Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 15
to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Investors' Municipal Income Trust, Series 35
(Exact Name of Trust)
Van Kampen Merritt Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
Van Kampen Merritt Inc. Chapman and Cutler
Attention: John C. Merritt Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective
on April 25, 1994 pursuant to paragraph (b) of Rule 485.
SERIES 35
INVESTORS' MUNICIPALS 21,035 Units
INCOME TRUST
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
Please retain both parts of this Prospectus for future reference.
In the opinion of counsel, interest income to the Trust and to
Unitholders, with certain exceptions, is exempt under existing law from all
Federal income taxes, but may be subject to state and local taxes. Capital
gains, if any, are subject to Federal tax.
THE TRUST
The above-named series of Investors' Municipals Income Trust (the
"Trust") consists of an insured portfolio of interest-bearing obligations (the
"Bonds" or "Securities") issued by or on behalf of municipalities and other
governmental authorities or by certain United States territories or
possessions and their public authorities, the interest of which is, in the
opinion of recognized bond counsel to the issuing governmental authority,
exempt from all Federal income taxes under existing law. Each Unit represents
a fractional undivided interest in the principal and net income of the Trust
(see "Summary of Essential Information" in this Part One and "The Trust" in
Part Two).
The Units being offered by this Prospectus are issued and outstanding
Units which have been purchased by the Sponsor in the secondary market or from
the Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
PUBLIC OFFERING PRICE
The Public Offering Price of the Units of each Trust is equal to the
aggregate bid price of the Bonds in the portfolio of such Trust divided by the
number of Units of such Trust outstanding, plus a sales charge. The sales
charge is based upon the years to average maturity of the Bonds in the
portfolio. The sales charge ranges from 1.5% of the Public Offering Price
(1.523% of the aggregate bid price of the Bonds) for a Trust with a portfolio
with less than two years to average maturity to 5.7% of the Public Offering
Price (6.045% of the aggregate bid price of the Bonds) for a Trust with a
portfolio with sixteen or more years to average maturity. See "Summary of
Essential Information" in this Part One.
ESTIMATED CURRENT AND LONG-TERM RETURNS
Estimated Current and Long-Term Returns to Unitholders are indicated
under "Summary of Essential information" in this Part One. The methods of
calculating Estimated Current Returns and Estimated Long-Term Return are set
forth in Part Two of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Date of this Prospectus is April 20, 1994
Van Kampen Merritt
Page 1
<PAGE>
<TABLE>
INVESTORS' MUNICIPALS INCOME TRUST, SERIES 35
Summary of Essential Financial Information
As of March 3, 1994
Sponsor: Van Kampen Merritt Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the
Sponsor)
Trustee: The Bank of New York
<CAPTION>
IMIT
<S> <C>
-------------------
General Information
Principal Amount (Par Value) of Securities .............................................................. $ 7,602,339
Number of Units ......................................................................................... 21,035
Fractional Undivided Interest in Trust per Unit ......................................................... 1/ 21,035
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio ...................................................... $ 8,766,450.94
Aggregate Bid Price of Securities per Unit .......................................................... $ 416.76
Sales charge 6.045% (5.7% of Public Offering Price excluding principal cash) ........................ $ 25.17
Principal Cash per Unit ............................................................................. $ (.33)
Public Offering Price per Unit <F1>.................................................................. $ 441.60
Redemption Price per Unit ............................................................................... $ 416.43
Excess of Public Offering Price per Unit over Redemption Price per Unit ................................. $ 25.17
Minimum Value of the Trust under which Trust Agreement may be terminated ................................ $ 4,296,400
Annual Premium on Portfolio Insurance ................................................................... $ 12,830.25
Minimum Principal Distribution ...$1.00 per Unit
Date of Deposit ..................January 9, 1980
Mandatory Termination Date .......December 31, 2029
Evaluator's Annual Fee <F4>.......$3,979
Evaluations for purpose of sale, purchase or redemption of Units are
made as of 4:00 P.M. Eastern time on days of trading on the New York
Stock Exchange next following receipt of an order for a sale or purchase
of Units or receipt by The Bank of New York of Units tendered for
redemption.
</TABLE>
<TABLE>
Special Information Based on Various Distribution Plans
<CAPTION>
Monthly Quarterly Semi-Annual
<S> <C> <C> <C>
------------- ------------- -------------
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit ...................................... $ 31.21 $ 31.21 $ 31.21
Less: Estimated Annual Expense excluding Insurance ............................. $ 1.10 $ .89 $ .72
Less: Annual Premium on Portfolio Insurance .................................... $ .61 $ .61 $ .61
Estimated Net Annual Interest Income per Unit .................................. $ 29.50 $ 29.71 $ 29.88
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income ........................................... $ 29.50 $ 29.71 $ 29.88
Divided by 12, 4 and 2, respectively ........................................... $ 2.46 $ 7.43 $ 14.94
Estimated Daily Rate of Net Interest Accrual per Unit .............................. $ .08192 $ .08252 $ .08297
Estimated Current Return Based on Public Offering Price <F2><F3>.................... 6.68% 6.72% 6.76%
Estimated Long-Term Return ......................................................... 5.15% 5.20% 5.24%
Record and Computation Dates .FIRST day of the month as follows: monthly -
each month; quarterly - March, June, September,
and December; semi-annual - June and December.
Distribution Dates ...........FIFTEENTH day of the month as follows: monthly -
each month; quarterly - March, June, September,
and December; semi-annual - June and December.
Trustee's Annual Fee .........$1.24, $0.98 and $0.69 per $1,000 principal
amount of Bonds respectively, for those portions
of the Trust under the monthly, quarterly and
semi-annual distribution plans.
<FN>
<F1>Plus accrued interest to the date of settlement (five business days
after purchase) of $6.69, $6.76 and $13.59 respectively, for those portions of
the Trust under the monthly, quarterly, and semi-annual distribution plans.
<F2>The Estimated Current Return and Estimated Long-Term Return are
increased for transactions entitled to a reduced sales charge.
<F3>The Estimated Current Return on an identical portfolio without the
insurance obtained by the Trust would have been 6.90% based on such
semi-annual distribution plan on such date, while the Estimated Long-Term
Return on an identical portfolio without the insurance obtained by the Trust
would have been 5.38%.
<F4>Notwithstanding information to the Contrary in Part Two of this
Prospectus, the Trust Indenture provides that as compensation for its
services, the Evaluator shall receive a fee of $1,820 annually. This fee may
be adjusted for increases in consumer prices for services under the category
"All Services Less Rent of Shelter" in the Consumer Price Index.
</TABLE>
Page 2
<PAGE>
PORTFOLIO
In selecting Bonds for the Investors' Municipals Income Trust, Series 35,
the following facts, among others, were considered: (i) either the Standard &
Poor's Corporation rating of the Bonds was in no case less than "BBB-" or the
Moody's Investors Service, Inc. rating of the Bonds was in no case less than
"Baa", including provisional or conditional ratings, respectively or, if not
rated, the Bonds had, in the opinion of the Sponsor, credit characteristics
sufficiently similar to the credit characteristics of interest-bearing
tax-exempt obligations that were so rated as to be acceptable for acquisition
by the Fund (see "Description of Securities Ratings" in Part Two), (ii) the
prices of the Bonds relative to other Bonds of comparable quality and
maturity, (iii) the availability and cost of insurance for the prompt payment
of principal and interest on the Bonds and (iv) the diversification of Bonds
as to purpose of issue and location of issuer. Since the date of deposit the
rating of certain Bonds in the portfolio may have been lowered by the
appropriate rating agency. As of December 31, 1993, the Trust consists of 5
issues which are payable from the income of a specific project or authority.
The portfolio is divided by purpose of issue as follows: Escrowed, 2 (68%) and
Multi-Family, 3 (32%). The portfolio consists of 5 Bond issues in 4 states.
See "Bond Portfolio" herein and "Description of Securities Ratings" in Part
Two.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C> <C> <C> <C> <C>
1984 1985 1986 1987 1988
---------- --------- ---------- --------- ---------
Net asset value per
Unit at beginning of
period ........... $ 840.76 $ 820.22 $ 827.13 $ 930.03 $ 871.23
========== ========= ========== ========= =========
Net asset value per
Unit at end of
period ........... $ 820.22 $ 827.13 $ 930.03 $ 871.23 $ 888.69
========== ========= ========== ========= =========
Distributions to
Unitholders of
investment income
including accrued
interest to carry
paid
on Units redeemed
(average Units
outstanding for
entire period) <F1> $ 80.16 $ 76.76 $ 72.18 $ 71.50 $ 71.47
========== ========= ========== ========= =========
Distributions to
Unitholders from
Bond redemption
proceeds (average
Units outstanding
for entire period) $ -- $ 106.13 $ -- $ -- $ --
========== ========= ========== ========= =========
Unrealized
appreciation
(depreciation) of
Bonds (per Unit
outstanding at end
of period) ....... $(20.75) $ 114.76 $ 103.39 $(59.04) $ 17.43
========== ========= ========== ========= =========
Distributions of
investment income by
frequency of payment
<F1>
Monthly ....... $ 79.69 $ 76.52 $ 71.04 $ 71.04 $ 71.04
Quarterly ..... $ 80.10 $ 76.68 $ 71.32 $ 71.32 $ 71.32
Semiannual .... $ 80.42 $ 76.89 $ 72.26 $ 71.76 $ 71.76
Units outstanding at
end of period .... 22,186 22,170 22,585 21,536 21,518
<FN>
<F1> Unitholders may elect to receive distributions on a monthly, quarterly or
semi-annual basis.
</TABLE>
<TABLE>
<CAPTION>
PER UNIT INFORMATION
<S> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993
---------- --------- ---------- --------- ----------
Net asset value per
Unit at beginning of
period ........... $ 888.69 $ 730.30 $ 577.14 $ 591.14 $ 451.32
========== ========= ========== ========= ==========
Net asset value per
Unit at end of
period ........... $ 730.30 $ 577.14 $ 591.14 $ 451.32 $ 436.08
========== ========= ========== ========= ==========
Distributions to
Unitholders of
investment income
including accrued
interest to carry
paid
on Units redeemed
(average Units
outstanding for
entire period) <F1> $ 71.47 $ 48.95 $ 44.35 $ 35.81 $ 32.02
========== ========= ========== ========= ==========
Distributions to
Unitholders from
Bond redemption
proceeds (average
Units outstanding
for entire period) $ 178.15 $ 142.20 $ -- $ 143.24 $ 33.62
========== ========= ========== ========= ==========
Unrealized
appreciation
(depreciation) of
Bonds (per Unit
outstanding at end
of period) ....... $ 18.87 $(12.68) $ 14.01 $ 2.59 $ 16.35
========== ========= ========== ========= ==========
Distributions of
investment income by
frequency of payment
<F1>
Monthly ....... $ 71.20 $ 48.81 $ 44.16 $ 35.65 $ 31.68
Quarterly ..... $ 71.47 $ 48.95 $ 44.28 $ 35.93 $ 31.91
Semiannual .... $ 71.62 $ 48.97 $ 44.50 $ 35.88 $ 32.02
Units outstanding at
end of period .... 21,502 21,418 21,408 21,384 21,035
<FN>
<F1> Unitholders may elect to receive distributions on a monthly, quarterly or
semi-annual basis.
</TABLE>
Page 3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders of
Investors' Municipals Income Trust, Series 35:
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Investor's Municipals
Income Trust, Series 35 as of December 31, 1993, and the related statements of
operations and changes in net assets for the three years ended December 31,
1993. These statements are the responsibility of the Trustee and the Sponsor.
Our responsibility is to express an opinion on such 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 tax-exempt securities owned at December
31, 1993 by correspondence with the Trustee. An audit also includes assessing
the accounting principles used and significant estimates made by the Trustee
and the Sponsor, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our
opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of Investors' Municipals Income
Trust, Series 35 as of December 31, 1993, and the results of operations and
changes in net assets for the three years ended December 31, 1993, in
conformity with generally accepted accounting principles.
GRANT THORNTON
Chicago, Illinois
March 11, 1994
Page 4
<PAGE>
<TABLE>
INVESTORS' MUNICIPALS INCOME TRUST
SERIES 35
Statement of Condition
December 31, 1993
<CAPTION>
IMIT
<S> <C>
------------------
Trust property
Tax-exempt securities at market value, (cost $7,570,219) (note 1) ..................................... $ 9,010,299
Accrued interest ...................................................................................... 233,709
------------------
$ 9,244,008
==================
Liabilities and interest of Unitholders
Cash overdraft ........................................................................................ $ 71,168
Interest to Unitholders ............................................................................... 9,172,840
------------------
$ 9,244,008
==================
</TABLE>
<TABLE>
Analysis of Net Assets
<CAPTION>
<S> <C>
Interest of Unitholders (21,035 Units of fractional undivided interest outstanding)
Cost to original investors of 22,550 Units (note 1) ................................................... $ 22,550,000
Less initial underwriting commission (note 3) ................................................... 1,059,770
------------------
21,490,230
Less redemption of 1,515 Units .................................................................. 1,101,721
------------------
20,388,509
Undistributed net investment income
Net investment income ........................................................................... 19,987,564
Less distributions to Unitholders ............................................................... 19,813,638
------------------
173,926
Realized gain (loss) on Bond sale or redemption ....................................................... 250,625
Unrealized appreciation (depreciation) of Bonds (note 2) .............................................. 1,440,080
Distributions to Unitholders of Bond sale or redemption proceeds ...................................... (13,080,300)
------------------
Net asset value to Unitholders ............................................................... $ 9,172,840
==================
Net asset value per Unit (21,035 Units outstanding) ....................................................... $ 436.08
==================
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE>
<TABLE>
INVESTOR'S MUNICIPALS INCOME TRUST, SERIES 35
Statements of Operations--Years ended December 31,
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
------------------ ----------------- ------------------
Investment income
Interest income .................................................. $ 984,558 $ 738,764 $ 691,799
Expenses
Trustee fees and expenses ..................................... 16,058 14,754 13,309
Evaluator fees ................................................ 2,591 3,145 3,979
Insurance expense ............................................. 18,235 14,507 13,486
------------------ ----------------- ------------------
Total expenses .......................................... 36,884 32,406 30,774
------------------ ----------------- ------------------
Net Investment Income ......................................... 947,674 706,358 661,025
Realized gain (loss) from Bond sale or redemption
Proceeds ......................................................... 15,244 3,076,427 853,032
Cost ............................................................. 13,840 2,999,952 788,040
------------------ ----------------- ------------------
Realized gain (loss) .......................................... 1,404 76,475 64,992
Net change in unrealized appreciation (depreciation)
of Bonds ........................................................... 299,997 55,416 343,868
------------------ ----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ............................................ $ 1,249,075 $ 838,249 $ 1,069,885
================== ================= ==================
</TABLE>
<TABLE>
Statements of Changes in Net Assets--Years ended December 31,
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
------------------ ----------------- ------------------
Increase (decrease) in net assets
Operations:
Net investment income ......................................... $ 947,674 $ 706,358 $ 661,025
Realized gain (loss) on Bond sale or redemption ............... 1,404 76,475 64,992
Net change in unrealized appreciation (depreciation)
of Bonds .................................................... 299,997 55,416 343,868
------------------ ----------------- ------------------
Net increase (decrease) in net assets resulting
from operations .......................................... 1,249,075 838,249 1,069,885
Distributions to Unitholders from:
Net investment income ......................................... (949,579) (766,314) (678,703)
Bond sale or redemption proceeds .............................. -- (3,065,626) (712,648)
Redemption of Units (note 4) ......................................... (5,663) (10,439) (156,617)
------------------ ----------------- ------------------
Total increase (decrease) .................................. 293,833 (3,004,130) (478,083)
Net asset value to Unitholders
Beginning of period ........................................... 12,361,220 12,655,053 9,650,923
------------------ ----------------- ------------------
End of period (including undistributed net investment income of
$251,560, $191,604 and $173,926, respectively) ..............
$ 12,655,053 $ 9,650,923 $ 9,172,840
================== ================= ==================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE>
<TABLE>
INVESTORS' MUNICIPALS INCOME TRUST PORTFOLIO as of December 31, 1993
SERIES 35
<CAPTION>
_________________________________________________________________________________________________________________________________
December
31, 1993
Port- Redemption Market
folio Aggregate Name of Issuer, Title, Interest Rate and Rating Feature Value
Item Principal Maturity Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
- ----------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
A $ -- 0 -- The County of Lancaster, Nebraska, $ -- 0 --
Industrial Development Revenue Bonds, -- 0 --
Series B (Jantzen Inc. Project) -- 0 --
9.000% Due 01/01/96 -- 0 --
9.000% Due 01/01/97 -- 0 --
9.000% Due 01/01/98 -- 0 --
9.000% Due 01/01/99 -- 0 --
9.000% Due 01/01/00 -- 0 --
9.000% Due 01/01/01 -- 0 --
9.000% Due 01/01/02 -- 0 --
9.000% Due 01/01/03 -- 0 --
9.000% Due 01/01/04 -- 0 --
9.000% Due 01/01/05 -- 0 --
9.000% Due 01/01/06 -- 0 --
9.000% Due 01/01/07 -- 0 --
9.000% Due 01/01/08
9.000% Due 01/01/09
9.000% Due 01/01/10
- ---------------------------------------------------------------------------------------------------------------------------------
B -- 0 -- Delaware Solid Waste Authority Resource -- 0 --
Recovery Revenue Bonds, Series 1979
Delaware Reclamation Project
9.250% Due 07/01/03
- ---------------------------------------------------------------------------------------------------------------------------------
C 1,210,000 Rhode Island Housing and Mortgage Finance A+ 1994 @ 100 1,217,030
Corporation Multi-Family Housing Bonds, 1995 @ 100 S.F.
1979 Series B (Section 8 Assisted)
8.750% Due 07/01/07
- ---------------------------------------------------------------------------------------------------------------------------------
D 2,575,000 Adventist Health System/Sunbelt, Inc., City AAA 3,237,445
of Punta Gorda, Florida, Health Facilities
Authority Hospital Revenue Bonds, Series
1980
8.750% Due 10/01/09**
- ---------------------------------------------------------------------------------------------------------------------------------
E -- 0 -- Michigan South Central Power Agency Power -- 0 --
Supply System Revenue Bonds, 1979 Series
8.800% Due 11/01/09
- ---------------------------------------------------------------------------------------------------------------------------------
F 2,595,000 Duncanville Hospital Authority Hospital AAA 3,313,036
Revenue Bonds (Methodist Hospitals of
Dallas Project) Series A
9.000% Due 01/01/10**
- ---------------------------------------------------------------------------------------------------------------------------------
G -- 0 -- Washington Public Power Supply System -- 0 --
Generating Facilities Revenue Bonds,
Series 1979 C (Nuclear Projects Nos. 4 and
5)
8.500% Due 07/01/10
- ---------------------------------------------------------------------------------------------------------------------------------
H -- 0 -- New Hampshire Housing Finance Agency -- 0 --
Multi-Family Housing Bonds, 1980 Series 1
(Section 8 Assisted)
8.500% Due 01/01/12
</TABLE>
Page 7
<PAGE>
<TABLE>
INVESTORS' MUNICIPALS INCOME TRUST PORTFOLIO as of December 31, 1993
(continued)SERIES 35
<CAPTION>
_________________________________________________________________________________________________________________________________
December
31, 1993
Port- Redemption Market
folio Aggregate Name of Issuer, Title, Interest Rate and Rating Feature Value
Item Principal Maturity Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
- ----------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
I $ -- 0 -- The City of Grand Haven, Michigan, Electric $ -- 0 --
System Revenue Bonds, 1979 Series
8.625% Due 07/01/16
- ---------------------------------------------------------------------------------------------------------------------------------
J 451,903 Puerto Rico Housing Finance Corporation AA 449,268
Series 1979E (Bonneville Terrace -- 0 --
Apartments Project, Caguas, Puerto Rico)
Permanent Obligations
451M-7.500% Due 04/01/20
0M-7.500% Due 07/01/20
- ---------------------------------------------------------------------------------------------------------------------------------
K 775,103 Puerto Rico Housing Finance Corporation NR 1994 @ 100 793,520
Series 1979F (Villa Nueva Apartments
Project, Mayaguez, Puerto Rico) Permanent
Obligations
7.500% Due 07/01/20
---------------- ----------------
$ 7,607,006 $ 9,010,299
================ ================
_________________________________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of this statement.
**The issuer of these Bonds has placed funds or securities in escrow against
payment of the issue on the date or dates indicated.
Page 8
<PAGE>
INVESTORS' MUNICIPALS INCOME TRUST
SERIES 35
Notes to Financial Statements
December 31, 1991, 1992 and 1993
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation--Tax-exempt municipal securities are stated at the
value determined by the Evaluator, American Portfolio Evaluation Services (a
division of a subsidiary of the Sponsor). The Evaluator may determine the
value of the Bonds (1) on the basis of current bid prices of the Bonds
obtained from dealers or brokers who customarily deal in Bonds comparable to
those held by the Trust, (2) on the basis of bid prices for comparable Bonds,
(3) by determining the value of the Bonds by appraisal or (4) by any
combination of the above. The Trust maintains insurance which provides for the
timely payment when due, of all principal and interest on Bonds owned by it.
Except in cases in which Bonds are in default, or significant risk of default,
this valuation does not include any value attributable to this insurance
feature since the insurance terminates as to any Bond at the time of its
disposition.
Security Cost--The original cost to the Trust was based on the
determination by Interactive Data Services, Inc. of the offering prices of the
Bonds on the date of deposit (January 9, 1980). Since the valuation is based
upon the bid prices the Trust recognized a downward adjustment of $428,000 on
the date of deposit resulting from the difference between the bid and offering
prices. This downward adjustment was included in the aggregate amount of
unrealized depreciation reported in the financial statements for the period
ended December 31, 1980.
Unit Valuation--The redemption price per Unit is the pro rata share of
each Unit based upon (1) the cash on hand in the Trust or monies in the
process of being collected, (2) the Bonds in the Trust based on the value
determined by the Evaluator and (3) interest accrued thereon, less accrued
expenses of the Trust, if any.
Federal Income Taxes--The Trust is not taxable for Federal income tax
purposes. Each Unitholder is considered to be the owner of a pro rata portion
of the Trust and, accordingly, no provision has been made for Federal income
taxes.
Other--The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2--PORTFOLIO
Ratings--The source of all ratings, exclusive of those designated N/R, *
or # is Standard & Poor's Corporation. Ratings marked * are by Moody's
Investors Service, Inc. and ratings marked # are by Fitch Investors Service,
Inc. The ratings shown represent the latest published ratings of the Bonds.
For a brief description of rating symbols and their related meanings, see
`Description of Securities Ratings' in Part Two.
Redemption Feature--There is shown under this heading the year in which
each issue of Bonds is initially or currently callable and the call price for
that year. Each issue of Bonds continues to be callable at declining prices
thereafter (but not below par value) except for original issue discount Bonds
which are redeemable at prices based on the issue price plus the amount of
original issue discount accreted to redemption date plus, if applicable, some
premium, the amount of which will decline in subsequent years. `S.F.'
indicates a sinking fund is established with respect to an issue of Bonds.
Redemption pursuant to call provisions generally will, and redemption pursuant
to sinking fund provisions may, occur at times when the redeemed Bonds have an
offering side evaluation which represents a premium over par. To the extent
that the Bonds were deposited in the Trust at a price higher than the price at
which they are redeemed, this will represent a loss of capital when compared
with the original Public Offering Price of the Units. Conversely, to the
extent that the Bonds were acquired at a price lower than the redemption
price, this will represent an increase in capital when compared with the
original Public Offering Price of the Units. Distributions will generally be
reduced by the amount of the income which would otherwise have been paid with
respect to redeemed Bonds and there will be distributed to Unitholders the
principal amount in excess of $1 per Unit semi-annually and any premium
received on such redemption. However, should the amount available for
distribution in the Principal Account exceed $10.00 per Unit, the Trustee will
make a special distribution from the Principal Account on the next succeeding
monthly distribution date to holders of record on the related monthly record
date. The Estimated Current Return in this event may be affected by such
redemptions. For the Federal tax effect on Unitholders of such redemptions and
resultant distributions, see paragraph (3) under `Federal Tax Status of the
Trusts' and `Annual Unit Income and Estimated Current Returns' in Part
Two.
Insurance--Insurance coverage providing for the timely payment when due
of all principal and interest on the Bonds in the Trust has been obtained by
the Trust or by one of the Preinsured Bond Insurers (as indicated in the Bond
name). Such insurance does not guarantee the market value of the Bonds or the
value of the Units. For Bonds covered under the Trust's insurance policy the
insurance is effective only while Bonds thus insured are held in the Trust and
the insurance premium, which is a Trust obligation, is paid on a monthly
basis. The premium for insurance which has been obtained from various
insurance companies by the issuer of the Bond involved is payable by the
issuer. Insurance expense for the period reflects adjustments for redeemed or
sold Bonds.
Page 9
<PAGE>
NOTE 2--PORTFOLIO (continued)
An Accounting and Auditing Guide issued by the American Institute of
Certified Public Accountants states that, for financial reporting purposes,
insurance coverage of the type acquired by the Trust does not have any
measurable value in the absence of default of the underlying Bonds or
indication of the probability of such default. In the opinion of the
Evaluator, there is no indication of a probable default of Bonds in the
portfolio as of the date of these financial statements.
Unrealized Appreciation and Depreciation--An analysis of net unrealized
appreciation (depreciation) at December 31, 1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 1,457,250
Unrealized Depreciation (17,170)
-----------------
$ 1,440,080
=================
</TABLE>
NOTE 3--OTHER
Marketability--Although it is not obligated to do so, the Sponsor intends
to maintain a market for Units and to continuously offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid price of
the Bonds in the portfolio of the Trust, plus interest accrued to the date of
settlement. If the supply of Units exceeds demand, or for other business
reasons, the Sponsor may discontinue purchases of Units at such prices. In the
event that a market is not maintained for the Units, a Unitholder desiring to
dispose of his Units may be able to do so only by tendering such Units to the
Trustee for redemption at the redemption price.
Cost to Investors--The cost to original investors was based on the
Evaluator's determination of the aggregate offering price of the Bonds per
Unit on the date of an investor's purchase, plus a sales charge of 4.9% of the
public offering price which is equivalent to 5.152% of the aggregate offering
price of the Bonds. The secondary market cost to investors is based on the
Evaluator's determination of the aggregate bid price of the Bonds per Unit on
the date of an investor's purchase plus a sales charge based upon the years to
average maturity of the Bonds in the portfolio. The sales charge ranges from
1.5% of the public offering price (1.523% of the aggregate bid price of the
Bonds) for a Trust with a portfolio with less than two years to average
maturity to 5.7% of the public offering price (6.045% of the aggregate bid
price of the Bonds) for a Trust with a portfolio with sixteen or more years to
average maturity.
Compensation of Evaluator--The Evaluator receives an annual fee for
regularly evaluating the Trust's portfolio. The fee may be adjusted for
increases under the category "All Services Less Rent of Shelter" in the
Consumer Price Index.
NOTE 4--REDEMPTION OF UNITS
During the years ended December 31, 1991, 1992 and 1993, 10 Units, 24
Units and 349 Units, respectively, were presented for redemption.
NOTE 5--SUBSEQUENT EVENT
Subsequent to December 31, 1991, New Hampshire Housing Finance Agency
Bonds in the principal amount of $3,000,000 were sold or redeemed at 102.
The portfolio includes Bonds issued by the Washington Public Power Supply
System ("WPPSS") for its Nuclear Projects Nos. 4 and 5. The WPPSS Board
terminated construction of projects Nos. 4 and 5 in January, 1982. Under the
original contracts, participating utilities agreed to provide funds for the
payment of debt service on the Bonds regardless of whether projects Nos. 4 and
5 were completed. Such contracts have been ruled invalid by various courts of
law.
As a result of these circumstances, interest payments due since 1984 to
the present have not been made on the Bonds. Subsequent to the default on the
Bonds, class action lawsuits were filed against various parties involved in
the issuance of the Bonds. In November 1992, the United States Supreme Court
decided not to hear appeals regarding the out-of-court settlement reached in
the Multi-District Litigation No. 551 (MDL-551) class-action fraud suit. The
Supreme Court's decision not to hear appeals has resulted in the Federal
District Court judge who heard the class action lawsuit to order that monies
held in the MDL-551 Settlement Fund be disbursed as follows: (i) $148 million
to Chemical Bank, Trustee for the Bonds, (ii) $36 million in attorney's fees,
(iii) $504 million to MDL-551 Class Members, and (iv) $193 million to a
Contingency Fund. The Contingency Fund holds monies for a number of potential
expenses including contested legal fees, potential tax liabilities, and
pending litigation and appeals.
In mid-November 1992, the Trustee (Bank of New York) received checks
equal to substantially all of their portion of the partial distribution of the
settlement funds for the eligible claimants (MDL-551 Class Members). Because
it is unclear whether certain former or current unitholders are entitled to
the settlement funds, the Trustee cannot make any immediate distribution of
the settlement proceeds. The Trustee intends to deposit the settlement
proceeds in Federal court in New York in order to obtain a judicial
determination of which class unitholders should receive the settlement
proceeds. The Evaluator will continue to monitor the situation
closely.
, except for Washington Public Power Supply System (Nuclear Project Nos. 4 and
5) Bonds included in the portfolio. Such Bonds were declared in default by the
Bond Trustee on July 25, 1983 and the Evaluator had commenced attributing
value to the insurance obtained by the Trust in its valuation on February 11,
1983. All interest payments since 1984 have not been made by the Bond Trustee;
however, insurance proceeds relating to such interest payments have been
received from the insurer under the Trust's portfolio insurance policy
Page 10
THIS IS PART TWO OF A TWO-PART PROSPECTUS DATED AS OF THE DATE OF THE
ACCOMPANYING PART I PROSPECTUS-IT MAY NOT BE DISTRIBUTED WITHOUT PART ONE
INVESTORS' MUNICIPAL INCOME TRUST
There is insurance directly or indirectly relating to all securities in the
Trust which is comprised of Privately-Insured Bonds, Existing Trust Units and
Obligations Secured by FHA-Insured Mortgages. The Units of the Trust, as
such, are not insured.
The Trust. Investors' Municipal-Income Trust, Series 33 through 35 (the "
Trust"), consists of separate unit investment trusts. Each series of the
Trust owns an insured portfolio of interest-bearing obligations, all of which
have been issued by or on behalf of municipalities and other governmental
authorities, the interest on which is, in the opinion of recognized bond
counsel to the respective issuing governmental authorities, exempt from all
Federal income taxes under existing law (the "Bonds" or "
Securities"). Certain series of the Trust also contain units of
previously-issued series of the Trust or its predecessors, the interest on
Bonds which are held by such Trust or Trusts is, in the opinion of the
issuer's counsel, exempt from all Federal income tax under existing law. The
objectives of the Trust are federally tax-exempt income and conservation of
capital through an investment in an insured portfolio of tax-exempt
Securities. There is, of course, no assurance these objectives will be
achieved. The payment of interest and the preservation of principal are
dependent upon the continuing ability of the issuers and/or obligors of
Securities and of the insurers to meet their respective obligations. The
Portfolio, essential information based thereon and financial statements,
including the report of certified public accountants relating to the series of
the Trust offered hereby, are contained in Part One to which reference should
be made for such information.
IN THE OPINION OF COUNSEL, INTEREST INCOME TO EACH SERIES OF THE TRUST AND TO
THE RESPECTIVE UNITHOLDERS THEREOF, WITH CERTAIN EXCEPTIONS, IS EXCLUDABLE
UNDER EXISTING LAW FROM GROSS INCOME FOR FEDERAL INCOME TAXES, BUT MAY BE
SUBJECT TO STATE AND LOCAL TAXES. CAPITAL GAINS, IF ANY, ARE SUBJECT TO
FEDERAL TAX.
Both Parts of the Prospectus Should be Retained For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
INTRODUCTION
Distributions. Distributions of interest received by the Trust, pro-rated on
an annual basis are made monthly, quarterly or semi-annually as the Unitholder
has elected. Distribution of funds from the Principal Account, if any, are
made semi-annually.
Portfolio Insurance. Insurance has been obtained from a municipal bond
company, either by each series of the Trust or by the issuer of the Securities
involved guaranteeing the payments of principal and interest on certain of the
Securities in the portfolio of each series of the Trust (the "
Privately-Insured Bonds"). See the Portfolio contained in Part One for
information concerning Bonds insured by the Trust and Bonds insured by the
issuer thereof. Insurance obtained by the Trust applies only while such
Privately-Insured Bonds are retained in the Trust while insurance obtained by
a bond issuer is effective so long as such Bonds are outstanding. Such
insurance relates only to such Privately-Insured Bonds in the Trust and not to
the Units or to the market value of the Units. As a result of such insurance,
the portion of the Trust portfolio comprised of Privately-Insured Bonds (but
not the Units) received on the initial date of creation of the Trust (the "
Date of Deposit") an "AAA" rating by Standard & Poor's
Corporation. Except for the Existing Trust Units deposited in the Trust, the
remaining portion of the Trust is comprised of obligations secured by mortgage
loans. Such mortgage loans are themselves secured by insurance commitments
issued by the Federal Housing Administration (the "FHA"). Such
insurance does not, however, guarantee the prompt payments of principal and
interest on such Obligations. The Trustee for each related mortgage note holds
a first priority security interest in the proceeds of any FHA insurance
payments. Insurance proceeds cannot be diverted to some use other than the
ultimate redemption of the related Obligation. As a result no rating has been
assigned to the portion of the Trust portfolio comprised of the Obligations
Secured by FHA-Insured Mortgages. However, as of the Date of Deposit each
Obligation Secured by FHA-Insured Mortgages (but not the Units) was
individually rated AA or better by Fitch Investors Services, Inc. or Standard
& Poor's Corporation. See "Description of Bond Ratings" for a
description of such ratings and see "Appendix A" for an expanded
description of the Obligations Secured by FHA-Insured Mortgages. No
representation is made as to any insurer's ability to meet its commitments.
Offering. The Units offered hereby are issued and outstanding Units which have
been reacquired by the Sponsor either by purchase from the Trustee of Units
tendered for redemption or by purchase in the open market. The price paid in
each instance was not less than the aggregate bid price of the Securities per
Unit, plus interest accrued to the date of settlement, determined as provided
herein under "Market for Units." Any profit or loss resulting from the
sale of Units will accrue to the Sponsor or other dealers selling the Units
and no proceeds from any such sale will be received by the Trust.
The Public Offering Price of the Units is equal to the aggregate bid price of
the Securities in the portfolio of the series of the Trust, plus a sales
charge referred to under "Public Offering Price."
Market. The Sponsor, although not obligated to do so, intends to maintain a
market for Units in all series of the Trust at prices based upon the aggregate
bid price of the Securities in the related portfolio. In the absence of such a
market, a Unitholder will be able to dispose of Units only by redemption at
prices based upon the bid prices of the underlying Securities (see "
Redemption of Units"). Unlike any Bonds insured by insurance obtained by
the issuer thereof or the Obligations Secured by FHA-Insured Mortgages,
neither the bid price of the Privately-Insured Bonds nor the Units includes
any value attributable to the portfolio insurance obtained by the Trust unless
the Privately-Insured Bonds are in default in payment of principal or interest
or in significant risk of default (see "Portfolio Insurance" and "
Market for Units").
DESCRIPTION OF THE TRUST
The Trust consists of three series of trusts, all similar but separate, with a
different series number. Each series of the Trust is a unit investment trust
created under the laws of the State of New York pursuant to a Trust Indenture
and Agreement (the "Indenture") dated the Date of Deposit between Van
Kampen Merritt Inc., as Sponsor, and The Bank of New York, as Trustee, or
their respective predecessors. American Portfolio Evaluation Services, a
division of Van Kampen Merritt Investment Advisory Corp., acts as Evaluator of
the Trust.
The Trust may be an appropriate investment vehicle for investors who desire to
participate in a portfolio of tax-exempt fixed income securities with greater
diversification than they might be able to acquire individually. In addition,
Bonds of the type deposited in the Trust are often not available in small
amounts.
Each Unit represents an undivided interest in the Trust. Units in each series
are separate from the other trusts and such Units are not interchangeable
between trusts. Units representing an interest in one of the trusts do not
represent any interest in another trust. To the extent that any Units are
redeemed by the Trustee, the fractional undivided interest in the Trust
represented by each unredeemed Unit will increase, although the actual
interest in the Trust represented by such fraction will remain unchanged.
Units will remain outstanding until redeemed upon tender to the Trustee by
Unitholders, which may include the Sponsor, or until the termination of the
Indenture.
The Trust consists of a portfolio of (1) interest bearing obligations issued
by or on behalf of states and territories of the United States, and political
subdivisions and authorities thereof, the interest on which is, in the opinion
of recognized bond counsel to the issuing authorities, excludable from gross
income for Federal income tax under existing law, but may be subject to state
and local taxes (the "Bonds" or "Securities"), and in some
series (2) units of previously-issued series of the Trust or its predecessors,
the interest on Bonds which are held by such trust or trusts is, in the
opinion of the issuer's counsel exempt from all Federal income tax under
existing law (the "Existing Trust Units"). The Existing Trust Units
are not debt obligations as such but represent an undivided interest in the
respective portfolios of the previously-issued series of the aforementioned
unit investment trusts, which portfolios are themselves comprised wholly or
primarily of Federal tax-exempt debt obligations.
The objectives of the Trust and each series thereof are income exempt from
Federal income tax and conservation of capital through an investment in an
insured portfolio of interest-bearing obligations and in certain series
Existing Trust Units, (the "Securities") rated at the date the particular
series of the Trust was established, "BBB" or better by Standard &
Poor's Corporation or "Baa" or better by Moody's Investors Service,
Inc., including in each instance provisional or conditional ratings,
respectively, or if not rated, the Bonds had, in the opinion of the Sponsor,
credit characteristics of interest-bearing tax-exempt obligations that were so
rated as to be acceptable for acquisition by the Trust (see "Description
of Bond Ratings"). Insurance guaranteeing the timely payment, when due, of
all principal and interest on the Privately-Insured Bonds listed in the
portfolio in Part One of this Prospectus which constitute the underlying
securities of the related series of the Trust has been obtained either by each
series of the Trust from a predecessor of AMBAC Indemnity Corporation ("
AMBAC Indemnity") or by the issuer of the Bonds involved from another
predecessor of AMBAC. Bonds insured by the issuer are not additionally insured
by the Trust. Insurance relating to the underlying Bonds represented by the
Existing Trust Units have been similarly insured under substantially identical
policies to those described herein at the time of creation of the respective
series (or in certain instances some of such Bonds have been insured by the
respective issuers of such Bonds through insurance obtained from a precedessor
of AMBAC Indemnity). Thus, the Bonds underlying the Existing Trust Units are
not additionally insured by the Trust. There is, of course, no guarantee that
the Trust's objectives will be achieved.
The remaining Bonds in the Trust are comprised of obligations which are
secured either by cash or securities or by mortgage loans which are in turn
secured by insurance commitments issued by the Federal Housing Administration
(the "Obligations Secured by FHA-Insured Mortgages"). Unlike the
Privately-Insured Bonds, the FHA Insurance does not insure prompt payment of
principal and interest on the Obligations Secured by FHA-Insured Mortgages but
rather insures the principal amount of, and the related interest on, the
underlying mortgage loans in accordance with the National Housing Act and the
applicable HUD regulations thereunder. Although the National Housing Act and
the regulations thereunder do not expressly so provide, with respect to
analogous insurance and guarantee program of the Federal government, the
Attorney General of the United States has rendered opinions that such
insurance or guarantee contracts are backed by the full faith and credit of
the United States. However, neither the United States of America, any
department or agency thereof, nor any State, territory or possession of the
United States or any of their municipalities or political subdivisions shall
be liable for the payment of the principal, interest or late charges on the
Obligations Secured by FHA-Insured Mortgages or for the performance of any
pledge, obligation or agreement of any kind whatsoever of any issuer and none
of such Obligations or any issuer's agreements or obligations shall be
construed to constitute an indebtedness of the United States of America, any
department or agency thereof, or of any State, territory or possession of the
United States or any of their municipalities or other political subdivisions
within the meaning of any constitutional or statutory provisions whatsoever,
and such respective Obligations will be payable solely from repayments of the
mortgage loan and invested proceeds pledged and allocated in the related trust
agreements. See Appendix A hereto.
Insurance obtained by each series of the Trust is applicable only while the
Privately Insured Bonds thus insured are held in the Trust. As a consequence,
neither the Public Offering Price nor any evaluation of Units reflects any
element of value for this insurance unless the Privately-Insured Bonds are in
default in payment of principal or interest or in significant risk of default.
See "Market for Units." On the other hand, any Bonds insured under a
policy obtained by the issuer thereof and the Obligations Secured by
FHA-Insured Mortgages are entitled to the benefits of such insurance or the
underlying FHA-Insured Mortgages at all times and such benefits are reflected
and included in the market value of such Bonds or Obligations Secured by
FHA-Insured Mortgages.
In order for Privately-Insured Bonds to be eligible for insurance, they must
qualify for and receive at least the Standard & Poor's Corporation rating of
"BBB" or at least the Moody's Investors Service, Inc. rating of "
Baa," which in brief represent the lowest ratings for securities of
investment grade (see "Description of Bond Ratings"). Insurance is not
a substitute for the basic credit of an issuer, but supplements the existing
credit and provides additional security therefor. If an issue is accepted for
insurance, a non-cancellable policy for the prompt payment of interest and
principal on the Privately-Insured Bonds, when due, is issued by the insurer.
A single premium is paid for any Bonds insured by the issuer and a monthly
premium is paid by each series of the Trust for the insurance obtained by it.
Any Bonds insured by AMBAC Indemnity or its predecessor received an "
AAA" rating by Standard & Poor's Corporation. See "Portfolio
Insurance."
In selecting Bonds for the Trust, the following facts, among others, were
considered: (i) in the case of the Obligations Secured by FHA-Insured
Mortgages, such obligations were rated "AA" or better by Fitch
Investors Service, Inc. or Standard and Poor's Corporation and in the case of
the Privately-Insured Bonds either the Standard & Poor's Corporation rating
of the Privately-Insured Bonds in no case was less than "BBB-", or the
Moody's Investors Service, Inc. rating of the Privately-Insured Bonds in no
case was less than "Baa," including provisional or conditional
ratings, respectively, or if not rated, the Privately- Insured Bonds had, in
the opinion of the Sponsor, credit characteristics sufficiently similar to the
credit characteristics of interest-bearing tax-exempt obligations that were so
rated as to be acceptable for acquisition by the Fund (see "Description of
Bond Ratings"), (ii) the prices of the Bonds relative to other Bonds of
comparable quality and maturity, (iii) in the case of Privately-Insured Bonds
the availability and cost of insurance for the prompt payment of the principal
and interest, when due, thereon, and (iv) the diversification of Bonds as to
purpose of issue and location of issuer. A Bond which meets either the
Standard & Poor's Corporation rating of "BBB-" or Moody's Investors
Service, Inc. rating of "Baa" would be eligible to be included in the
Trust portfolio even if that particular Bond received a lower rating by the
other rating service. For current ratings of the Bonds in the Trust see
Portfolio in Part One.
Subsequent to the Date of Deposit, a Bond may cease to be rated or its rating
may be reduced below the minimum required as of the Date of Deposit. Neither
of these events require the elimination of such Bond from the Portfolio, but
may be considered in the Sponsor's determination as to whether or not to
direct the Trustee to dispose of a Bond. The Portfolio appearing in Part One
contains current bond ratings, if any, for the Bonds listed at the date shown.
Certain Bonds in certain portfolios of the Trust are general obligations of a
governmental entity and are backed by the taxing power of such entity. In view
of this an investment in the Trust should be made with an understanding of the
characteristics of such issuers and the risks which such an investment may
entail. The remaining Bonds are revenue bonds and are payable from the income
of a specific project or authority and are not supported by the issuer's
power to levy taxes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds, on the other hand, are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise tax or other specific revenue source.
There are, of course, variations in the security of the different Bonds in the
Trust, both within a particular classification and between classifications,
depending on numerous factors. Some of the revenue bond issuers may also have
the additional benefit of a moral commitment (but not legal obligation) of a
governmental entity to satisfy any deficiency in debt service requirements if
the issuer is not able to meet its obligations. There is no assurance that in
the event of a default in payment of principal or interest on Bonds backed by
such moral obligations such default will be cured.
Certain of the Bonds in each series of the Trust are health care bonds. In
view of this an investment in the Trust should be made with an understanding
of the characteristics of such issuers and the risks which such an investment
may entail. Ratings of bonds issued for health care facilities are often based
on feasibility studies that contain projections of occupancy levels, revenues
and expenses. A facility's gross receipts and net income available for debt
service will be affected by future events and conditions including, among
other things, demand for services and the ability of the facility to provide
the services required, physicians' confidence in the facility, management
capabilities, competition with other health care facilities, efforts by
insurers and governmental agencies to limit rates, legislation establishing
state rate-setting agencies, expenses, the cost and possible unavailability of
malpractice insurance, the funding of Medicare, Medicaid and other similar
third party payor programs, government regulation and the termination or
restriction of governmental financial assistance, including that associated
with Medicare, Medicaid and other similar third party payor programs. Pursuant
to recent Federal legislation, Medicare reimbursements are currently
calculated on a prospective basis utilizing a single nationwide schedule of
rates. Prior to such legislation Medicare reimbursements were based on the
actual costs incurred by the health facility. The current legislation may
adversely affect reimbursements to hospitals and other facilities for services
provided under the Medicare program. Such adverse changes also may adversely
affect the ratings of Securities held in the portfolio of the Trust.
Bonds in the Trust may consist of obligations of state housing authorities.
Changes in Federal housing subsidy programs and their administration may
result in a decrease of subsidies available for payment of principal and
interest on housing authority Bonds. Economic developments including
fluctuations in interest rates and increasing construction and operating costs
may also adversely impact on revenues of housing authorities. In the case of
some housing authorities, inability to obtain additional financing could also
reduce revenues available to pay existing obligations.
Certain of the Bonds in various series of the Trust consist of single family
mortgage revenue Bonds, which are issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or
moderate income. Mortgage loans are generally partially or completely prepaid
prior to their final maturities as a result of events such as sale of the
mortgaged premises, default, condemnation or casualty loss. Because these
Bonds are subject to extraordinary mandatory redemption in whole or in part
from such prepayments of mortgage loans, a substantial portion of such Bonds
will probably be redeemed prior to their scheduled maturities or even prior to
their ordinary call dates. Extraordinary mandatory redemption without premium
could also result from the failure of the originating financial institutions
to make mortgage loans in sufficient amounts within a specified time period.
Additionally, unusually high rates of default on the underlying mortgage loans
may reduce revenues available for the payment of principal of or interest on
such mortgage revenue bonds.
Certain of the issuers of certain of the bonds in various series of the Trust
are public utilities including those selling wholesale and retail electric
power and gas. In view of this an investment in the Trust should be made with
an understanding of the characteristics of such issuers and the risks which
such an investment may entail. General problems of such issuers would include
the difficulty in financing large construction programs in an inflationary
period, the limitations on operations and increased costs and delays
attributable to environmental considerations, the difficulty of the capital
market in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of such issuers
have been experiencing certain of these problems in varying degrees. In
addition, Federal, state and municipal governmental authorities may from time
to time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of such Bonds to make payments of
principal and/or interest on such Bonds.
The Obligations Secured by FHA-Insured Mortgages are obligations of issuers
whose revenues are primarily derived from long-term mortgage loans to housing
projects for low and moderate income families. During the construction period
of each of such projects the related Obligation is secured by cash or
securities held in escrow. Upon completion of the project, the escrow funds
will be used to acquire the mortgage loan on such project. Each mortgage loan
upon final endorsement by the FHA is secured by an insurance commitment from
the FHA and prior to final endorsement any advancements are secured by such
insurance commitments. If the project is not completed in a timely manner or
if the FHA fails to give its final endorsement to a project, the Obligations
will be redeemed at par. Also, if the project is completed and endorsed by the
FHA, but the ultimate cost of such project is less than the principal amount
of the outstanding Obligation, there will be a partial redemption of such
Obligation. Finally, after the project is completed and endorsed by the FHA
the Obligations are paid on a pass-through basis in level monthly payments of
principal and interest over a specified period of years (typically 40 years).
Principal payments received on the Obligations in this manner will reduce the
principal amount of the Trust. Such mortgage loans are also subject to
prepayment of principal without premium (generally limited to no more than 15%
of the principal amount in any one year) which will have similar affects on
the amount and rate of interest income received by Unitholders. The overall
effect of either of these redemptions or of the principal paydowns is that the
amount of interest income continuing to be received by Unitholders will be
reduced Such principal reductions may also adversely affect the estimated
current return realized by Unitholders. In the case of the monthly principal
pass-through payments, since such payments do not commence until after
completion of the related projects and since the payments are level debt
service payments such that the principal payments are very small in the early
years, the Sponsor does not believe that the estimated current returns (in the
absence of course prepayments and other redemptions) will differ significantly
for several years from those indicated in Part One of this Prospectus. For a
general description of the effects of any redemption on the Trust, see "
Redemption of Units" and "Annual Unit Income." Investors should be
aware that the FHA insurance does not guarantee the prompt payment of
principal and interest on the Obligations but rather guarantees the principal
amount of, and most of the interest related to, the underlying mortgage loans.
The trustee for each related mortgage note holds a first priority security
interest in the proceeds of any FHA insurance payments. Insurance proceeds
cannot be diverted to some use other than the ultimate redemption of the
related Obligation. Under FHA regulations, in the case of default, the FHA is
not obligated to pay the first 30 days of defaulted interest; thus, the Trust
may lose up to 30 days interest under this insurance program. Also, investors
should be aware that the FHA reserves the right to withhold insurance proceeds
for expenses related to the assignment of the mortgage note to the FHA on a
defaulted project; however, the FHA may not withhold insurance proceeds in
excess of 1% of the then outstanding principal amount of the Obligation. See
Appendix A to this Prospectus for a general description of the Obligations
Secured by FHA Insured Mortgages, which description is based upon one of the
financings of a project in Puerto Rico and is fairly representative of such
securities although each financing will vary in some respects. Any prospective
investor who desires further information concerning this type of security,
should contact his broker or the Sponsor.
Existing Trust Units have been deposited with the Trustee in various series of
the Trust. These Units at the respective dates of deposit represented no more
than 10% of the principal amount of the respective Trust's portfolio and only
one previous series represented no more than 5% of the respective Trust's
portfolio. On the respective dates of deposit of said previous series, the
underlying Bonds were rated "BBB-" or better by Standard & Poor's
Corporation or "Baa" or better by Moody's Investors Service, Inc. or,
if not rated, had, in the opinion of the Sponsor, credit characteristics
sufficiently similar to the credit characteristics of interest-bearing tax
exempt obligations that were so rated as to be acceptable to such Existing
Trust. While certain of such Bonds included in the portfolios of said Existing
Trusts may not presently meet such criteria, they will in no event represent
more than 0.5% of the face amount of the Trust portfolio to which this
prospectus relates. The investment objectives of the various series are
similar to the investment objective of this series of Trust, and the Sponsor
and Trustee of the various series represented by the Existing Trust Units have
responsibilities and authority and (except in the case of the Trustee, whose
fees are somewhat lower for later series) receive fees substantially identical
to those described in this Prospectus. All Existing Trust Units were purchased
by the Sponsor in the secondary market for inclusion in the respective Trust
portfolio and were not taken from the Sponsor's inventory.
Because certain of the Bonds in a portfolio may from time to time under
certain circumstances be sold or redeemed or will mature in accordance with
their terms and because the proceeds arising as a result thereof will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that any series of the Trust will retain for any length of time the size
and composition which existed at the date of the information in Part One.
Moreover, neither the Sponsor nor the Trustee shall be liable in any way for
any default, failure or defect in any Bond.
Most of the bonds in each series of the Trust are subject to redemption prior
to their stated maturity date pursuant to sinking fund provisions, call
provisions or extraordinary optional or mandatory redemption provisions. A
sinking fund is a reserve fund accumulated over a period of time for
retirement of debt. A callable debt obligation is one which is subject to
redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a debt obligation is redeemed, at or before
maturity, by the proceeds of a new debt obligation. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. The portfolio in
Part One of this Prospectus contains a listing of the sinking fund and call
provisions, if any, with respect to each of the Securities. The exercise of
redemption or call provisions will (except to the extent the proceeds of the
called Bonds are used to pay for Unit redemptions) result in the distribution
of principal and may result in a reduction in the amount of subsequent
interest distributions and it may also offset the current return on Units of
the Trust. Extraordinary optional redemptions and mandatory redemptions result
from the happening of certain events. Generally, events that may permit the
extraordinary optional redemption Bonds or may require the mandatory
redemption of Bonds include, among others: a final determination that the
interest on the Bonds is taxable; the substantial damage or destruction by
fire or other casualty of the project for which the proceeds of the Bonds were
used; an exercise by a local, state or Federal governmental unit of its power
of eminent domain to take all or substantially all of the project for which
the proceeds of the Bonds were used; changes in the economic availability of
raw materials, operating supplies or facilities or technological or other
changes which render the operation of the project for which the proceeds of
the Bonds were used uneconomic; changes in law or an administrative or
judicial decree which renders the performance of the agreement under which the
proceeds of the Bonds were made available to finance the project impossible or
which creates unreasonable burdens or which imposes excessive liabilities,
such as taxes, not imposed on the date the Bonds are issued on the issuer of
the Bonds or the user of the proceeds of the Bonds; an administrative or
judicial decree which requires the cessation of a substantial part of the
operations of the project financed with the proceeds of the Bonds; an
overestimate of the costs of the project to be financed with the proceeds of
the Bonds resulting in excess proceeds of the Bonds which may be applied to
redeem Bonds; or an underestimate of a source of funds securing the Bonds
resulting in excess funds which may be applied to redeem Bonds. The Sponsor is
unable to predict all of the circumstances which may result in such redemption
of an issue of Bonds. See "Trust Portfolio" and note (3) in "Notes
to Portfolio" in Part One of this Prospectus. See also the discussion of
single family mortgage and multi-family revenue bonds above for more
information on the call provisions of such bonds.
At any time, litigation may be initiated on a variety of grounds with respect
to Securities in the Trust. Such litigation, as for example suits challenging
the issuance of pollution control revenue Bonds, may affect the validity of
such Securities or the tax-free nature of the interest thereon. While the
outcome of litigation of such nature can never be entirely predicted, the
Trust has received opinions of bond counsel to the issuing authorities of each
Bond on the date of issuance to the effect that such Bonds have been validly
issued and that the interest thereon is exempt from Federal income tax. In
addition, other factors may arise from time to time which potentially may
impair the ability of issuers to meet obligations undertaken with respect to
the Bonds.
To the extent that Units are redeemed by a Trustee, the fractional undivided
interest represented by each unredeemed Unit in the related Trust will
increase, although the actual interest represented by such fraction will
remain unchanged. Units will remain outstanding until redeemed by tender to
the Trustee by any Unitholder, which may include the Sponsor, or until
termination of the related Indenture.
MARKET FOR UNITS
Although they are not obligated to do so, the Sponsor and/or certain dealers
intend to maintain a market for the Units and continuously offer to purchase
Units at prices, subject to change at any time, based upon the aggregate bid
price of the Securities in the portfolio of the Trust plus interest accrued to
the date of settlement. If the supply of Units exceeds demand, or if some
other business reason exists, the Sponsor and/or any of such dealers may
discontinue purchasers of Units. In the event that a market is not maintained
for the Units and no other over-the-counter market is available, a Unitholder
desiring to dispose of his Units may be able to do so only by tendering such
Units to the Trustee for redemption at the Redemption Price, which is based
upon the aggregate bid price of the Securities in the portfolio of the Trust.
See "Redemption of Units." A Unitholder who wishes to dispose of his
Units should inquire of his broker as to current market prices in order to
determine whether there is in existence any price in excess of the Redemption
Price and, if so, the amount thereof.
PUBLIC OFFERING PRICE
The Public Offering Price is based on the aggregate bid price of the
Securities in the Trust and includes a sales charge determined in accordance
with the table set forth below, which is based upon the dollar weighted
average maturity of the Trust, plus accrued interest. For purposes of
computation, Securities will be deemed to mature on their expressed dates
unless: (a) the Securities have been called for redemption or funds or
securities have been placed in escrow to redeem them on an earlier call date,
in which case such call date will be deemed to be the date upon which they
mature; or (b) such Securities are subject to a "mandatory tender," in
which case such mandatory tender will be deemed to be the date upon which they
mature.
The effect of this method of sales charge computation will be that different
sales charge rates will be applied to each Trust based upon the dollar
weighted average maturity of such Trust's Portfolio, in accordance with the
following schedule:
Years To Maturity Sales Charge Years to Maturity Sales Charge
1 1.523% 9 4.712%
2 2.041 10 4.932
3 2.564 11 4.932
4 3.199 12 4.932
5 3.842 13 5.374
6 4.058 14 5.374
7 4.275 15 5.374
8 4.493 16 6.045
The sales charges in the above table are expressed as a percentage of the net
amount invested. Expressed as a percent of the Public Offering Price, the sale
charge on a Trust consisting entirely of a portfolio of Securities with 15
years to maturity would be 5.10%.
Accrued interest consists of two elements. The first element arises as a
result of accrued interest which is the accumulation of unpaid interest on a
bond from the last day on which interest thereon was paid. Interest on
Securities in the Trust is actually paid semi-annually to the Trust. However,
interest on the Securities in the Trust is accounted for daily on an accrual
basis. Because of this the Trust always has an amount of interest earned but
not yet collected by the Trustee because of non-collected coupons. For this
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued and undistributed interest to date of
settlement.
The second element of accrued interest to carry arises because of the
structure of the Interest Account. The Trustee has no cash for distribution to
Unitholders of a Trust until it receives interest payments on the Securities
in such Trust. The Trustee is obligated to provide its own funds, at times, in
order to advance interest distributions. The Trustee will recover these
advancements when such interest is received. Interest Account balances are
established so that it will not be necessary on a regular basis for the
Trustee to advance its own funds in connection with such interest
distributions. The Interest Account balances are also structured so that
there will generally be positive cash balances and since the funds held by the
Trustee may be used by it to earn interest thereon, it benefits thereby. If a
Unitholder sells or redeems all or a portion of his Units or if the Bonds in a
Trust are sold or otherwise removed or if a Trust is liquidated, he will
receive at that time his proportionate share of the accrued interest to carry
computed to the settlement date in the case of sale or liquidation and to the
date of tender in the case of redemption.
For secondary market purposes an appraisal and adjustment of the Securities in
the Trust will be made by the Evaluator as of 4:00 P.M. Eastern time on days
on which the New York Stock Exchange is open.
The aggregate price of the Securities in the Trust is determined by the
Evaluator, on the basis of bid prices: (l) on the basis of current market
prices for the Securities obtained from dealers or brokers who customarily
deal in Bonds comparable to those held by the Trust; (2) if such prices are
not available for any of the Securities, on the basis of current market prices
for comparable Bonds; (3) by determining the value of the Securities by
appraisal; or (4) by any combination of the above. Unless Privately-Insured
Bonds are in default in the payment of principal or interest in significant
risk of default, the Evaluator will not attribute any value to the insurance
obtained by each series of the Trust as such insurance will terminate as to
any Privately-Insured Bond so insured on its disposition by the related series
of the Trust. On the other hand, any Bonds insured under a policy obtained by
the issuer thereof and mortgage loans insured under commitments issued by the
FHA relating to the Obligations Secured by FHA-Insured Mortgages are entitled
to the benefits of such insurance at all times and such benefits are reflected
and included in the market value of such Bonds or such Obligations Secured by
FHA-Insured Mortgages.
The Evaluator will consider in its evaluation of Privately-Insured Bonds which
are in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default and which are covered by
insurance obtained by the Trust, the value of the insurance guaranteeing
interest and principal payments as well as the market value of the
Privately-Insured Bonds and the market value of Bonds of issuers whose Bonds,
if identifiable, carry identical interest rates and maturities and are of a
creditworthiness of minimum investment grade. If such other Bonds are not
identifiable, the Evaluator will compare prices of Bonds which have
substantially identical interest rates and maturities and which are of a
creditworthiness of minimum investment grade. In any case the Evaluator will
consider the ability of an insurer to meet his commitments under the Trust
insurance policy. For example, if the Trustee was to hold the defaulted
Privately-Insured Bonds of a municipality, the Evaluator would first consider
in its evaluation the market price of the defaulted Privately-Insured Bonds.
The Evaluator would ascribe a value to the insurance feature of the defaulted
Privately-Insured Bonds which would be equal to the difference between the
market value of the defaulted Privately-Insured Bonds and the market value of
Bonds of minimum investment grade as described herein which were not in
default in payment or interest in significant risk of such default. The
Evaluator intends to use a similar valuation method with respect to
Privately-Insured Bonds if there is a significant risk of default and a
resulting decrease in the market value. It is the position of the Sponsor that
this is a fair method of valuing Privately-Insured Bonds and reflects a proper
valuation method in accordance with the provisions of the Investment Company
Act of 1940. For a description of the circumstances under which a full or
partial suspension of the right of Unitholders to redeem their Units may
occur, see "Redemption of Units."
The Sponsor intends to continue qualification of the Units for sale in
virtually all of the States where such qualification is deemed necessary.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units equal to 70% of the applicable sales
charge as determined using the table found in "Public Offering Price."
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sale charge paid by these
customers (equal to the agency commission referred to above) is retained by or
remitted to the banks. Under the Glass-Steagall Act, banks are prohibited from
underwriting Units of the Trust; however, the Glass-Steagall Act does permit
certain agency transactions and the banking regulators have not indicated that
these particular agency transactions are not permitted under such Act. In
Texas any banks making Units available must be registered as broker-dealers in
Texas.
Broker-dealers of the Trust may be eligible to participate in a program in
which such firms receive from the Sponsor a nominal award for each of their
registered representatives who have sold a minimum number of units of unit
investment trusts created by the Sponsor during a specified time period. In
addition, at various times the Sponsor may implement other programs under
which the sales force of a broker or dealer may be eligible to win other
nominal awards for certain sales efforts, or under which the Sponsor will
reallow to any such broker or dealer that sponsors sales contests or
recognition programs conforming to criteria established by the Sponsor, or
participates in sales programs sponsored by the Sponsor, an amount not
exceeding the total applicable sales charges on the sales generated by such
person at the public offering price during such programs. Also, the Sponsor in
its discretion may from time to time pursuant to objective criteria
established by the Sponsor pay fees to qualifying brokers or dealers for
certain services or activities which are primarily intended to result in sales
of units of the Trust. Such payments are made by the Sponsor out of its own
assets, and not out of the assets of the Trust. These programs will not change
the price Unitholders pay for their Units or the amount that the Trust will
receive from the Units sold.
The Sponsor reserves the right to change the amount of the concession or
agency commission to dealers and others from time to time.
The Evaluator will appraise or cause to be appraised daily the value of the
underlying Securities as of 4:00 P.M. Eastern time on days of trading on the
New York Stock Exchange on each day on which the Exchange is open. For
transactions occurring prior to 4:00 P.M. Eastern time on days of trading on
the New York Stock Exchange, the Public Offering Price will be computed as of
4:00 P.M. Eastern time on days of trading on the Exchange on that day. For
transactions occurring after 4:00 P.M. Eastern time on days of trading on the
New York Stock Exchange, or on a day when the New York Stock Exchange is
closed, the Public Offering Price will be computed as of 4:00 P.M. Eastern
time on the next day that such Exchange is open for trading. The price so
determined will be the basis for purchasers or sales of outstanding Units
during the period of time any such price is effective.
EXPENSES AND CHARGES
The Sponsor will not charge the Trust an advisory fee and will receive no fee
from the Trust for services performed except that a subsidiary of the Sponsor
shall receive the annual fee indicated under "Summary of Essential
Information" in Part One from each series of Trust for regularly
evaluating the respective portfolios. The annual Trustee's fees for providing
services to each series of the Trust are indicated under "Summary of
Essential Information" in Part One. The Trustee's fees are payable
monthly on or before the fifteenth day of each month from the Interest Account
to the extent funds are available and then from the Principal Account. Since
the Trustee has the use of the funds being held in the Principal and Interest
Accounts for future distributions, payment of expenses and redemptions and
since such accounts are non-interest bearing to Unitholders, the Trustee
benefits thereby. Part of the Trustee's compensation for its services to each
Trust is expected to result from the use of these funds. For a discussion of
the services rendered by the Trustee pursuant to its obligations under the
Trust Agreement, see "Reports to Unitholders" and "The
Trustee." See "Summary of Essential Information" in Part One. All
fees may be increased without approval of the Unitholders by amounts not
exceeding proportionate increases under the category "All Services Less
Rent of Shelter" in the Consumer Price Index published by the United
States Department of Labor or, if such category is no longer published, in a
comparable category.
The cost of portfolio insurance is set forth in the Portfolio listing for each
series of the Trust. The cost set forth will continue so long as the
respective policyholder retains the size and composition shown therein.
Premiums are payable monthly by the Trustee on behalf of the Trust. As
Privately-Insured Bonds in a portfolio are redeemed or sold, the amount of the
insurance premium will be reduced in respect of Privately-Insured Bonds no
longer owned by or held in a series of the Trust which are insured by
insurance obtained by the Trust. The Trust does not incur any cost for
insurance obtained by an issuer of a Bond, since the premium for this
insurance has been paid by the issuer. Bonds insured by the issuer are not
additionally insured by the Trust. The Trust does not incur any cost for
insurance which relates to Bonds underlying Existing Trust Units, since the
premium or premiums for such insurance has been paid either by the Existing
Trusts or the respective issuers of such Bonds. Bonds underlying Existing
Trust Units are not additionally insured by the Trust. Further, the Trust
incurs no cost for the insurance coverage provided by the FHA in connection
with the Obligations Secured by FHA-Insured Mortgages. See "Portfolio"
in Part One.
The following additional charges are or may be incurred by the Trust: all
expenses (including legal and auditing expenses) of the Trustee incurred in
connection with its responsibilities under the Indenture, except in the event
of negligence, bad faith or willful misconduct on its part; the expenses and
costs of any action undertaken by the Trustee to protect the Trust and the
rights and interests of the Unitholders; fees of the Trustee for any
extraordinary services performed under the Indenture; indemnification of the
Trustee for any loss, liability or expense incurred by it without negligence,
bad faith or willful misconduct on its part, arising out of, or in connection
with, its acceptance or administration of the Trust; indemnification of the
Sponsor for any loss, liability or expenses incurred without gross negligence,
bad faith or willful misconduct in acting as Sponsor of the Trust; all taxes
and other governmental charges imposed upon the Securities or any part of the
Trust (no such taxes or charges are being levied or made or, to the knowledge
of the Sponsor, contemplated); and expenditures incurred in contacting
Unitholders upon termination of the Trust. The above expenses and the
Trustee's annual fee, when paid or owing to the Trustee, are secured by a
lien on the Trust. In addition, the Trustee is empowered to sell Securities in
order to make funds available to pay all these amounts if funds are not
otherwise available in the Interest and Principal Accounts.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
The estimated rate of return on an investment in Units in any series of the
Trust is stated in terms of "Estimated Current Return,'' which is based
on the Estimated Net Annual Interest Rate per Unit and the Public Offering
Price and "Estimated Long-Term Return" which is calculated using a
formula which (l) takes into consideration, and determines and factors in the
relative weightings of, the market values, yields (which takes into account
the amortization of premiums and the accretion of discounts) and estimated
retirements of all of the Securities in the Trust and (2) takes into account
the expenses and sales charge associated with each Trust Unit (see "Public
Offering Price" herein and see "Summary of Essential Financial
Information" in Part One of this Prospectus). It is important to note that
any change in either the estimated net annual interest rate per Unit or the
Public Offering Price will result in a change in the Estimated Current Return
and Estimated Long-Term Return. The Public Offering Price will vary in
accordance with fluctuations in the prices of the underlying Securities and
the estimated net annual interest rate per Unit will change as underlying
Securities are paid, prepaid, redeemed, sold or exchanged or as the expenses
of the Trust change. Consequently, there is no guarantee that the present
Estimated Current Return and Estimated Long-Term Return for the Trust will be
realized in the future.
Record dates for the distribution of interest under the monthly plan of
distribution are the first day if each month with the distribution dates being
approximately two weeks after the related record date. It is anticipated that
an amount equal to approximately one-twelfth of the amount of net annual
interest income per unit will be distributed on or shortly after each
distribution date to Unitholders of record on the preceding record date.
Record dates for quarterly distributions are the first day of March, June,
September and December and record dates for semi-annual distributions are the
first day of June and December. The distribution dates for distributions of
interest under the quarterly and semi-annual distribution plans are
approximately two weeks after the related record date. All Unitholders will
receive any distributions from the Principal Account as of the record dates
for the months of June and December of each year.
PORTFOLIO INSURANCE
In an effort to protect Unitholders against any delay in payment of interest
and against principal loss, insurance has been obtained either by each series
of the Trust or by the bond issuer guaranteeing prompt payment of interest and
principal, when due, in respect of the Bonds in the Trust (other than the
Bonds underlying the Existing Trust Units and the Obligations Secured by
FHA-Insured Mortgages, which Bonds are already covered by insurance). The
insurance policy obtained by the Trust is non-cancellable and will continue in
force so long as the respective policyholder is in existence, the insurer
and/or the reinsurer referred to below are still in business and the
Privately-Insured Bonds described in the policy continue to be held by the
Trust (see Portfolio in Part One). Non-payment of premiums on the policy
obtained by each series of the Trust will not result in the cancellation of
insurance but will force the insurer to take action against the Trustee for
the series involved to recover premium payments due it. Premium rates for each
issue of Privately-Insured Bonds protected by the policy obtained by each
series of the Trust are fixed for the life of the respective series. The
premium for any insurance policy or policies obtained by an issuer of Bonds
has been paid in advance by such issuer and any such policy or policies are
non-cancellable and will continue in force so long as the Bonds so insured are
outstanding and the insurer referred to below remains in business. Insurance
relating to the underlying Bonds represented by the Existing Trust Units have
been similarly insured under substantially identical policies to those
described herein at the time of creation of the respective series (or in
certain instances some of such Bonds have been insured by the respective
issuers of such Bonds through insurance obtained from AMBAC Indemnity). Thus,
the Bonds insurance policy or policies obtained by an Existing Trust or an
issuer of Bonds underlying such Existing Trust Units has been paid in advance
by such issuer or is payable on the same terms as the Trust's insurance
policy and any such policy or policies are non-cancellable and will continue
in force so long as the Bonds so insured are outstanding (in the case of
issuer acquired insurance) or so long as such Bonds are held by the Existing
Trust (in the case of insurance acquired by the Existing Trust) and the
insurers referred to below remain in business.
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units. It is the present intention of the
Evaluator to attribute a value for such insurance for the purpose of computing
the price or redemption value of Units if the Privately-Insured Bonds covered
by such insurance are in default in payment of principal or interest or in
significant risk of such default. The value of the insurance will be the
difference between the market value of a Privately-Insured Bond in default in
payment of principal or interest or in significant risk of such default and
the market value of similar Bonds which are not in such situation as
determined in accordance with the Trust's method of valuing defaulted
Privately-Insured Bonds. See "Public Offering Price." It is also the
present intention of the Trustee not to sell such Privately-Insured Bonds to
effect redemptions or for any other reason but rather to retain them in the
portfolio because value attributable to the insurance cannot be realized upon
sale. See "Public Offering Price" herein for a more complete
description of a Trust's method of valuing defaulted Privately Insured Bonds
and Privately-Insured Bonds which have a significant risk of default. On the
other hand, any insurance obtained by the issuer of a Bond and the FHA
insurance relating to the Obligations Secured by FHA-Insured Mortgages are
effective so long as such securities are outstanding. Therefore, any such
insurance may be considered to represent an element of market value in regard
to the Bonds thus insured and the Obligations Secured by FHA-Insured
Mortgages, but the exact effect, if any, of this insurance on such market
value cannot be predicted. See "Public Offering Price," "
Redemption of Units" and "Removal of Securities From the Trust."
The policy obtained by each series of the Trust and any other policy obtained
by a bond issuer, if any, were issued by AMBAC Indemnity. AMBAC Indemnity is a
Wisconsin-domiciled stock insurance company regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin, and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico with admitted assets of approximately $1,936,000,000 (unaudited) and
statutory capital of approximately $1,096,000 (unaudited) as of September 30,
1993. Statutory capital consists of AMBAC Indemnity's policyholders' surplus
and statutory contingency reserve. AMBAC Indemnity is a wholly owned
subsidiary of AMBAC Inc., a 100% publicly held company. Moody's Investors
Service, Inc. and Standard & Poor's Corporation have both assigned a triple-A
claims-paying ability rating to AMBAC Indemnity.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Indemnity. The address of AMBAC
Indemnity's administrative offices and its telephone number are One State
Street Plaza, 17th Floor, New York, New York 10004 and (212)668-0340.
AMBAC Indemnity has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC has been and will be assumed by a number of
foreign and domestic unaffiliated reinsurers.
No representation is made as to AMBAC Indemnity's ability or as to any
reinsurer's ability to meet their respective commitments under either the
series or any bond issuer's insurance policy.
To be in the Portfolio of the Trust, Privately-Insured Bonds must be insured
by AMBAC Indemnity or have been eligible for the insurance obtained from AMBAC
Indemnity. In determining eligibility, AMBAC Indemnity applied its own
standards which correspond generally to the standards it normally uses in
establishing the insurability of new issue municipal Bonds and which are not
necessarily the same as the criteria used in regard to the selection of Bonds
by the Sponsor. To the extent the standards of AMBAC Indemnity are more
restrictive than those of the Sponsor, the previously stated Trust investment
criteria have been limited. This decision was made prior to the deposit, as
Bonds not eligible for such insurance (or not already insured by the issuer
thereof) were not deposited in the Trust. Thus, all Bonds in the portfolio of
the Trust are insured, either by the respective series of the Trust, by the
Issuer of the Bonds or by FHA related insurance.
The contract of insurance relating to the Trust and the negotiations in
respect thereof represent the only relationship between AMBAC Indemnity and
the Trust. Otherwise neither AMBAC Indemnity nor its parent, AMBAC Inc., or
any associate thereof has any significant relationship, direct or indirect,
with the Trust or the Sponsor, except that the Sponsor has in the past and may
from time to time in the future, in the normal course of its business,
participate as sole underwriter or as manager or as a member of underwriting
syndicates in the distribution of new issues of municipal Bonds for which a
policy of insurance guaranteeing the timely payment of interest and principal
has been obtained from AMBAC Indemnity.
Because the Privately-Insured Bonds in the Trust are insured by AMBAC as to
the timely payment of principal and interest, when due, and on the basis of
the various reinsurance agreements in effect, Standard & Poor's Corporation
on the Date of Deposit of each Trust assigned to the portion of the Trust'
portfolio comprised of Privately-Insured Bonds (but not to the Units of the
Trust) its "AAA" investment rating. This is the highest rating
assigned to securities by Standard & Poor's Corporation (see "Description
of Bond Ratings"). The obtaining of this rating by the Trust should not be
construed as an approval of the offering of the Units by Standard & Poor's
Corporation or as a guarantee of the market value of the Trust or the Units.
Standard & Poor's has indicated that this rating is not a recommendation to
buy, hold or sell Units nor does it take into account the extent to which
expenses of the Trust or sales by the Trust of Privately-Insured Bonds for
less than the purchase price paid by the Trust will reduce payment to
Unitholders of the interest and principal required to be paid on such
Privately-Insured Bonds. No rating has been assigned to the portion of the
Trust's portfolio comprised of the Obligations Secured by FHA-Insured
Mortgages, but at the Date of Deposit all Obligations Secured by FHA-Insured
Mortgages (but not the Units) were rated AAA or better by Fitch Investors
Services, Inc. or Standard & Poor's Corporation.
An objective of portfolio insurance obtained by the Trust is to obtain a
higher yield on the Trust portfolio than would be available if all the
Securities in such portfolio had Standard & Poor's Corporation "AAA"
rating and yet at the same time to have the protection of insurance of prompt
payment of interest and principal, when due, on the Privately-Insured Bonds.
There is, of course, no certainty that this result will be achieved. Bonds in
the Trust which have been insured by the issuer (all of which are rated "
AAA" by Standard & Poor's Corporation) may or may not have a higher yield
than uninsured Bonds rated "AAA" by Standard & Poor's Corporation. In
selecting such Bonds for the portfolio, the Sponsor applied the criteria
hereinbefore described.
In the event of nonpayment of interest or principal when due in respect of a
Privately Insured Bond, the appropriate insurer shall make such payment not
later than 30 days after it has been notified that such non-payment has
occurred or is threatened (but not earlier than the date such payment is due).
The insurer, as regards any payment it may make, will succeed to the rights of
the Trustee in respect thereof. All polices issued by AMBAC are substantially
identical insofar as liability to the Trust is concerned.
AMBAC Indemnity has obtained a letter ruling from the Internal Revenue Service
which holds in effect that insurance proceeds representing maturing interest
on defaulted municipal obligations paid by AMBAC Indemnity to municipal bond
funds substantially similar to the Trust, under policy provisions
substantially identical to the policy described herein, will be excludable
from Federal gross income under Section 103(a)(1) of the Internal Revenue
Code. Holders of the Units should discuss with their tax advisors the degree
of reliance which they may place on this letter ruling. Chapman and Cutler,
counsel for the Sponsor, has given an opinion to the effect such payment of
proceeds would be excludable from Federal gross income if, and to the same
extent as, such interest would have been so excludable if paid by the issuer
of the defaulted obligations. See "Tax Status."
AMBAC Indemnity is subject to regulation by the department of insurance in
each state in which it is qualified to do business. Such regulation, however,
is no guarantee that it will be able to perform its contract of insurance in
the event a claim should be made thereunder at some time in the future. At the
date hereof it is reported that no claims have been submitted or are expected
to be submitted to AMBAC Indemnity which would materially impair the ability
of AMBAC Indemnity to meet its commitments pursuant to any contract of bond or
portfolio insurance.
To determine the amount of Privately-Insured Bonds in the portfolio which are
insured by AMBAC Indemnity through insurance obtained by the issuer thereof
and the amount which is insured under the portfolio insurance policy obtained
by the Trust, see "Portfolio" in Part One.
The information relating to AMBAC Indemnity contained herein has been
furnished by such company. The financial information contained herein with
respect to AMBAC Indemnity appears in reports filed with state insurance
regulatory authorities and is subject to audit and review by such authorities.
No representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the dates thereof.
TAX STATUS
At the time of Closing of each Trust Chapman and Cutler, counsel for the
Sponsor, rendered an opinion under existing law substantially to the effect
that:
(1) Each Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on
Securities which is excludable from gross income tax under the Internal
Revenue Code of 1986 (the "Code") will retain its status when
distributed to Unitholders, except to the extent such interest is subject to
the alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax") as noted
below;
(2)Each Unitholder is considered to be the owner of a pro rata portion of the
respective Trust under subpart E, subchapter J of chapter 1 of the Code and
will have a taxable event when such Trust disposes of a Security, or when the
Unitholder redeems or sells his Units. Unitholders must reduce the tax basis
of their Units for their share of accrued interest received by the respective
Trust, if any, on Securities delivered after the Unitholders pay for their
Units to the extent that such interest accrued on such Securities during the
period from the Unitholder' s settlement date to the date such Securities are
delivered to the respective Trust and, consequently, such Unitholders may have
an increase in taxable gain or reduction in capital loss upon the disposition
of such Units. Gain or loss upon the sale or redemption of Units is measured
by comparing the proceeds of such sale or redemption with the adjusted basis
of the Units. If the Trustee disposes of Bonds (whether by sale, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unitholder. The amount of any such gain or loss is measured by comparing the
Unitholder's pro rata share of the total proceeds from such disposition with
the Unitholder's basis for his or her fractional interest in the asset
disposed of. In the case of a Unitholder who purchases Units, such basis
(before adjustment for earned original issue discount and amortized bond
premium, if any) is determined by apportioning the cost of the Units among
each of the Trust assets ratably according to value as of the date of
acquisition of the Units. The tax cost reduction requirements of the Code
relating to amortization of bond premium may, under some circumstances, result
in the Unitholder realizing a taxable gain when his Units are sold or redeemed
for an amount equal to his original cost;
(3) Any proceeds paid under an insurance policy or policies dated the Date of
Deposit issued to a Trust by AMBAC Indemnity which represent maturing interest
on defaulted obligations held by the Trustee will be excludable from Federal
gross income if, and to the same extent as, such interest would have been so
excludable if paid by the issuer of the defaulted obligations; and
(4) Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Federal gross income if, and to the same extent as,
such interest would have been excludable if paid in the normal course by the
issuer of the defaulted obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules governing
the accrual of original issue discount. These rules provide that original
issue discount accrues either on the basis of a constant compound interest
rate or ratably over the term of the Bond, depending on the date the Bond was
issued. In addition, special rules apply if the purchase price of a Bond
exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price ("its
adjusted issue price") to prior owners. The application of these rules
will also vary depending on the value of the Bond on the date a Unitholder
acquires his Units and the price the Unitholder pays for his Units. Investors
with questions regarding these Code sections should consult with their tax
advisers.
"The Revenue Reconciliation Act of 1993"(the "Tax Act") subjects tax-exempt
bonds to the market discount rules of the code effective for bonds purchased
after April 30, 1993. In general, market discount is the amount (if any) by
which the stated redemption price at maturity exceeds an investor's purchase
price (except to the extent that such difference, if any, is attributable to
original issue discount not yet accrued). Market discount can arise based on
the price a Trust pays for Bonds or the price a Unitholder pays for his or her
Units. Under the Tax Act, accretion of market discount is taxable as ordinary
income; under prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized as
ordinary income by the Unitholders when principal payments are received on the
Bond, upon sale or at redemption (including early redemption), or upon the
sale or redemption of his or her units, unless a Unitholder elects to include
market discount in taxable income as it accrues. The market discount rules are
complex and Unitholders should consult their tax advisers regarding these
rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depend upon
the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the
Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings\xd3
over an amount equal to its alternative minimum taxable income (before such
adjustment item and the alternative minimum tax net operating loss deduction).
"Adjusted current earnings" includes all tax exempt interest,
including interest on the Bonds in the Trust. Unitholders are urged to consult
their tax advisers with respect to the particular tax consequences to them
including the corporate alternative minimum tax, the Superfund Tax and the
branch profits tax imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units of
the Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest on indebtedness incurred to purchase or
improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units would generally not be able to
deduct any of the interest expense attributable to ownership of such Units.
Investors with questions regarding this issue should consult with their tax
advisers.
In the case of certain of the Bonds in the Trust, (and certain of the Bonds
underlying Existing Trust Units), the opinions of bond counsel indicate that
interest on such Bonds received by a "substantial user" of the
facilities being financed with the proceeds of these Bonds, or persons related
thereto, for periods while such Bonds are held by such a user or related
person, will not be excludible from Federal gross income, although interest on
such Bonds received by others would be excludible from Federal gross income.
"Substantial user" and "related person" are defined under U.S.
Treasury Regulations. Any person who believes that he or she may be a "
substantial user" or a "related person" as so defined should
contact his or her tax adviser.
At the time of closing, special counsel to the Trust for New York tax matters
rendered an opinion under then existing law substantially to the effect that
each Trust is not an association taxable as a corporation and the income of
each Trust will be treated as income of the Unitholder under the existing tax
laws of the State and City of New York.
All statements of law in the Prospectus concerning exclusion from gross income
for Federal, state or other tax purposes are the opinion of counsel and are to
be so construed.
At the respective times of issuance of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income were rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Trust of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
In the case of corporations, the alternative tax rate applicable to long-term
capital gains is 35%, effective for long-term capital gains realized in
taxable years beginning on or after January 1, 1993. For taxpayers other than
corporations, net capital gains are subject to a maximum marginal stated tax
rate of 28 percent. However, it should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed. Under the
Code, taxpayers must disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 86 of the Code, in general, provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social
Security benefits received exceeds a "base amount." The base amount is
$25,000 for unmarried taxpayers, $32,000 for married taxpayers filing a joint
return and zero for married taxpayers who do not live apart at all times
during the taxable year and who file separate returns. Modified adjusted gross
income is adjusted gross income determined without regard to certain otherwise
allowable deductions and exclusions from gross income and by including
tax-exempt interest. To the extent that Social Security benefits are
includible in gross income, they will be treated as any other item of gross
income.
In addition, under the Tax Act, for taxable years beginning after December 31,
1993, up to 85% of Social Security benefits are includible in gross income to
the extent that the sum of "modified adjusted gross income"plus 50% of Social
Security benefits received exceeds an "adjusted base amount."The adjusted
base amount is $34,000 for unmarried taxpayers, $44,000 for married taxpayers
filing a joint return, and zero for married taxpayers who do not live apart at
all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from a Trust, will be subject to tax. A taxpayer whose adjusted
gross income already exceeds the base amount or the adjusted base amount must
include fifty percent or eighty-five percent, respectively, of his Social
Security benefits in gross income whether or not he receives any tax-exempt
interest. A taxpayer whose modified adjusted gross income (after inclusion of
tax-exempt interest) does not exceed the base amount need not include any
Social Security benefits in gross income.
For a discussion of the state tax status of income earned on Units of a Trust,
see "Tax Status" in Part 1 of the Prospectus for the applicable Trust.
Except as noted therein, the exemption of interest on state and l ocal
obligations for Federal income tax purposes discussed above does not
necessarily result in exemption under the income or other tax laws of any
State or City. The laws of the several States vary with respect to the
taxation of such obligations.
ISSUE AND TRANSFER OF CERTIFICATES
The Trustee is authorized to treat as the record owner of Units that person
who is registered as such owner on the books of the Trustee. Ownership of
Units is evidenced by separate registered certificates executed by the Trustee
and the Sponsor. Delivery of certificates representing Units ordered for
purchase is normally made five business days following such order or shortly
thereafter. Certificates are transferable by presentation and surrender to the
Trustee properly endorsed or accompanied by a written instrument or
instruments of transfer. Certificates to be redeemed must be properly endorsed
or accompanied by a written instrument or instruments of transfer. A
Unitholder must sign exactly as his name appears on the face of the
certificate with the signature guaranteed by a participant in the Securities
Transfer Agents Medallion Program ("STAMP") or such other signature guaranty
program in addition to, or in substitution for, STAMP, as may be accepted by
the Trustee. In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of death,
appointments as executor or aministrator or certificates of corporate
authority.
Certificates will be issued in denominations of one Unit or any multiple
thereof. Certificates of Units will bear an appropriate notation on their face
indicating which plan of distribution has been selected in respect thereof.
When a change is made, the existing certificate must be surrendered to the
Trustee and a new certificate issued to reflect the then effective plan of
distribution. There will be no charge for this service.
Although no such charge is now made or contemplated, a Unitholder may be
required to pay a reasonable fee to the Trustee per certificate reissued
(other than as a result of a change in plan of distribution) or transferred,
and to pay any governmental change that may be imposed in connection with each
such transfer or exchange. For new certificates issued to replace destroyed,
stolen or lost certificates, the Unitholder may be required to furnish
indemnity satisfactory to the Trustee, evidence of ownership and pay such
expenses as the Trustee may incur. Mutilated certificates must be surrendered
to the Trustee for replacement.
DISTRIBUTION OF INTEREST AND PRINCIPAL
Interest from the Trust will be distributed on or shortly after the fifteenth
day of each month on a pro rata basis to Unitholders of record as of the
preceding record date who are entitled to distributions at that time under the
plan of distribution chosen. All
distributions will be net applicable expenses.
The pro rata share of cash in the Principal Account will be computed as of
June1 and December1 and distributions to the Unitholders as of the applicable
record date will be made approximately two weeks thereafter. Proceeds received
from the disposition of any of the Securities after a record date and prior to
the following distribution date will be held in the Principal Account and not
distributed until the second following distribution date. The Trustee is not
required to pay interest on funds held in the Principal or Interest Account
(but may itself earn interest thereon and thereby benefits from the use of
such funds) nor to make a distribution from the Principal Account unless the
amount available for distribution shall equal at least $1.00 per Unit.
However, should the amount available for distribution in the Principal Account
equal or exceed $10.00 per Unit, the Trustee will make a special distribution
from the Principal Account on the next succeeding monthly distribution date to
holders of record on the related monthly record date.
The Trustee will credit to the Interest Account all interest received by the
Trust including that part of the proceeds (including insurance proceeds) of
any disposition of Securities which represents accrued interest. Other
receipts will be credited to the Principal Account. The distribution to the
Unitholders as of each applicable record date will be made on the following
distribution date or shortly thereafter and shall consist of an amount
substantially equal to such portion of the holder's pro rata share of the
estimated annual income to the Interest Account after deducting estimated
expenses as is consistent with the distribution plan chosen. Because interest
payments are not received by the Trust at a constant rate throughout the year,
such interest distribution may be more or less than the amount credited to the
Interest Account as of the record date. For the purpose of minimizing
fluctuations in the distributions from the Interest Account, the Trustee is
authorized to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee shall be reimbursed,
without interest, for any such advances from funds in the Interest Account on
the ensuing record date. On the other hand, any excess funds held by the
Trustee prior to distributions to Unitholders may be used by the Trustee to
earn interest thereon so the Trustee benefits thereby. Persons who purchase
Units between a record date and a distribution date will receive their first
distribution on the second distribution date after the purchase, under the
applicable plan of distribution.
Each month, the Trustee will deduct from the Interest Account and, to the
extent funds are not sufficient therein, from the Principal Account, amounts
necessary to pay the expenses of the Trust. A Trustee also may withdraw from
said accounts such amounts, if any, as it deems necessary to establish a
reserve for any governmental charges payable out of the Trust. Amounts so
withdrawn shall not be considered a part of the Trust's assets until such
time as the Trustee shall return all or any part of such amounts to the
appropriate account. In addition, a Trustee may withdraw from the Interest
Account and the Principal Account such amounts as may be necessary to cover
redemption of Units.
The plan of distribution selected by a Unitholder will remain in effect until
changed. Unitholders purchasing Units in the secondary market will initially
receive distributions in accordance with the election of the prior owner.
Unitholders may change the plan of distribution in which they are
participating. For the convenience of Unitholders, the Trustee will furnish a
card for this purpose; cards may also be obtained, upon request, from the
Trustee. Unitholders desiring to change their plan of distribution may so
indicate on the card and return it, together with their certificate and such
other documentation as the Trustee may then require to the Trustee.
Certificates should only be sent by registered or certified mail to minimize
the possibility of their being lost or stolen. If the card and certificate are
returned to the Trustee, the change will become effective for all subsequent
distributions.
REINVESTMENT OPTION
Unitholders of the Trust may elect to have each distribution of interest
income, capital gains and/or principal on their Units automatically reinvested
in shares of any of the mutual funds listed under "The Sponsor." Such
mutual funds are hereinafter collectively referred to as the "Reinvestment
Funds."
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trust. The prospectus relating to each Reinvestment
Fund describes the investment policies of such fund and sets forth the
procedures to follow to commence reinvestment. A Unitholder may obtain a
prospectus for the respective Reinvestment Funds from Van Kampen Merritt Inc.
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Texas residents who
desire to reinvest may request that a broker-dealer registered in Texas send
the prospectus relating to the respective fund.
After becoming a participant in a reinvestment plan, each distribution of
interest income, capital gains and/or principal on the participant's Units
will, on the applicable distribution date, automatically be applied, as
directed by such person, as of such distribution date by the Trustee to
purchase shares (or fractions thereof) of the applicable Reinvestment Fund at
a net asset value as computed as of the close of trading on the New York Stock
Exchange on such date, plus a sales charge of $1.00 per $100 of reinvestment
except if the participant selects the Van Kampen Merritt Money Market Fund or
the Van Kampen Merritt Tax Free Money Fund in which case no sales charge
applies. A minimum of one-half of such sales charge would be paid to Van
Kampen Merritt Inc.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund.
A participant may at any time prior to five days preceding the next succeeding
distribution date, by so notifying the Trustee in writing, elect to terminate
his or her reinvestment plan and receive future distributions of his or her
Units in cash. There will be no charge or other penalty for such termination.
Each Reinvestment Fund, its Sponsor and investment advisor have the right to
terminate at any time the reinvestment plan relating to such fund.
It should be remembered that the reinvestment of distributions through one of
the reinvestment plans will not affect the income tax status of the Trust
distributions.
REPORTS TO UNITHOLDERS
The Trustee shall furnish Unitholders in connection with each distribution a
statement of the amount of interest, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. For as long as the Trustee deems it to be in the best interests of
the Unitholders, the accounts of the Trust shall be audited, not less
frequently than annually, by independent certified public accountants and the
report of such accountants shall be furnished by the Trustee to Unitholders of
the Trust upon request.
Under regulations issued by the Internal Revenue Service, the Trustee will be
required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder' s
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may be
recovered by the Unitholder only when filing a return. Under normal
circumstances the Trustee obtains the Unitholder' s tax identification number
from the selling broker. However, at any time a Unitholder elects to tender
Units for redemption, such Unitholder should provide a tax identification
number to the Trustee in order to avoid this possible "back-up
withholding" in the event the Trustee has not been previously provided
such number.
Within a reasonable time after the end of each calendar year, the Trustee will
furnish to each person who at any time during the calendar year was a
Unitholder of record, a statement (1) as to the Interest Account: interest
received (including amounts representing interest received upon any
disposition of Securities), the percentage of such interest by states or
territories in which the issuers of the Bonds are located, the amount of such
interest representing insurance proceeds, deductions for payment of applicable
taxes and for fees and expenses of the Trust, redemption of Units and the
balance remaining after such distributions and deductions, expressed both as a
total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (2) as
to the Principal Account: the dates of disposition of any Securities and the
net proceeds received therefrom (excluding any portion representing interest),
deductions for payment of applicable taxes and for fees and expenses of the
Trust, redemptions of Units, and the balance remaining after such
distributions and deductions, expressed both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (3) a list of the Securities held and
the number of Units outstanding on the last business day of such calendar
year; (4) the Redemption Price per Unit based upon the last computation
thereof made during such calendar year; and (5) amounts actually distributed
during such calendar year from the Interest Account and from the Principal
Account, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding.
In order to comply with Federal and State tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in respect of
all plans of distribution so that Unitholders may be informed regarding the
results of other plans of distribution.
REDEMPTION OF UNITS
A Unitholder may redeem all or a portion of his Units by tender to the Trustee
at its Unit Investment Trust Division, 101 Barclay Street, 20th Floor, New
York, New York 10286, of the certificates representing the Units to be
redeemed, duly endorsed or accompanied by proper instruments of transfer with
signature guaranteed as explained above (or by providing satisfactory
indemnity, as in connection with lost, stolen or destroyed certificates), and
payment of applicable governmental charges, if any. Thus, redemption of Units
cannot be effected until certificates representing such Units have been
delivered to the person seeking redemption or satisfactory indemnity provided.
No redemption fee will be charged. On the seventh calendar day following such
tender, or if the seventh calendar day is not a business day, on the first
business day prior thereto, the Unitholder will be entitled to receive in cash
an amount for each Unit equal to the Redemption Price per Unit next computed
after receipt by the Trustee of such tender of Units. The "date of
tender" is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after 4:00 P.M. Eastern time on
days of trading on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading and such Units will be deemed
to have been tendered to the Trustee on such day for redemption at the
redemption price computed on that day. Units so redeemed shall be cancelled.
Under regulations issued by the Internal Revenue Service, the Trustee will be
required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may be
recovered by the Unitholder only when filing a return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification number
from the selling broker. However, at any time a Unitholder elects to tender
Units for redemption, such Unitholder should provide a tax identification
number to the Trustee in order to avoid this possible "back-up
withholding" in the event the Trustee has not been previously provided
such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal
Account. All other amounts paid on redemption shall be withdrawn from the
Principal Account.
The Redemption Price per Unit and the Public Offering Price of Units will be
determined on the basis of the bid price of the Securities in the Trust as of
the close of trading on the New York Stock Exchange on the date any such
determination is made. The Redemption Price per Unit is the pro rata share of
each Unit determined by the Evaluator on the basis of (i) the cash on hand in
the Trust or moneys in the process of being collected, (ii) the value of the
Securities in the Trust based on the bid prices of the Securities, and (iii)
interest accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of the Trust and (b) the accrued expenses of
the Trust. The Evaluator may determine the value of the Bonds in the Trust (1)
on the basis of current bid prices of the Securities obtained from dealers or
brokers who customarily deal in bonds comparable to those held by the Trust,
(2) on the basis of bid prices for Securities comparable to any Securities for
which bid prices are not available, (3) by determining the value of the Bonds
by appraisal, or (4) by any combination of the above. In determining the
Redemption Price per Unit no value will be assigned to the portfolio insurance
obtained by each series of the Trust on Privately-Insured Bonds in such series
unless such Privately-Insured Bonds are in default in payment of principal or
interest or in significant risk of default. On the other hand, any Bonds
insured under a policy obtained by the issuer thereof and the FHA-Insured
mortgage loans relating to the Obligations Secured by FHA-Insured Mortgages
are entitled to the benefits of such insurance at all times and such benefits
are reflected and included in the market value of such Bonds and the
Obligations Secured by FHA-Insured Mortgages. See "Portfolio Insurance\xd3
and "Public Offering Price."
The Trustee is empowered to sell Securities in order to make funds available
for redemption. To the extent that Securities are sold, the size and diversity
of the Trust will be reduced. Such sales may be required at a time when
Securities would not otherwise be sold and might result in lower prices than
might otherwise be realized. Under the provisions for insurance obtained by
each series of the Trust, the insurance may not be transferred by the Trust.
Accordingly, any such Privately-Insured Bonds must be sold on an uninsured
basis (in contrast to Bonds on which insurance has been obtained by the issuer
thereof and Obligations Secured by FHA-Insured Mortgages). See "Removal of
Securities from the Trust" for the effect of selling defaulted
Privately-Insured Bonds.
The right of redemption may be suspended and payment postponed for any period
during which the New York Stock Exchange is closed, other than for customary
weekend and holiday closings, or during which the Securities and Exchange
Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which disposal or evaluation of the
Securities is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. Because insurance
obtained by the Trusts terminates as to Bonds which are sold by the Trustee
and because the insurance obtained by the Trusts does not have a realizable
cash value which can be used by the Trustee to meet redemptions of Units,
under certain circumstances the Sponsor may apply to the Securities and
Exchange Commission for an order permitting a full or partial suspension of
the right of Unitholders to redeem their Units if a significant portion of the
Bonds in the portfolio is in default in payment of principal or interest or in
significant risk of such default.
PURCHASE OF UNITS BY SPONSOR
The Trustee shall notify the Sponsor of any tender of Units for redemption. If
the Sponsor's bid in the secondary market at that time equals or exceeds the
Redemption Price per Unit, it may purchase such Units at the Sponsor's
secondary market price (see "Market for Units") by notifying the
Trustee before the close of business on the second succeeding business day and
by making payment therefor to the Unitholder not later than the day on which
the Units would otherwise have been redeemed by the Trustee. Units held by the
Sponsor may be tendered to a Trustee for redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be in accord with
the Public Offering Price described in the then currently effective prospectus
describing such Units. Any profit resulting from the resale of such Units will
belong to the Sponsor which likewise will bear any loss resulting from a lower
offering or redemption price subsequent to its acquisition of such Units.
REMOVAL OF SECURITIES FROM THE TRUST
The Sponsor is empowered, but not obligated, to direct the Trustee to dispose
of Securities in the event of advanced refunding or when certain other events
occur that adversely affect the value of Securities, including default in
payment of interest or principal, default in payment of interest or principal
of other obligations of the same issuer, institution of legal proceedings,
default under other documents adversely affecting debt service, decline in
price or the occurrence of other market or credit factors, or decline in
projected income pledged for debt service on revenue bonds that, in the
opinion of the Sponsor, may be detrimental to the interests of the
Unitholders.
Because the portfolio insurance obtained by each series of the Trust is
applicable only while such Privately-Insured Bonds are held by the Trust, the
price received by the Trust upon the disposition of any Privately-Insured Bond
thus insured will reflect a value placed upon it as an uninsured bond by the
market rather than a value resulting from the insurance. On the other hand, a
Bond insured under a policy obtained by the bond issuer or an Obligation
Secured by FHA-Insured Mortgages is entitled to the benefits of such insurance
at all times and such benefits are reflected and included in the market value
of such Bond or such Obligation. Because of the nature of the insurance, it is
the present intention of the Sponsor not to direct the Trustee to dispose of
Privately-Insured Bonds insured by insurance obtained by the Trust merely
because of a deterioration of the credit behind them but to retain such
Privately-Insured Bonds in the portfolio so that if a default occurs, the
Trust may realize the benefits of the related insurance. Nevertheless, under
unusual circumstances, the Sponsor may deem it to be in the best interests of
Unitholders to dispose of a deteriorated Privately-Insured Bond. In making
such a determination, the Sponsor will balance the benefits of such a sale to
the Unitholders against the need to preserve continuing payments of interest
and principal. While it cannot state in advance the exact factors that will be
deemed controlling in such determination, the Sponsor will consider the
following: (a) the objectives of the Trust, to wit, federally tax-exempt
income and conservation of capital; (b) the ability of the insurer to meet its
insurance commitments; (c) whether a Bond is insured by insurance obtained by
the Trust or by the bond issuer; and (d) the present value of the proceeds of
such a sale to Unitholders as compared with the ultimate receipt of principal
at, and interest to, the maturity of such Privately-Insured Bonds (or
insurance payments in respect thereto).
If any default in the payment of principal or interest on any Bond occurs and
no provision for payment is made therefor either pursuant to the portfolio
insurance, or otherwise, within 30 days, the Trustee of the affected series of
the Trust is required to notify the Sponsor thereof. If the Sponsor fails to
instruct the Trustee to sell or to hold such Bond within thirty days after
notification by the Trustee to the Sponsor of such default, the Trustee may in
its discretion sell the defaulted Bond and not be liable for any depreciation
or loss thereby incurred.
The Trustee is also empowered to sell, for the purpose of redeeming Units
tendered by any Unitholder, and for the payment of expenses for which funds
may not be available, such of the Bonds designated by the Evaluator as the
Trustee in its sole discretion may deem necessary. The Evaluator, in
designating such Bonds, will consider a variety of factors relating to the
Bonds, including (a) interest rates, (b) market value, (c) marketability, and
(d) whether a Bond is insured by insurance obtained by the Trust or by the
issuer thereof. To the extent that Bonds are sold which are current in payment
of interest in order to meet redemption requests and defaulted
Privately-Insured Bonds are retained in the portfolio in order to preserve the
related insurance protection applicable to said Privately-Insured Bonds, the
overall quality (and therefore value) of the Bonds remaining in the Trust's
portfolio will tend to diminish. Although there is no assurance, the Sponsor
normally would designate for sale a deteriorated bond insured by insurance
obtained by the issuer thereof, if any, or an Obligation Secured by
FHA-Insured Mortgages before a deteriorated bond insured by insurance obtained
by the Trust. Except in certain unusual circumstances for which it is
determined by the Trustee to be in the best interests of the Unitholders or if
there is no alternative, the Trustee is not empowered to sell Bonds which are
in default in payment of principal or interest or in significant risk of such
default and for which value has been attributed for the insurance obtained by
a Trust Because of such restrictions on the Trustee under certain
circumstances, the Sponsor may seek a full or partial suspension of the right
of Unitholders to redeem their Units. See "Redemption of Units."
The Sponsor shall instruct the Trustee to reject any offer made by an issuer
of any of the Bonds to issue new obligations in exchange and substitution for
any Bonds pursuant to a refunding or refinancing plan, except that the Sponsor
may instruct the Trustee to accept such an offer or to take any other action
with respect thereto as the Sponsor may deem proper if the issuer is in
default with respect to such Bonds or in the written opinion of the Sponsor
the issuer will probably default in respect to such Bonds in the foreseeable
future.
Any obligations so received in exchange or substitution will be held subject
to the terms and conditions of the Indenture to the same extent as Bonds
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Bonds, the Trustee is
required to give notice thereof to each Unitholder, identifying the Bonds
eliminated and the Bonds substituted therefor. Except as stated in this
paragraph and in the preceding paragraph, the acquisition by the Trust of any
securities other than the Bonds initially deposited is not permitted.
THE SPONSOR
Van Kampen Merritt Inc., a Delaware corporation, is the Sponsor of the Trust.
Van Kampen Merritt Inc. is primarily owned by Clayton, Dubilier & Rice, Inc.,
a New York based private investment firm. Van Kampen Merritt Inc. management
owns a significant minority equity position. Van Kampen Merritt Inc.
specializes in the underwriting and distribution of unit investment trusts and
mutual funds. The Sponsor is a member of the National Association of
Securities Dealers, Inc. and has its principal office at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181(708) 684-6000. It maintains a branch office
in Philadelphia and has regional representatives in Atlanta, Dallas, Los
Angeles, New York, San Francisco, Seattle and Tampa. As of September 30, 1993,
the total stockholders' equity of Van Kampen Merritt Inc. was $200,885,000
(unaudited). (This paragraph relates only to the Sponsor and not to Investors'
Municipal--Income Trust or any series thereof. The information is included
herein only for the purpose of informing investors as to the financial
responsibility of the Sponsor and its ability to carry out its contractual
obligations. More comprehensive financial information may be obtained from the
Sponsor upon request.)
As of November 30, 1993, the Sponsor managed or supervised approximately $38.5
billion of investment products of which over $25 billion is invested in
municipal securities. The Sponsor and its affiliates managed $23 billion of
assets, consisting of $8.2 billion for 19 open end mutual funds, $8.3 billion
for 33 closed-end funds and $6.5 billion for 51 institutional accounts. The
Sponsor has also deposited approximately $23.5 billion of unit investment
trusts. Based on cumulative assets deposited, the Sponsor believes that it is
the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipal Income Trust\xa8 or the
IM-IT\xa8 trust. The Sponsor also provides surveillance and evaluation
services at cost for approximately $15.5 billion of unit investment trust
assets outstanding. Since 1976, the Sponsor has opened over one million retail
investor accounts through retail distribution firms. Van Kampen Merritt Inc.
is the Sponsor of the various series of the following unit investment trusts:
Investors' Corporate Income Trust; Investors' Governmental Securities--
Income Trust; California Insured Municipals Income Trust; New York Insured
Municipals Income Trust; Pennsylvania Insured Municipals Income Trust; Insured
Tax Free Bond Trust; Insured Tax Free Bond Trust, Insured Multi-Series;
Investors' Quality Tax-Exempt Trust; Investors' Quality Tax-Exempt Trust,
Multi-Series; Insured Municipals Income Trust; Insured Municipals Income
Trust, Insured Multi-Series; Van Kampen Merritt International Bond Income
Trust; Van Kampen Merritt Insured Income Trust; Van Kampen Merritt Utility
Income Trust; Investors' Quality Municipals Trust, AMT Series; Van Kampen
Merritt Blue Chip Opportunity Trust; Van Kampen Merritt Blue Chip Opportunity
and Treasury Trust; Van Kampen Merritt Emerging Markets Income Trust; Van
Kampen Merritt Global Telecommunications Trust; and Van Kampen Merritt Global
Energy Trust. Van Kampen Merritt Inc. is the Distributor of the following
mutual funds: Van Kampen Merritt U.S. Government Fund; Van Kampen Merritt
Insured Tax Free Income Fund; Van Kampen Merritt California Insured Tax Free
Fund; Van Kampen Merritt Tax Free High Income Fund; Van Kampen Merritt High
Yield Fund; Van Kampen Merritt Growth and Income Fund; Van Kampen Merritt
Money Market Fund; Van Kampen Merritt Tax Free Money Fund; Van Kampen Merritt
Municipal Income Fund; Van Kampen Merritt Short-Term Global Income Fund; Van
Kampen Merritt Pennsylvania Tax Free Income Fund; Van Kampen Adjustable Rate
U.S. Government Fund; and Van Kampen Merritt Limited Term Municipal Income
Fund. Van Kampen Merritt is the Distributor of the following closed-end funds:
Van Kampen Merritt Municipal Income Trust; Van Kampen Merritt California
Municipal Trust; Van Kampen Merritt Intermediate Term High Income Trust; Van
Kampen Merritt Limited Term High Income Trust; Van Kampen Merritt Prime Rate
Income Trust; Van Kampen Merritt Investment Grade Municipal Trust; Van Kampen
Merritt Municipal Trust; Van Kampen Merritt California Quality Municipal
Trust; Van Kampen Merritt Florida Quality Municipal Trust; Van Kampen Merritt
New York Quality Municipal Trust; Van Kampen Merritt Ohio Quality Municipal
Trust; Van Kampen Merritt Pennsylvania Quality Municipal Trust; Van Kampen
Merritt Trust for Investment Grade Municipals; Van Kampen Merritt Trust for
Insured Municipals; Van Kampen Merritt Trust for Investment Grade CA
Municipals; Van Kampen Merritt Trust for Investment Grade FL Municipals; Van
Kampen Merritt Trust for Investment Grade NJ Municipals; Van Kampen Merritt
for Investment Grade NY Municipals; Van Kampen Merritt for Investment Grade PA
Municipals; Van Kampen Merritt Municipal Opportunity Trust; Van Kampen Merritt
Advantage Municipal Income Trust; Van Kampen Merritt Advantage Pennsylvania
Municipal Income Trust; Van Kampen Merritt Strategic Sector Municipal Trust;
Van Kampen Merritt Value Municipal Income Trust; Van Kampen Merritt California
Value Municipal Income Trust; Van Kampen Merritt Massachusetts Value Municipal
Income Trust; Van Kampen Merritt New Jersey Value Municipal Income Trust; Van
Kampen Merritt New York Value Municipal Income Trust; Van Kampen Merritt Ohio
Value Municipal Income Trust; and Van Kampen Merritt Pennsylvania Value
Municipal Income Trust.
If the Sponsor shall fail to perform any of its duties under the Indenture or
become incapable of acting or become bankrupt or its affairs are taken over by
public authorities, then the Trustee may (i) appoint a successor Sponsor at
rates of compensation deemed by the Trustee to be reasonable and not exceeding
amounts prescribed by the Securities and Exchange Commission, (ii) terminate
the Indenture and liquidate the Fund as provided therein or (iii) continue to
act as Trustee without terminating the Indenture.
THE TRUSTEE
The Trustee is The Bank of New York, a trust company organized under the laws
of New York. The Bank of New York has offices at 101 Barclay Street, New York,
New York 10286(800)221-7668. The Bank of New York is subject to supervision
and examination by the Superintendent of Banks of the State of New York and
the Board of Governors of the Federal Reserve System, and its deposits are
insured by the Federal Deposit Insurance Corporation to the extent permitted
by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Bonds for the portfolios of any of the Trusts.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Fund. Such
records shall include the name and address of, and the certificates issued by
the Fund to, every Unitholder of the Fund. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during the usual
business hours. The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Unitholders Explanations Public Offering Reports
Provided"). The Trustee is required to keep a certified copy or duplicate
original of the Trust Agreement on file in its office available for inspection
at all reasonable times during the usual business hours by any Unitholder,
together with a current list of the Securities held in the Fund.
Under the Indenture, the Trustee or any successor trustee may resign and be
discharged of the trusts created by the Indenture by executing an instrument
in writing and filing the same with the Sponsor. The Trustee or successor
trustee must mail a copy of the notice of resignation to all Fund Unitholders
then of record, not less than 60 days before the date specified in such notice
when such resignation is to take effect. The Sponsor upon receiving notice of
such resignation is obligated to appoint a successor trustee promptly. If,
upon such resignation, no successor trustee has been appointed and has
accepted the appointment within 30 days after notification, the retiring
Trustee may apply to a court of competent jurisdiction for the appointment of
a successor. The Sponsor may remove the Trustee and appoint a successor
trustee as provided in the Indenture at any time with or without cause. Notice
of such removal and appointment shall be mailed to each Unitholder by the
Sponsor. Upon execution of a written acceptance of such appointment by such
successor trustee, all the rights, powers, duties and obligations of the
original trustee shall vest in the successor. The resignation or removal of a
Trustee becomes effective only when the successor trustee accepts its
appointment as such or when a court of competent jurisdiction appoints a
successor trustee.
Any corporation into which a Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which a Trustee shall be a party, shall be the successor trustee. The Trustee
must be a banking corporation organized under the laws of the United States or
any state and having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
LIMITATIONS ON LIABILITIES OF SPONSOR AND TRUSTEE
The Sponsor and the Trustee shall be under no liability to Unitholders for
taking any action or for refraining from taking any action in good faith
pursuant to the Indenture, or for errors in judgment, but shall be liable only
for their own willful misfeasance, bad faith or negligence (gross negligence
in the case of the Sponsor) in the performance of their duties or by reason of
their reckless disregard of their obligations and duties hereunder. The
Trustee shall not be liable for depreciation or loss incurred by reason of the
sale by the Trustee of any of the Securities. In the event of the failure of
the Sponsor to act under the Indenture, a Trustee may act thereunder and shall
not be liable for any action taken by it in good faith under the Indenture.
The Trustee shall not be liable for any taxes or other governmental charges
imposed upon or in respect of the Securities or upon the interest thereon or
upon it as Trustee under the Indenture or upon or in respect of the Trust
which the Trustee may be required to pay under any present or future law of
the United States of America or of any other taxing authority having
jurisdiction. In addition, the Indenture contains other customary provisions
limiting the liability of a Trustee.
The Trustee, Sponsor and Unitholders may rely on any evaluation furnished by
the Evaluator and shall have no responsibility for the accuracy thereof.
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 a Trustee, the
Sponsor or the Unitholders for errors in judgment. This provision shall not
protect the Evaluator in any case of willful misfeasance, bad faith, gross
negligence or reckless disregard to its obligations and duties.
AMENDMENT OR TERMINATION OF THE INDENTURE
The Sponsor and the Trustee have the power to amend the Indenture without the
consent of any of the Unitholders when such an amendment is (l) to cure an
ambiguity or to correct or supplement any provision of the Indenture which may
be defective or inconsistent with any other provision contained therein, or
(2) to make such other provisions as shall not adversely affect the interest
of the Unitholders (as determined in good faith by the Sponsor and the
Trustee), provided that the Indenture is not amended to increase the number of
Units issuable thereunder or to permit the deposit or acquisition of
securities either in addition to, or in substitution for, any of the
Securities initially deposited in the Trust, except for the substitution of
certain refunding securities for such Securities. In the event of any
amendment, the Trustee is obligated to notify promptly all Unitholders of the
substance of such amendment.
A Trust may be liquidated at any time by consent of 100% of the Unitholders or
by the Trustee when the value of the Trust, as shown by any semi-annual
evaluation, is less than 20% of its original size. An Indenture will terminate
upon the redemption, sale or other disposition of the last Security held
thereunder, but in no event shall it continue beyond the end of the calendar
year preceding the fiftieth anniversary of its execution. In the event of
termination, written notice thereof will be sent by the Trustee to all
Unitholders. Within a reasonable period after termination, the Trustee will
sell any Securities remaining in the Trust, and, after paying all expenses and
charges incurred by the Trust, will distribute to each Unitholder (including
the Sponsor if it then holds any Units), upon surrender for cancellation of
his certificate for Units, his pro rata share of the balance remaining in the
Interest and Principal Accounts, all as provided in the Indenture. With such
distribution the Unitholders shall be furnished a final distribution statement
of the amount distributable. Because the portfolio insurance obtained by each
series of the Trust is applicable only while Privately-Insured Bonds are held
by the Trust and does not apply to Privately-Insured Bonds which are disposed
of, the price to be received by the Trust upon the disposition of any such
Privately-Insured Bond which is in default (by reason of nonpayment of
principal or interest) or whose market value has deteriorated because of a
fear of default will not reflect any value based on such insurance. Therefore,
in connection with any liquidation of the Trust, it shall not be necessary for
the Trustee to dispose of any Privately-Insured Bond or Bonds if retention of
such Privately-Insured Bond or Bonds, until due, shall be deemed to be in the
best interests of Unitholders including, but not limited to, situations in
which a Privately-Insured Bond or Bonds so insured are in default and
situations in which a Privately-Insured Bond or Bonds so insured reflect a
deteriorated market price resulting from a fear of default. Since the Bonds
which are insured by insurance obtained by the Bond issuer and the Obligations
Secured by FHA-Insured Mortgages will reflect the value of the related
insurance, it is the present intention of the Sponsor not to direct the
Trustee to hold any of such Bonds or obligations after the date of
termination.
All proceeds received, less applicable expenses, from insurance on defaulted
Bonds not disposed of at the date of termination will ultimately be
distributed to Unitholders of record as of such date of termination as soon as
practicable after the date such defaulted Privately-Insured Bond or Bonds
become due and applicable insurance proceeds have been received by the
Trustee.
LEGAL OPINIONS
The legality of the Units offered hereby was passed upon by Chapman and
Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as counsel for the
Sponsor.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The applicable statement of condition and the Portfolio for each series of the
Trust and the related statements of operations and statements of changes in
net assets included in Part One of this Prospectus have been audited by Grant
Thorton, independent certified public accountants, as set forth in their
report in Part One of this Prospectus, and are included therein in reliance
upon the authority of said firm as experts in accounting and auditing.
DESCRIPTION OF SECURITIES RATINGS*
Standard & Poor's Corporation. A Standard & Poor's Corporation ("
Standard & Poor's") corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment of creditworthiness may take into
consideration obligors such as guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended or withdrawn as a
result of changes in, or unavailability of, such information.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with the
terms of the obligation.
II.Nature of and provisions of the obligation.
III.Protection afforded by and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangements under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA --This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA -- Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A -- Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB -- Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit quality,
the ratings from "AA" to "BBB" may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
Provisional Ratings: A provisional rating ("p") assumes the successful
completion of the project being financed by the issuance of the bonds being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful and timely completion of the project.
This rating, however, while addressing credit quality subsequent to
completion, makes no comment on the likelihood of, or the risk of default upon
failure of, such completion. Accordingly, the investor should exercise his own
judgment with respect to such likelihood and risk.
Moody's Investors Service, Inc. A brief description of the applicable
Moody's Investors Service, Inc. ("Moody's") rating symbols and their
meanings follows:
Aaa -- Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to a "
gilt edge." Interest payments are protected by a large, or by an
exceptionally stable, margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such issues.
With the occasional exception of oversupply in a few specific instances, the
safety of obligations of this class is so absolute that their market value is
affected solely by money market fluctuations.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
credit circumstances during a sustained period of depressed business
conditions. During periods of normalcy, bonds of this quality frequently move
in parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con.-- Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
APPENDIX A
Obligations Secured by FHA-Insured Mortgages
The following is a reasonably technical description of a financing of a
project located in Puerto Rico which description, with certain changes and
variations, is fairly representative of all the Obligations Secured by
FHA-Insured Mortgages in the Trust. Any Investor who desires further
information concerning this type of security should contact his broker or the
Sponsor.
FHA Mortgage Insurance
Certain of the aggregate principal amount of the Securities in the Trust are
obligations issued to provide the permanent mortgage financing for low-income
housing projects which mortgage loans will be insured by the United States
Department of Housing and Urban Development ("HUD") acting through the
Federal Housing Administration, an organizational unit within HUD ("
FHA") pursuant to Section 221(d)(3) or 221(d)(4) of Title II of the
National Housing Act of 1934, as amended. The Trust will not hold or have any
interest in the Notes issued to provide the construction financing for any
such projects. The following sets forth a brief description of the mortgage
insurance program administered by HUD acting through the FHA (the "FHA
mortgage insurance program") and is qualified in its entirety by reference
to the National Housing Act of 1934, as amended, and the regulations
promulgated thereunder. Mortgage insurance benefits under the program are
available only if the mortgagee of record is a FHA-approved mortgagee.
The Obligations in the Trust
The obligations issued to fund FHA insured mortgage loans (the "
Obligations Secured by FHA-Insured Mortgages") or for the purposes of this
Section (the "Permanent Obligations") have been sold by the respective
issuers thereof to provide permanent financing for the mortgage loans
hereinafter described, the proceeds of which mortgage loans will be used to
acquire and construct low-income housing projects which have been approved by
the United States Department of Housing and Urban Development ("HUD").
Such projects are currently under construction and upon completion are
expected to qualify for rent subsidy payments under Section 8 of the United
States Housing Act of 1937, as amended. Financing for each of the projects
prior to completion is separately provided through the issuance of interim
construction notes (herein called the "Notes") to lenders who will
make the advances required to fund the mortgage loan for each project as
construction progresses, each of which mortgage loans will be insured by HUD
acting through the Federal Housing Administration ("FHA") pursuant to
the National Housing Act of 1934, as amended, and the regulations thereunder.
Each mortgage loan will be evidenced by a nonrecourse note from the owner of
the related project and will be secured by a mortgage on such project. Prior
to the completion of each project as hereinafter described the related
mortgage note, mortgage, the FHA insurance commitment and other documents and
security for the mortgage loan will be pledged to secure the related Notes so
long as they are outstanding and until the Notes are paid and discharged the
Obligations Secured by FHA-Insured Mortgages will be secured and payable
solely from the investment of the proceeds of such Obligations deposited and
held in escrow to provide for the payment of interest on the Obligations
Secured by FHA-Insured Mortgages prior to the maturity date of the Notes The
escrowed proceeds of the respective Obligations Secured by FHA-Insured
Mortgages will be used to acquire the FHA-Insured mortgage loans by paying and
discharging the related Notes upon maturity, provided that construction of the
mortgaged project has been completed as required under the terms of the
permanent financing. Thereafter such Permanent Obligations will be secured by
and payable on a pass-through basis from the related mortgage loan.
Notwithstanding the pledge, transfer and conveyance of the mortgage loan,
including the mortgage note, mortgage and other security for the mortgage
loan, to secure the Notes, while outstanding, and thereafter the Permanent
Obligations, a separate entity which is an approved mortgagee under HUD's
regulations, is permitted or required to act as mortgagee of record and
servicer (a "Servicer") in accordance with the terms of each
respective financing, as agent and for and on behalf of the issuer. Each
Servicer shall service and administer each project mortgage loan and the Notes
and Permanent Obligations with respect thereto and shall remit directly to the
holders of the Notes while outstanding and thereafter the Permanent
Obligations the payment of principal, interest and other payments, including
late payment fees, and prepayment on the Notes and Permanent Obligations all
in accordance with the terms of separate trust agreements between such
respective issuer, Servicer and a corporate trustee which qualifies as an
approved mortgagee under HUD's applicable regulations. The Notes and Permanent
Obligations and all interest thereon are payable solely from the repayments of
the project mortgage loan and invested funds pledged under, and as allocated
in accordance with, the related trust agreement. Neither the issuer nor the
Servicer nor any of the commissioners, members, directors, officers or
employees thereof have any personal liability for payment of principal or
interest on or any other sums due under the Notes or the Permanent Obligations
or for the payment of any other sums required to be paid under the related
trust agreement or any of the loan documents or for any undertakings
thereunder, provided that nothing shall relieve the respective Servicers from
liability for servicing the respective mortgage loan, Notes and Permanent
Obligations in accordance with the provisions of the related trust agreement.
Neither the United States of America, any department or agency thereof, nor
any State, territory or possession of the United States or any of their
municipalities or political subdivisions shall be liable for the payment of
the principal, interest or late charges on the Notes or Permanent Obligations
or for the performance of any pledge, obligation or agreement of any kind
whatsoever of any issuer and none of the Notes or Permanent Obligations or any
issuer's agreements or obligations shall be construed to constitute an
indebtedness of the United States of America, any department or agency
thereof, or of any State, territory or possession of the United States or any
of their municipalities or other political subdivisions within the meaning of
any constitutional or statutory provisions whatsoever, and the respective
Notes and Permanent Obligations will be payable solely from repayments of the
mortgage loan and invested proceeds pledged and allocated in the related trust
agreements. Each Servicer will remain the mortgagee of record for its
respective project mortgage loan subject to certain conditions and
requirements set forth in the related trust agreement. Each trustee is
required to maintain its status as an FHA-approved mortgagee and although such
trustee will hold the pledged mortgage loan and other pledged property as
security for the related Notes and Permanent Obligations it will generally be
inactive unless it becomes mortgagee of record or declares a default under the
related trust agreement.
Prior to the specified maturity date of each respective Note (by which date
completion of the project financed therefrom and execution of the rent subsidy
contract with respect thereto is required under the terms of the mortgage
financing) the Permanent Obligations with respect to that project are payable
as to interest only on the first day of each month, solely from monies held in
escrow under or in accordance with the related trust agreement. From and after
said Note maturity date, provided that certain conditions requiring redemption
of the Permanent Obligations shall not have occurred, the Permanent
Obligations shall be payable on a pass-through basis from scheduled payments
of principal and interest together with late payment fees, prepayments and
principal recoveries in respect of the underlying project mortgage loan
received by the Servicer thereof as mortgagee of record acting on behalf of
the issuer with respect to such project mortgage loan. All such payments,
after the Note maturity date, net of the Servicer's fee and other permitted
compensation, shall be applied first to accrued interest on the Permanent
Obligations and then to the reduction of the unpaid balance of principal
thereon and shall continue until payment in full of the entire principal
amount of the Permanent Obligations with respect to such project and mortgage
loan and all interest accruing thereon. Under the respective trust agreements,
in the event of a default under the project mortgage loan the holder of the
Permanent Obligations may be required to bear certain losses or expenses
incurred in obtaining the benefits of the FHA mortgage insurance applicable to
the underlying mortgage loan or as a result of an alternative course or
courses of action approved by the holders of a majority or specified
percentage in outstanding principal amount of said Permanent Obligations. In
the event the project is not completed as required on or before the Note
maturity date or, if on or prior to that date the Servicer shall have received
an FHA mortgage insurance payment with respect to the related mortgage loan,
upon direction by a majority in outstanding principal amount of the holders of
the Permanent Obligations with respect to such mortgage loan, all monies held
in escrow under the related trust agreement shall be applied on the earliest
practical date to the payment of the outstanding principal amount of such
Permanent Obligations plus accrued interest thereon to the date of payment;
provided that if such escrowed funds shall be insufficient to pay in full said
outstanding principal amount of the Permanent Obligations plus accrued
interest thereon, the payment to each holder of such Permanent Obligations of
a proportionate share of such escrowed money shall constitute full payment
thereof and the holder shall have no further claim of any kind.
Upon the sale and delivery of the Permanent Obligations with respect to each
project, the proceeds are to be deposited with the trustee under the related
trust agreement and an amount specified by the Servicer and approved by the
issuer, which is sufficient to pay interest on the Permanent Obligations
through and including the specified Note maturity date, is to be separately
deposited to be drawn upon and applied to the payment of interest on such
Permanent Obligations by the Servicer thereof on behalf of the issuer thereof
as such interest becomes due and payable prior to said Note maturity and
required completion date. The balance of the proceeds of the sale of the
Permanent Obligations are to be credited to a separate fund to be held by the
trustee under the related trust agreement and, in the event the project is
completed as required under such trust agreement on or before the Note
maturity date, to be applied by the trustee thereunder on the Note maturity
date to the payment of the related Note issued to fund the construction
advances for the underlying project mortgage loan prior to such date. Under
each trust agreement, the completion of the related project is established by
a certificate of the Servicer thereof to the effect, among other things, that
a rent subsidy contract (a "Housing Assistance Payments Contract")
relating to the entire project has been executed and delivered and no default
exists thereunder and that all payments due on the underlying mortgage note as
of the said date have been made and to the best of the Servicer's knowledge
the mortgage is current in all respects. It is not a condition to disbursement
of the escrowed funds to pay the Note that final endorsement of the mortgage
note by FHA shall have occurred and therefore provision is made for the
remaining escrowed funds to be applied to make disbursements to the Servicer
thereof after the payment and discharge of the Note first, to pay interest on
the Permanent Obligations as the same becomes due to the extent that interest
paid on the underlying project mortgage shall be insufficient for such purpose
and, secondly, to make the final mortgage loan advances required under the
terms of the project financing in order for final endorsement of the mortgage
note to occur. Upon the required completion date or final endorsement of the
underlying FHA-insured mortgage, whichever occurs last, any remaining escrowed
funds are to be applied first, to make a principal prepayment on the related
Permanent Obligations (a prepayment in such amount as will cause the aggregate
outstanding principal amount of such Permanent Obligations secured by a pledge
of such mortgage loan to be equal to the outstanding principal amount of the
underlying mortgage note); secondly, to reimburse certain specified investors
with respect to the related Note or Permanent Obligations for any discount
incurred or fee paid by such investor to any holder of such Permanent
Obligations with respect to the sale of such Permanent Obligations in an
amount not to exceed 1% of the original principal amount of such Permanent
Obligations; and thirdly, to the prepayment of the related mortgage note,
including any prepayment penalties, and application by the trustee under the
related trust agreement to proportionately reduce the outstanding principal
amount of the Permanent Obligations with respect thereto. The underlying
mortgage note, after final endorsement is to be amortized on a level debt
service basis over a 40-year term in 480 equal monthly installments which are
to be applied on a pass-through basis and net of the related Servicer's fee
and other permitted compensation to the payment of the Permanent Obligations
as herein described.
Mortgage Insurance Processing
Under the FHA mortgage insurance program, the sponsor of a project submits an
application for the issuance of a conditional commitment for mortgage
insurance along with preliminary working drawings for the project. The
issuance by FHA of the conditional commitment usually indicates the completion
of technical processing involving, among other things, the estimated cost of
the project, the "as is" value of the project site, estimates of
operating expenses and taxes, financing and credit capacity information about
the mortgagor (owner), and the proposed amount of the mortgage. Upon receipt
of the conditional commitment, the owner or sponsor submits an application for
firm commitment which includes, among other things, final working drawings and
specifications from the architect, the contractor's trade payment breakdown,
which consists of a schedule of costs of material and labor, a management
agreement and property survey.
The issuance of the firm commitment evidences FHA's approval of the
application for mortgage insurance with respect to the proposed project and
establishes the terms and conditions upon which the mortgage loan for the
project will be insured. Under FHA's mortgage insurance program the firm
commitment provides for insurance of advances or insurance upon completion.
Firm commitments have been issued by FHA for the insurance of advances under
each of the underlying project mortgage loans with respect to which the
Permanent Obligations have been issued to provide permanent financing upon
completion.
The mortgagee (servicer) upon initial endorsement and thereafter, until the
mortgage is paid in full or until receipt by the commissioner of an
application for insurance benefits or until the contract for insurance is
otherwise terminated' is required to make certain annual premium payments from
payments to be made by the owner to maintain the FHA insurance in effect.
Initial Closing and Construction
After receipt of the firm commitment, the owner of the project proceeds to an
initial closing of the mortgage loan. At the initial closing of the mortgage
loan, the owner executes a FHA form of mortgage note evidencing the mortgage
loan and a FHA form of mortgage securing the mortgage note. Concurrently with
the execution of the mortgage note, FHA initially endorses the mortgage note
for mortgage insurance and moneys are advanced from the mortgagee to the
mortgagor to provide for the initial costs of the project, including land
acquisition and financing fees.
Construction of the project is required to proceed in accordance with the FHA
form of building loan agreement. During construction of the project, a
licensed inspecting architect makes inspections to insure on-site conformity
with approved plans and specifications. Construction progress is monitored and
requests for further advances are submitted to FHA for approval. Each approved
advance is insured upon disbursement. Ten percent of each construction
disbursement is withheld until final completion and final inspection by FHA,
provided that under certain conditions FHA may permit a reduction in such
retainage.
Final Closing and Final Endorsements
When all of the units are completed with respect to the project, the owner
will begin marketing and rent-up of those units. When a project is completed,
a cut-off date is established for cost certification of the project and a
certificate of substantial completion is issued by FHA. Final closing of the
mortgage loan consists of a review and approval by FHA of the total cost of
the project, certified by an independent certified public accountant, and of
operating income and expenses through the cut-off date. FHA reviews the final
closing documents and, if in order, the mortgage note is finally endorsed for
mortgage insurance before the final construction disbursement is made.
As mentioned above, the disbursement of the escrowed proceeds of the Permanent
Obligations may be made to acquire the mortgage loan and pay and discharge the
interim construction financing for a project prior to the time of final
endorsement, in which event the underlying mortgage note will be insured for
the amount of the sum of all prior advances.
Upon receipt of income from the units in the project, the owner is required to
make monthly payments for reserves and escrows under the FHA forms of
regulatory agreement and mortgage; provided, however, that no income or other
revenues from the project, including rent subsidy payments payable with
respect to the project, are assigned or pledged to secure a repayment of the
Permanent Obligations. Thus, although the owner's ability to repay the
underlying mortgage loan for the project will depend upon the owner's receipt
of the project income, including rent subsidy payments, the Permanent
Obligations are secured prior to the Note maturity date solely by the escrowed
proceeds and from and after payment and discharge of the Note on the Note
maturity date from repayments to be made upon the mortgage loan or upon
default in repayment of the mortgage loan from insurance benefits realized
under the FHA mortgage insurance program.
Collection of Insurance Benefits
In the event of a default on the mortgage note or the mortgage continuing for
a period of thirty days, a notice may be filed with FHA of the default and of
the mortgagee's intention to file an insurance claim. The FHA mortgage
insurance program provides that the mortgagee at its option may either assign
the mortgage note and the mortgage to HUD or acquire title to the project by
foreclosure and convey it to HUD, the expenses of foreclosure proceedings
being payable out of the proceeds received on account of the insurance claim.
Under the terms of the FHA mortgage insurance program, the initial endorsement
of the mortgage note constitutes a contract of insurance between the Federal
Housing Commissioner and the mortgagee or lender and includes the terms,
conditions and provisions of the National Housing Act, as amended and the
regulations promulgated thereunder.
Section 203(e) of the National Housing Act provides "the validity of any
contract of insurance so executed (i.e., by the Secretary under the National
Housing Act) shall be incontestable in the hands of an approved financial
institution or approved mortgagee from the date of the execution of such
contract except for fraud or misrepresentation on the part of such approved
financial institution of approved mortgagee." Although the National
Housing Act and the regulations thereunder do not expressly so provide, with
respect to analogous insurance and guarantee programs of the Federal
government, the Attorney General of the United States has rendered opinions
that such insurance or guarantee contracts are backed by the full faith and
credit of the United States.
The National Housing Act gives discretionary authority to the Secretary of HUD
to settle claims for insurance benefits under insured mortgages either in cash
or debentures. Current regulations under Section 221(d)(3) and Section
221(d)(4) provide for settlement of insurance benefits in cash unless the
mortgagee requests payment in debentures.
Insurance benefits paid by HUD upon a properly filed claim will be in an
amount equal to the sum of (a) the unpaid principal amount of the mortgage
note, computed as of the date of default, (b) certain eligible payments made
by the mortgagee (i) for taxes, special assessments and water rates which are
liens prior to the mortgage, (ii) for insurance on the property, and (iii) for
mortgage insurance premiums paid after default, (c) an allowance for
reasonable payments made by the mortgagee with the approval of the FHA for the
completion and preservation of the property and (d) interest on the insurance
proceeds from the date of default at the HUD debenture rate in effect when the
FHA insurance commitment was issued or as of the date of initial endorsement,
whichever is higher (in the case of each of the Permanent Obligations of the
HUD debenture rate relating to the underlying mortgage loan has been
established at a higher rate than that provided by such mortgage loan). The
amount of interest which may be so included may be limited in the event that
certain notices are not given to FHA within the prescribed time periods. From
the aggregate of the foregoing amounts is deducted the total of (1) any amount
received by the mortgagee on account of the mortgage after the date of
default, (2) any net income received by the mortgagee from the property
covered by the mortgage after the date of default and (3) the sum of (i) any
cash held by the mortgagee for the account of the mortgagor and which shall
not have been applied in reduction of the principal of the mortgage
indebtedness, (ii) all funds held by the mortgagee for the account of the
mortgagor received pursuant to any other agreement, and (iii) the amount of
any undrawn balance under a letter of credit used in lieu of a cash deposit.
If the defaulted mortgage note is assigned to FHA by the mortgagee of record
in lieu of foreclosure, there shall also be deducted an amount equivalent to
one percent of the mortgage funds advanced to the mortgagor and not repaid as
of the date of default, except that all or part of the one percent may be
waived by the FHA if the mortgage is assigned to FHA at its request in lieu of
foreclosure. In addition, if the mortgagee elects to foreclose instead of
assigning the mortgage to FHA, it will have to bear the expenses of
foreclosure, in which case the one percent deduction is not made.
Prior to final endorsement of the mortgage note, FHA will usually, but is not
obligated to, pay 70% of the insurance claim within 15 days and the balance,
after audit, usually within three to twelve months. After the endorsement, FHA
will usually, but is not obligated to, pay 90% of the insurance claim within
15 days and the balance after audit, usually within three to twelve months. In
each case prompt payment by FHA is subject to, among other things, complete
delivery by the mortgagee of all documentation required under the FHA mortgage
insurance program.
The FHA insurance payment will include interest from the date of default at
the debenture rate as above described, but such date occurs only after the
lapse of 30 days from the date payment under the mortgage note is due. The FHA
is not obligated to pay interest during this 30-day period and there is no
provision for a debt service reserve to cover such interest expense. Thus, the
Trust, and therefore the Unitholders may lose up to 30 days interest on a
defaulted Obligation Secured by FHA-Insured Mortgages. Moreover, it is not
certain that the interest included in the FHA insurance payment (which shall
be the debenture rate in effect on the date the firm commitment is issued or
on the date the initial endorsement occurs, whichever is higher) will be
sufficient to pay all of the interest which will continue to accrue on the
Permanent Obligations until they are paid.
When any property to be conveyed to the FHA has been damaged by fire,
earthquake, flood or tornado, the mortgagee may be required as a condition to
payment of an insurance claim, that such property be repaired by the mortgagee
prior to such conveyance, but a portion of the reasonable costs of such repair
may be included within the insurance benefits. Each project owner is required
under the terms of the projects' mortgage to maintain insurance against fire
damage but not damage from flood, earthquake or tornado unless the project is
located in a flood prone area (as designated by HUD). Applicable regulations
provide that any loss attributable to failure to maintain hazard insurance in
an amount equal to that specified by FHA may be deducted from benefits payable
under the mortgage insurance. In addition, proceeds from hazard insurance,
even in excess of the FHA specified amount, might be insufficient to rebuild
the project due to inflationary cost increases or other factors. In either
such event, it is not clear under the current applicable regulations whether
payment of a mortgage insurance claim could be conditioned upon repair and
restoration of the project.
Each project will be subject to a regulatory agreement with HUD pursuant to
which the project owner will pledge to FHA its rights to the rents, profits,
income, and charges derived from the project in the event of a default under
the regulatory agreement, subject, however, to the prior assignment of such
rents, profits, income and charges to secure the related mortgage note.
Effect of Pass-Through Payments
From and after payment of the related Note on a Note maturity date, the
Permanent Obligations are paid on a pass-through basis in level monthly
payments of principal and interest over a specified period of years (typically
40 years), as opposed to the Privately- Insured Bonds which are serviced
through semiannual interest payments and a lump sum principal payment upon
maturity (subject of course to prior redemption). Principal payments received
on the Permanent Obligations in this manner will reduce the principal amount
of the Trust and thereby reduce the amount of interest income continuing to be
received by Unitholders. Such principal reductions may also adversely affect
the estimated current return realized by Unitholders. Such mortgage loans are
also subject to prepayment of principal without premium (generally limited to
no more than 15% of the principal amount in any one year) which will have
similar effects on the amount and rate of interest income received by
Unitholders. However, since the monthly payments of principal do not commence
until after completion of the related projects and since the payments are
level debt service payments such that the principal payments are very small in
the early years, it is not expected that the estimated current returns will
differ significantly for several years from those indicated in this Prospectus
(in the absence of course of prepayments and other redemptions). For a general
description of the effects of any redemption on the Trust, see "Redemption
of Units" and "Annual Unit Income."
INDEX
Title Page
Introduction..............................................2
Description of the Trust..................................2
Market for Units..........................................7
Public Offering Price.....................................8
Expenses and Charges.....................................10
Estimated Current Return and EstimatedLong-Term Return...11
Portfolio Insurance......................................11
Tax Status...............................................14
Issue and Transfer of Certificates.......................16
Distribution of Interest and Principal...................17
Reinvestment Option......................................18
Reports to Unitholders...................................18
Redemption of Units......................................19
Purchase of Units by Sponsor.............................20
Removal of Securities From the Trust.....................20
The Sponsor..............................................22
The Trustee..............................................23
Limitations on Liabilities ofSponsor and Trustee.........24
Amendment or Termination of theIndenture.................24
Legal Opinions...........................................25
Independent CertifiedPublic Accountants..................25
Description of Bond Ratings..............................25
Appendix A...............................................27
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any jurisdiction to any person to whom it is not
lawful to make such offer in such jurisdiction.
This Prospectus does not contain all the information set forth in the
registration statements and exhibits relating thereto, which the Trust has
filed with the Securities and Exchange Commission, Washington, D.C. under the
Securities Act of 1933 and the Investment Company Act of 1940, and to which
reference is hereby made.
INVESTORS' MUNICIPAL
INCOME TRUST
PROSPECTUS
PART TWO
Dated As of The Date Of The Prospectus Part One Accompanying this Prospectus
Part II
Note: This Prospectus May
Be Used Only When
Accompanied By Part One.
Both Parts of this
Prospectus should be
retained for future reference.
Contents of Post-Effective Amendment
to Registration Statement
This Post-Effective Amendment to the Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Investors' Municipal Income Trust, Series 35, certifies that
it meets all of the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and
has duly caused this Post-Effective Amendment to its Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, all in the
City of Chicago and State of Illinois on the 25th day of April, 1994.
Investors' Municipal Income Trust,
Series 35
(Registrant)
By Van Kampen Merritt Inc.
(Depositor)
By Sandra A. Waterworth
Vice President
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities on April 25, 1994:
Signature Title
John C. Merritt Chairman, Chief Executive )
Officer and Director )
)
William R. Rybak Senior Vice President and )
Chief Financial Officer )
)
Ronald A. Nyberg Director )
)
William R. Molinari Director )
) Sandra A. Waterworth
) (Attorney in Fact)*
____________________
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Insured Municipals Income
Trust, 113th Insured Multi-Series (File No. 33-46036) and the same
are hereby incorporated herein by this reference.
Consent of Independent Certified Public Accountants
We have issued our report dated March 4, 1994 accompanying the
financial statements of Investors' Municipal Income Trust, Series 35 as
of December 31, 1993, and for the period then ended, contained in this
Post-Effective Amendment No. 15 to Form S-6.
We consent to the use of the aforementioned report in the Post-
Effective Amendment and to the use of our name as it appears under the
caption "Auditors".
Grant Thornton
Chicago, Illinois
April 25, 1994
