase (decrease) in
net assets (2,077,223) 517,128 (706,727)
Net assets:
Beginning of year 8,832,186 8,315,058 9,021,785
End of year $6,754,963 8,832,186 8,315,058
Other information:
Undistributed net investment
income, end of year $166,593 175,385 175,107
Units redeemed Uts. 21,520 818,242
See accompanying notes to financial statements.
</TABLE>
PAGE
<PAGE>
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
Notes to Financial Statements
June 30, 1994
(1) Summary of Significant Accounting Policies
Smith Barney Shearson Unit Trusts, High Yield Municipal Series
12 (the "Trust") (formerly Shearson Lehman Brothers Unit Trusts,
High Yield Municipal Series 12) 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, April 21, 1989.
(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.
(d) Certain 1993 and 1992 amounts have been reclassified to
conform with 1994 financial statement classifications.
(2) Distributions and Redemptions
Monthly distributions of net investment income to Unitholders are
made in cash on the first day of each month to holders of record as
of the 15th day of the preceding month. Receipts other 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 $1,000 face amount of securities in the Trust)
for service it renders with respect to monitoring, and when
necessary, providing advice to the Trustee with respect to any
adverse market or credit factors concerning the security investments
of the Trust and any actions taken by the issuers of such securities
that may affect the issuer's capital structure, as provided by the
Indenture.
The Sponsor receives a sales charge applicable to purchases of units
at a rate of 5.50% of the Offering Price.
(Continued)
PAGE
<PAGE>
2
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
Notes to Financial Statements
(3), Continued
On March 12, 1993, Primerica Corporation ("Primerica"), Smith
Barney, Harris Upham & Co. Incorporated ("Smith Barney") and
Shearson signed a definitive agreement pursuant to which Primerica
and Smith Barney would acquire the assets of the domestic retail
brokerage and asset management businesses of Shearson (the
"Transaction"). On July 31, 1993, the Transaction between
Shearson, Primerica and Smith Barney was completed. Effective as
of the close of business on that day, Smith Barney was renamed
Smith Barney Shearson Inc. and became the Sponsor of the Trust.
Trustee
Until June 30, 1994, Boston Safe Deposit and Trust Company
("Boston Safe") acted as Trustee and Distribution Agent for an
annual fee ($.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
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 June 30, 1994 is as follows:
<TABLE>
Year Units Net asset Income Principal
ended outstanding value distributions distributions
<S> <C> <C> <C> <C>
June 30, 1992 8,307,739 $ 1,000.88 84.13 34.81
June 30, 1993 8,307,739 1,063.13 82.66 6.40
June 30, 1994 8,286,219 815.20 70.35 238.32
</TABLE>
(Continued)
PAGE
<PAGE>
SMITH BARNEY SHEARSON Unit TrustS,
High Yield Municipal SERIES 12
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 June 30, 1994, the aggregate cost of investments for
federal income tax purposes was the same as the cost for financial
reporting purposes, which was $5,949,588.
<TABLE>
At June 30, 1994, the net unrealized appreciation of bonds
consisted of:
<S> <C>
Gross unrealized appreciation $668,829
Gross unrealized depreciation (30,113)
Net unrealized appreciation $638,716
</TABLE>
(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>
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 Charge Sales
Charge
as Percent of as Percent
of
Bid Side Public Net
Amount
Number of Units Offering Price Invested
1,000-99,999. . . . . . . . . . . . . 5.50% 5.820%
100,000-249,999 . . . . . . . . . . . 5.00 5.263
250,000-499,999 . . . . . . . . . . . 4.50 4.172
500,000-999,999 . . . . . . . . . . . 4.00 4.167
1,000,000 or more . . . . . . . . . . 3.50 3.627
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 12
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 Summary 2
Independent Auditors Report 3
Report of Independent Accountants 4
Financial Statements 5
Portfolio 12
Trust Structure 13
Risk Factors 14
Description of the Trust 25
Taxes 28
Public Sale of Units 31
Market for Units 33
Redemption 34
Expenses and Charges 35
Administration of the Trust 36
Resignation, Removal and Limitations on
Liability 39
Miscellaneous 40
Description of Ratings 41
<S> <C> <C>
<C>
Sponsors: Evaluator: Trustee:
Independent Auditors:
Smith Barney Inc. Kenny S&P Evaluation United
States Trust KPMG Peat Marwick LLP
Unit Trust Department Services Company
of New York 345 Park Avenue
Two World Trade Center 65 Broadway 114 West
47th Street New York, NY 10154
101st Floor New York, New York 10006 New York,
NY 10036 (212) 758-9700
New York, New York 10048 (212) 208-8580 1(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.
</TABLE>
<PAGE>
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 12 (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 12
Gentlemen:
We have examined the post-effective Amendment to
the
Registration Statement File No. 33-28011 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 October
28, 1994, on the statement of assets and liabilities of Smith
Barney Shearson Unit Trusts, High Yield Municipal Series
12, including the schedule of portfolio investments, as of
June 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
October 31, 1994
<PAGE>
CONSENT OF INDEPENDENT
ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment
No. 5
to the Registration Statement on Form S-6 (File No.
33-2028011)
of our report dated August 20, 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 12
(formerly Shearson Lehman Brothers Unit Trusts,
High Yield Municipal Series 12). We also consent to
the reference to our firm under the caption
"Miscellaneous-Auditors."
COOPERS & LYBRAND
L.L.P.
/s/COOPERS & LYBRAND
L.L.P.
Boston, Massachusetts
December 19, 1994
