Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 10
to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Insured Municipals Income Trust, Series 81
(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 February 21, 1994 pursuant to paragraph (b) of Rule 485.
SERIES 81
INSURED MUNICIPALS 116,591 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 Insured 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 February 16, 1994
Van Kampen Merritt
Page 1
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST, SERIES 81
Summary of Essential Financial Information
As of December 8, 1993
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>
IM-IT
<S> <C>
-------------------
General Information
Principal Amount (Par Value) of Securities .............................................................. $ 38,949,000
Number of Units ......................................................................................... 116,591
Fractional Undivided Interest in Trust per Unit ......................................................... 1/ 116,591
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio ...................................................... $ 42,946,513.86
Aggregate Bid Price of Securities per Unit .......................................................... $ 368.35
Sales charge 6.045% (5.7% of Public Offering Price excluding principal cash) ........................ $ 22.25
Principal Cash per Unit ............................................................................. $ (.18)
Public Offering Price per Unit <F1>.................................................................. $ 390.42
Redemption Price per Unit ............................................................................... $ 368.17
Excess of Public Offering Price per Unit over Redemption Price per Unit ................................. $ 22.25
Minimum Value of the Trust under which Trust Agreement may be terminated ................................ $ 23,667,800
Annual Premium on Portfolio Insurance ................................................................... $ 56,125.23
Minimum Principal Distribution ......$1.00 per Unit
Date of Deposit .....................January 18, 1983
Mandatory Termination Date ..........December 31, 2032
Evaluator's Annual Supervisory Fee ..Maximum of $0.25 per Unit
Evaluator's Annual Fee (4) ..........$11,093
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 ...................................... $ 31.31 $ 31.31 $ 31.31
Less: Estimated Annual Expense excluding Insurance ............................. $ 1.08 $ .90 $ .77
Less: Annual Premium on Portfolio Insurance .................................... $ .48 $ .48 $ .48
Estimated Net Annual Interest Income per Unit .................................. $ 29.75 $ 29.93 $ 30.06
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income ........................................... $ 29.75 $ 29.93 $ 30.06
Divided by 12, 4 and 2, respectively ........................................... $ 2.48 $ 7.48 $ 15.03
Estimated Daily Rate of Net Interest Accrual per Unit .............................. $ .08264 $ .08313 $ .08351
Estimated Current Return Based on Public Offering Price <F2><F3>.................... 7.62% 7.66% 7.70%
Estimated Long-Term Return <F2><F3>................................................. 4.44% 4.49% 4.52%
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 $5.38, $5.24 and $5.05 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 7.82% 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 4.64%.
<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 $5,200 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 Insured Municipals Income Trust, Series 81,
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. As of October 31, 1993, the
Trust consists of 18 issues which are payable from the income of a specific
project or authority. The portfolio is divided by purpose of issue as follows:
Escrowed, 3 (13%); General Obligation, 1 (11%); Multi-Family, 5 (34%); Other
Care Facility, 1 (5%); Pre-refunded, 5 (35%) and Public Building, 3 (2%). The
portfolio consists of 18 Bond issues in 9 states. See "Bond Portfolio" herein
and "Description of Securities Ratings" in Part Two.
<TABLE>
PER UNIT INFORMATION
<CAPTION>
1984 1985 1986 1987 1988
<S> <C> <C> <C> <C> <C>
---------- --------- ---------- --------- ---------
Net asset value per
Unit at beginning of
period ........... $ 943.52 $ 920.16 1,002.28 1,120.06 1,046.25
========== ========= ========== ========= =========
Net asset value per
Unit at end of
period ........... $ 920.16 1,002.28 1,120.06 1,046.25 1,082.52
========== ========= ========== ========= =========
Distributions to
Unitholders of
investment income
including accrued
interest to carry
paid on Units
redeemed (average
Units outstanding
for entire period)
<F1>.............. $ 93.01 $ 92.81 $ 93.17 $ 92.51 $ 91.97
========== ========= ========== ========= =========
Distributions to
Unitholders from
Bond redemption
proceeds (average
Units outstanding
for entire period) $ 2.13 $ -- $ 2.39 $ 3.23 $ --
========== ========= ========== ========= =========
Unrealized
appreciation
(depreciation) of
Bonds (per Unit
outstanding at end
of period) ....... $(21.09) $ 82.31 $ 121.37 $(71.95) $ 36.65
========== ========= ========== ========= =========
Distributions of
investment income by
frequency of payment
<F1>
Monthly ....... $ 92.10 $ 92.04 $ 92.04 $ 91.57 $ 91.44
Quarterly ..... $ 92.55 $ 92.48 $ 92.44 $ 91.99 $ 91.60
Semiannual .... $ 92.92 $ 92.78 $ 92.74 $ 92.34 $ 92.34
Units outstanding at
end
of period ........ 121,331 120,707 118,850 117,095 116,854
<FN>
<F1>Unitholders may elect to receive distributions on a monthly, quarterly or
semi-annual basis.
<F2>In 1983, $1.19 per Unit represents a return of principal to Unitholders on
the date of deposit due to inclusion of "when, as and if issued" Bonds on the
date of deposit.
</TABLE>
<TABLE>
PER UNIT INFORMATION
<CAPTION>
1989 1990 1991 1992 1993
<S> <C> <C> <C> <C> <C>
---------- --------- ---------- --------- ----------
Net asset value per
Unit at beginning of
period ........... 1,082.52 1,065.57 1,042.47 1,029.70 $ 918.90
========== ========= ========== ========= ==========
Net asset value per
Unit at end of
period ........... 1,065.57 1,042.47 1,029.70 $ 918.90 $ 406.14
========== ========= ========== ========= ==========
Distributions to
Unitholders of
investment income
including accrued
interest to carry
paid on Units
redeemed (average
Units outstanding
for entire period)
<F1>.............. $ 91.74 $ 91.40 $ 90.51 $ 90.05 $ 56.83
========== ========= ========== ========= ==========
Distributions to
Unitholders from
Bond redemption
proceeds (average
Units outstanding
for entire period) $ 1.72 $ 1.22 $ 13.73 $ 88.46 $ 504.55
========== ========= ========== ========= ==========
Unrealized
appreciation
(depreciation) of
Bonds (per Unit
outstanding at end
of period) ....... $(14.88) $(21.72) $ 2.01 $(16.88) $ 6.75
========== ========= ========== ========= ==========
Distributions of
investment income by
frequency of payment
<F1>
Monthly ....... $ 91.33 $ 91.05 $ 89.85 $ 89.33 $ 50.30
Quarterly ..... $ 91.53 $ 91.32 $ 90.33 $ 90.25 $ 54.51
Semiannual .... $ 92.09 $ 91.64 $ 90.97 $ 90.89 $ 68.62
Units outstanding at
end
of period ........ 116,853 116,851 116,845 116,832 116,659
<FN>
<F1>Unitholders may elect to receive distributions on a monthly, quarterly or
semi-annual basis.
<F2>In 1983, $1.19 per Unit represents a return of principal to Unitholders on
the date of deposit due to inclusion of "when, as and if issued" Bonds on the
date of deposit.
</TABLE>
Page 3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders of
Insured Municipals Income Trust, Series 81:
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Insured Municipals Income
Trust, Series 81 as of October 31, 1993, and the related statements of
operations and changes in net assets for the three years ended October 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 October 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 Insured Municipals Income Trust,
Series 81 as of October 31, 1993, and the results of operations and changes in
net assets for the three years ended October 31, 1993, in conformity with
generally accepted accounting principles.
GRANT THORNTON
Chicago, Illinois
December 17, 1993
Page 4
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST
SERIES 81
Statement of Condition
October 31, 1993
<CAPTION>
IM-IT
<S> <C>
------------------
Trust property
Cash .................................................................................................. $ 113,306
Tax-exempt securities at market value, (cost $38,430,773) (note 1) .................................... 46,083,456
Accrued interest ...................................................................................... 1,183,608
------------------
$ 47,380,370
==================
Liabilities and interest of Unitholders
Interest to Unitholders ............................................................................... $ 47,380,370
------------------
$ 47,380,370
==================
</TABLE>
<TABLE>
Analysis of Net Assets
<CAPTION>
<S> <C>
Interest of Unitholders (116,659 Units of fractional undivided interest outstanding)
Cost to original investors of 121,382 Units (note 1) .................................................. $ 121,382,000
Less initial underwriting commission (note 3) ................................................... 5,946,636
------------------
115,435,364
Less redemption of 4,723 Units .................................................................. 4,840,250
------------------
110,595,114
Undistributed net investment income
Net investment income ........................................................................... 110,205,388
Less distributions to Unitholders ............................................................... 108,908,680
------------------
1,296,708
Realized gain (loss) on Bond sale or redemption ....................................................... 98,806
Unrealized appreciation (depreciation) of Bonds (note 2) .............................................. 7,652,683
Distributions to Unitholders of Bond sale or redemption proceeds ...................................... (72,262,941)
------------------
Net asset value to Unitholders ............................................................... $ 47,380,370
==================
Net asset value per Unit (116,659 Units outstanding) ...................................................... $ 406.14
==================
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST, SERIES 81
Statements of Operations--Years ended October 31,
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
------------------ ----------------- ------------------
Investment income
Interest income .................................................. $ 10,791,359 $ 10,502,959 $ 4,812,881
Expenses
Trustee fees and expenses ..................................... 132,764 134,662 80,956
Evaluator fees ................................................ 4,782 4,570 11,093
Insurance expense ............................................. 141,148 137,939 75,467
Supervisory fees .............................................. 22,412 12,717 41,268
------------------ ----------------- ------------------
Total expenses .......................................... 301,106 289,888 208,784
------------------ ----------------- ------------------
Net Investment Income ......................................... 10,490,253 10,213,071 4,604,097
Realized gain (loss) from Bond sale or redemption
Proceeds ......................................................... 2,000,529 12,696,806 56,100,034
Cost ............................................................. 2,037,676 13,025,924 55,853,841
------------------ ----------------- ------------------
Realized gain (loss) .......................................... (37,147) (329,118) 246,193
Net change in unrealized appreciation (depreciation)
of Bonds ........................................................... 235,034 (1,972,112) 787,555
------------------ ----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ............................................ $ 10,688,140 $ 7,911,841 $ 5,637,845
================== ================= ==================
</TABLE>
<TABLE>
Statements of Changes in Net Assets--Years ended October 31,
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
------------------ ----------------- ------------------
Increase (decrease) in net assets
Operations:
Net investment income ......................................... $ 10,490,253 $ 10,213,071 $ 4,604,097
Realized gain (loss) on Bond sale or redemption ............... (37,147) (329,118) 246,193
Net change in unrealized appreciation (depreciation)
of Bonds .................................................... 235,034 (1,972,112) 787,555
------------------ ----------------- ------------------
Net increase (decrease) in net assets resulting
from operations .......................................... 10,688,140 7,911,841 5,637,845
Distributions to Unitholders from:
Net investment income ......................................... (10,576,449) (10,521,645) (6,635,723)
Bond sale or redemption proceeds .............................. (1,604,337) (10,335,064) (58,908,738)
Redemption of Units (note 4) ......................................... (6,036) (12,816) (70,433)
------------------ ----------------- ------------------
Total increase (decrease) .................................. (1,498,682) (12,957,684) (59,977,049)
Net asset value to Unitholders
Beginning of period ........................................... 121,813,785 120,315,103 107,357,419
------------------ ----------------- ------------------
End of period (including undistributed net investment income of
$3,636,908, $3,328,334 and $1,296,708, respectively) ........
$ 120,315,103 $ 107,357,419 $ 47,380,370
================== ================= ==================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST PORTFOLIO as of October 31, 1993
SERIES 81
_________________________________________________________________________________________________________________________________
<CAPTION>
October
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 -- New Jersey Economic Development Authority $ -- 0 --
Economic Development Revenue Bonds, Series
1981-B (Allied Corporation Project)
10.500% Due 12/01/97
- ---------------------------------------------------------------------------------------------------------------------------------
B -- 0 -- Union Hospital District (Coterminous with -- 0 --
Union County, South Carolina) General -- 0 --
Obligation Bonds of 1982 of Union Hospital -- 0 --
District
11.000% Due 01/01/99
11.050% Due 01/01/00
11.250% Due 01/01/03
- ---------------------------------------------------------------------------------------------------------------------------------
C -- 0 -- Connecticut Development Authority Industrial -- 0 --
Projects Bonds, 1982 Series <F1>through
1982 Series (83)
13.250% Due 11/15/99
- ---------------------------------------------------------------------------------------------------------------------------------
D -- 0 -- The Industrial Development Board of The -- 0 --
City of Hamilton, Tennessee Industrial
Development Revenue Bonds, Series 1982
(Chattanooga Hotel Properties, #1, Ltd.
Project)
13.250% Due 06/01/02
- ---------------------------------------------------------------------------------------------------------------------------------
E 1,000,000 Public Improvement Bonds, Series ST-1979 BAA1* 1994 @ 104 138,043
City of Alexandira, State of Louisiana 1994 @ 104 270,904
135M-6.500% Due 08/01/02 1994 @ 104 613,206
265M-6.500% Due 08/01/03
600M-6.500% Due 08/01/04
- ---------------------------------------------------------------------------------------------------------------------------------
F -- 0 -- Baltimore County Maryland Industrial -- 0 --
Development Revenue Bonds (Atlantic Cement
Company Inc. Project) Port Facilities
Series, 1982
11.000% Due 12/01/02
- ---------------------------------------------------------------------------------------------------------------------------------
G -- 0 -- Sayre Borough Hospital Authority -- 0 --
(Pennsylvania) Hospital Revenue Bonds -- 0 --
Series of 1983 The Robert Packer Hospital
10.250% Due 01/01/03
10.500% Due 01/01/11
- ---------------------------------------------------------------------------------------------------------------------------------
H 5,855,000 Illinois Housing Development Authority A+ 1993 @ 102.5 2,808,612
Multi-Family Housing Bonds, 1982 Series C 2000 @ 100 S.F.
2,755M-10.500% Due 07/01/03 1993 @ 100 2,760,581
3,100M-5.000% Due 07/01/25 2015 @ 100 S.F.
- ---------------------------------------------------------------------------------------------------------------------------------
I -- 0 -- County of Lucas, Ohio Hospital Improvement -- 0 --
Revenue Bonds (The Toledo Hospital Project)
12.500% Due 08/01/03
- ---------------------------------------------------------------------------------------------------------------------------------
J -- 0 -- Minnesota Housing Finance Agency Single -- 0 --
Family Mortgage Bonds, 1982 Series C
10.625% Due 07/01/04
- ---------------------------------------------------------------------------------------------------------------------------------
K -- 0 -- Virginia Housing Development Authority -- 0 --
Multi-Family Housing Bonds, 1983 Series A
10.000% Due 11/01/04
- ---------------------------------------------------------------------------------------------------------------------------------
L 800,000 Board of Regents Northern Illinois AAA 902,784
University Auxiliary Facilities System
Revenue Bonds, Series A (Advance Refunding
and Im-provement)
7.125% Due 04/01/05**
- ---------------------------------------------------------------------------------------------------------------------------------
M -- 0 -- The City of Charleston, West Virginia Sewer -- 0 --
Revenue Bonds, Series 1982
10.750% Due 01/01/07
</TABLE>
Page 7
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST PORTFOLIO as of October 31, 1993
(continued)SERIES 81
_________________________________________________________________________________________________________________________________
<CAPTION>
October
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>
- ----------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
N $ 1,250,000 City of Mobile, Alabama General Obligation AAA $ 1,857,963
Refunding and Capital Improvement
War-rants Series 1982
10.875% Due 11/01/07**
- ---------------------------------------------------------------------------------------------------------------------------------
O -- 0 -- State of Oregon Housing Finance Revenue -- 0 --
Bonds (Single-Family Mortgage Program)
1982 Series A
6.500% Due 07/01/08
- ---------------------------------------------------------------------------------------------------------------------------------
P -- 0 -- New Jersey Health Care Facilities Financing -- 0 --
Authority Revenue Bonds Burlington Coun-ty
Memorial Hospital Issue, Series A
14.000% Due 07/01/10
- ---------------------------------------------------------------------------------------------------------------------------------
Q 315,000 County of Richland, Ohio Hospital AAA 1998 @ 80.924 299,940
Improvement Revenue Bonds (Mansfiled
General Hospital Project)
6.500% Due 12/01/11
- ---------------------------------------------------------------------------------------------------------------------------------
R 3,300,000 Northwest Suburban Municipal Joint Action -- 0 --
Water Agency (Cook and DuPage Counties, AAA* 3,850,869
Illinois) Water Supply System Revenue
Bonds, Series 1982
M-10.750% Due 05/01/12
3,300M-6.500% Due 05/01/15**
- ---------------------------------------------------------------------------------------------------------------------------------
S -- 0 -- Hospital Authority of Marion County -- 0 --
(Indiana) Hospital Facility Revenue Bonds,
1982 Series A (Methodist Hospital of
Indiana, Inc. Project)
10.000% Due 09/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
T -- 0 -- Tarrant County Health Facilities (Texas) -- 0 --
Development Corporation Health System
Revenue Bonds Harris Methodist Health
System Series 1982
11.500% Due 09/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
U -- 0 -- Industrial Development Board of the Parish -- 0 --
of Calcasieu, Inc. (Louisiana) Pollution
Control Revenue Bonds (Gulf States
Utilities Company Project) Series 1982
10.375% Due 10/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
V -- 0 -- Morgan County & City of Decatur, Alabama, -- 0 --
Joint Hospital Board (Alabama Hospital
Revenue) Decatur General Hospital Project
Series 1982
11.000% Due 10/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
W -- 0 -- Regent of The University of Minnesota -- 0 --
University Hospitals and Clinics Bonds
Series 1982 (Issuer Insured)
10.375% Due 12/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
X -- 0 -- State Building Authority State of Michigan -- 0 --
1982 Revenue Bonds, Series III (University
of Michigan Adult General Hospital
Facility) Issuer Insured
10.875% Due 12/01/12
- ---------------------------------------------------------------------------------------------------------------------------------
Y -- 0 -- Parish of Desoto, Louisiana Pollution -- 0 --
Control Revenue Bonds (Southwestern
Electric Power Company Project) Series
1983
10.000% Due 01/01/13
- ---------------------------------------------------------------------------------------------------------------------------------
Z -- 0 -- Montgomery County Hospital Authority -- 0 --
(Pennsylvania) Hospital Revenue Bonds,
Series 1983 (Sacred Heart Hospital of
Norristown Project)
10.375% Due 02/01/13
</TABLE>
Page 8
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST PORTFOLIO as of October 31, 1993
(continued)SERIES 81
_________________________________________________________________________________________________________________________________
<CAPTION>
October
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>
- ----------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
AA $ 10,185,000 New Jersey Building Authority State Building AAA 1999 @ 100 $ 12,809,878
Revenue Bonds, 1982 Series
9.875% Due 02/01/13
- ---------------------------------------------------------------------------------------------------------------------------------
BB -- 0 -- Connecticut Housing Finance Authority -- 0 --
Housing Mortgage Finance Program Bonds,
1981 Series B
13.000% Due 11/15/13
- ---------------------------------------------------------------------------------------------------------------------------------
CC 975,000 Illinois Health Facilities Authority Revenue AAA 1995 @ 100 1,049,188
Bonds Series, 1982 (The Children's
Memorial Hospital Project) Chicago,
Illinois
10.750% Due 01/01/14
- ---------------------------------------------------------------------------------------------------------------------------------
DD -- 0 -- Adventist Health System/Sunbelt, Inc. Orange -- 0 --
County (Florida) Health Facilities
Authority Hospital Revenue Bonds, Series
1982
7.000% Due 10/01/14
- ---------------------------------------------------------------------------------------------------------------------------------
EE -- 0 -- State of Ohio Hospital Improvement Revenue -- 0 --
Bonds (The Cleveland Clinic Foundation
Project)
7.750% Due 12/01/15
- ---------------------------------------------------------------------------------------------------------------------------------
FF 3,100,000 Connecticut Municipal Electric Energy -- 0 --
Cooperative Power Supply System Revenue A+ 1993 @ 100 883,120
Bonds 1983 Series A 1993 @ 100 2,192,917
0M-9.625% Due 01/01/16
890M-6.000% Due 01/01/17
2,210M-6.000% Due 01/01/18
- ---------------------------------------------------------------------------------------------------------------------------------
GG -- 0 -- Indiana Municipal Power Agency Power Supply -- 0 --
System Revenue Bonds, 1983 Series A
10.125% Due 01/01/18
- ---------------------------------------------------------------------------------------------------------------------------------
HH 855,000 Missouri Housing Development Commission AA 1994 @ 102.5 869,560
Housing Development Bonds (Federally 2002 @ 100 S.F.
Insured Mortgage Loans) Series 1976
6.000% Due 10/15/19
- ---------------------------------------------------------------------------------------------------------------------------------
II 2,235,000 The City of Henderson, Nevada Health Care AAA 1994 @ 104 2,310,946
Facility Revenue Bonds (Henderson
Convalescent Center -- FHA Insured
Mortgage Loan)
10.875% Due 08/01/22
- ---------------------------------------------------------------------------------------------------------------------------------
JJ 4,445,000 Holiday Square Housing Development AA 1994 @ 102.5 4,538,700
Corporation (Town of Babylon, New York) 1994 @ 100 S.F.
Housing Revenue Bonds, 1982 Series A (FHA
Insured Mortgage -- Holiday Square
Apart-ments, Section 8 Assisted Project)
10.850% Due 04/01/24
</TABLE>
Page 9
<PAGE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST PORTFOLIO as of October 31, 1993
(continued)SERIES 81
_________________________________________________________________________________________________________________________________
<CAPTION>
October
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>
---------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
KK $ 3,839,000 Housing Finance Corporation of The City of NR 1994 @ 102.75 $ 3,930,637
Newark (A New Jersey Not-for-profit 1994 @ 100 S.F.
Corporation) Mortgage Revenue Bonds (1982
Section 8 Assisted FHA Insured Broadway
Manor Apartments Project)
10.875% Due 05/01/24
- ---------------------------------------------------------------------------------------------------------------------------------
LL 3,895,000 Elderly Housing Finance Corporation of AAA 1994 @ 103 3,995,608
Greater Cincinnati Mortgage Revenue 1994 @ 100 S.F.
Bonds, Series 1983 (FHA Insured
Mortgage-Walnut Towers Apartments Project)
10.500% Due 06/01/24
- ---------------------------------------------------------------------------------------------------------------------------------
MM -- 0 -- Missouri Housing Development Commission -- 0 --
Housing Development Bonds (Federally
Insured Mortgage Loans) Series January 1,
1983
10.000% Due 01/01/25
---------------- ----------------
$ 42,049,000 $ 46,083,456
================ ================
_________________________________________________________________________________________________________________________________
</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 10
<PAGE>
INSURED MUNICIPALS INCOME TRUST
SERIES 81
Notes to Financial Statements
October 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 18, 1983). Since the valuation is based
upon the bid prices the Trust recognized a downward adjustment of $1,021,480
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 October 31, 1983.
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.
Page 11
<PAGE>
NOTE 2--PORTFOLIO (continued)
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.
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 October 31, 1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 7,848,467
Unrealized Depreciation (195,784)
-----------------
$ 7,652,683
=================
</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 a fee for providing
portfolio supervisory services for the Trust ($.25 per Unit, not to exceed the
aggregate cost of the Evaluator for providing such services to all applicable
Trusts). In addition, the Evaluator receives an annual fee for regularly
evaluating the Trust's portfolio. Both fees 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 October 31, 1991, 1992 and 1993, 6 Units, 13 Units
and 173 Units, respectively, were presented for redemption.
NOTE 5--SUBSEQUENT EVENT
On November 20, 1993, The Connecticut Municipal Electric Energy
Cooperative Power Supply System Revenue Bonds 1983 Series A in the Insured
Municipals Income Trust, Series 81 in the amount of $3,100,000 were called at
$100.
Page 12
1
FIRST FAMILY
OF TRUSTS
INSURED MUNICIPALS
INCOME TRUST
PROSPECTUS
PART TWO
In the opinion of counsel, interest income to the Trust and to
Unitholders, 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.
The Trust. The Trust consists of a series of National unit investment trusts
issued under the name Insured Municipals Income Trust (and including the
various series of the Discount Series, the Limited Maturity Series, the Inte
rmediate Series and the Short Intermediate Series) or under the name The First
National Dual Series Tax-Exempt Bond Trust. Each Trust consists of
interest-bearing obligations issued by
or on behalf of municipalities and other
governmental authorities or issued by certain United States territories or
possessions and their public authorities, the interest on which is, in the
opinion of recognized bond counsel to the issuing governmental authority,
exempt from all Federal income taxes under existing law (the"Bonds" or
"Securities"). The objectives of the Trust are Federally tax-exempt income and
conservation of capital through an investment in a diversified, insured
portfolio of tax-exempt Bonds. The payment of interest and the preservation of
principal are, of course, dependent upon the continuing ability of the issuers
and/or obligors of the Bonds and of the insurers thereof to meet their
respective obligations. There is no assurance that the Trust's objectives will
be met. The Securities in the Discount Series were acquired at prices which
resulted in each Discount Series portfolio, as a whole, being purchased at a
deep discount from the aggregate par
value of such Securities. Gains based upon
the difference, if any, between the value of the Securities at maturity,
redemption or sale and their purchase
price at a discount (plus earned original
issue discount) will constitute capital gains with respect to a Unitholder who
is not a dealer with respect to his Units.
The Trust and "AAA" Rating. Insurance guaranteeing the payments of principal
and interest, when due, on the Securities in the portfolio of the Trust has
been obtained from a municipal bond
insurance company either by the Trust, by a
prior owner of the Bonds, by the issuer
of the Bonds involved or by the Sponsor
prior to the deposit of the Bonds in the Trust. All issues of the Trust are
insured under one or more insurance policies obtained by the Trust, if any,
except for certain issues of certain Trusts for which insurance has been
obtained by the issuer of the Bonds involved by a prior owner of the Bonds or
by the Sponsor prior to the deposit of such Bonds in the Trust. Insurance
obtained by the Trust, if any, applies only while Bonds are retained in the
Trust while insurance obtained by a Bond issuer is effective so long as such
Bonds are outstanding. The Trustee, upon the sale of a Bond insured under an
insurance policy obtained by the Trust, has a right to obtain from the insurer
involved permanent insurance for such Bond upon the payment of a single
predetermined insurance premium and any expenses related thereto from the
proceeds of the sale of such Bond. Insurance relates only to the Bonds in the
Trust and not to the Units offered hereby or to the market value thereof. As a
result of such insurance, the Units of the Trust received a rating of "AAA" by
Standard & Poor's Corporation on the date the Trust was created. Standard &
Poor's Corporation 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 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 Bonds. See "Insurance on the Bonds" on
page 8. No representation is made as to any insurer's ability to meet its
commitments.
Public Offering Price. The secondary
market Public Offering Price will be equal
to the aggregate bid price of the
Securities in the Trust plus the sales charge
referred to under "Public Offering
General". If the Bonds in the Trust were available for direct purchase by
investors, the purchase price of the Bonds would not include the sales charge
included in the Public Offering Price of the Units. See "Public Offering".
THESE SECURlTIES 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 U
PON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
NOTE:THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE
Both parts of this Prospectus should be retained for future reference.
This Prospectus is dated as of the date of the Prospectus Part I accompanying
this Prospectus Part II.
Van Kampen Merritt
<PAGE>
THE TRUST
Each series of Insured Municipals Income Trustand The First National Dual
Series Tax-Exempt Bond Trust (Insured Series) (the "Trust") was created under
the laws of the State of New York pursuant to a Trust Agreement (the "Trust
Agreement"), between Van Kampen Merritt Inc., as Sponsor, American Portfolio
Evaluation Services, a division of Van Kampen Merritt Investment Advisory
Corp., as Evaluator, and The Bank of New York, as Trustee, or their respective
predecessors.
The Trust consists of a portfolio of interest bearing obligations issued
by or onbehalf 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 taxunder existing law, but may be subject to state
and local taxes. Unless otherwise terminated as provided therein, the Trust
Agreement for all series except the Limited Maturity, Intermediate and Short
Intermediate Series will terminate at
the end of the calendar year prior to the
fiftieth anniversary of its execution, while the Trust Agreement for the
Limited Maturity, Intermediate and Short Intermediate Series will terminate at
the end of the calendar year prior to the twentieth anniversary of its executi
on.
The portfolio of the Discount Series may consist of bonds that were
purchased at a "market" discount from par value at maturity. A primary reason
for the market values of the Securities having been less than their par values
is that the coupon interest rates on the Securities at the time they were
purchased and deposited in the Discount Series were lower than the current
market interest rates for newly issued
bonds of comparable rating and type. The
current yields (coupon interest income as a percentage of market price) of
discount bonds are lower than the current yields of comparably rated bonds of
similar type newly issued at current
interest rates because discount bonds tend
to increase in market value as they approach maturity and the full principal
amount becomes payable. Under present law, a discount bond held to maturity
will have a larger portion of its total return in the form of capital gain and
less in the form of tax-exempt interest income than a comparable bond newly
issued at current market rates. See "Tax Status." Discount bonds with a longer
term to maturity tend to have a higher
current yield and a lower current market
value than otherwise comparable bonds with a shorter term to maturity. If
interest rates rise, the market discount
ofdiscount bonds will increase and the
value of the bonds will decrease; and if interest rates decline, the market
discount of discount bonds will decrease and the value of the bonds will
increase. Market discount attributable to interest rate changes does not
necessarily indicate a lack of market confidence in the issuer.
Certain of the Bonds in the Trust are "zero coupon" bonds. Zero coupon
bonds are purchased at a deep discount because the buyer receives only the
right to receive a final payment at the maturity of the bond and does not
receive any periodic interest payments. The effect of owning deep discount
bonds which do not make current interest payments (such as the zero coupon
bonds) is that a fixed yield is earned not only on the original investment but
also, in effect, on all discount earned during the life of such obligation.
This implicit reinvestment of earnings at the same rate eliminates the risk of
being unable to reinvest the income on
such obligation at a rate as high as the
implicit yieldon the discount obligation, but at the same time eliminates the
holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon bonds are subject to substantially greater price fluctuations
during periods of changing market interest rates than are securities of
comparable quality which pay interest currently. See note (6) in "Notes to
Portfolio" in Part One of this Prospectus.
Each Unit initially offered represents a fractional undivided interest in
the 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 Trust Agreement.
OBJECTIVES AND SECURITIES SELECTION
The objectives of the Trust are
income exempt from Federal income taxation
and conservation of capital through an investment in a diversified, insured
portfolio of Federal tax-exempt obligations. The Trust may be an appropriate
investment vehicle for investors who desire to participate in a portfolio of
tax-exempt fixedincome securities with greater diversification than they might
be able to acquire individually. In addition, securities of the type deposited
in the Trust are often not available in small amounts.
Insurance guaranteeing the timely payment, when due, ofall principal and
interest on the Bonds in the Trust has been obtained by the Trust from either
AMBAC Indemnity Corporation ("AMBAC Indemnity"), Financial Guaranty Insurance
Company ("Financial Guaranty") or a combination thereof (collectively, the
"Portfolio Insurers") or by the issuer of such Bonds or a prior owner of such
Bonds from (1) AMBAC Indemnity or one of its subsidiaries, American Municipal
Bond Assurance Corporation ("AMBAC") or MGIC Indemnity Corporation ("MGIC
Indemnity"), (2) Financial Guaranty, (3) Municipal Bond Insurance Association
("MBIA"), (4) Bond Investors Guaranty Insurance Company ("BIG"), (5) National
Union Fire Insurance Company of
Pittsburgh, PA. ("National Union"), (6) Capital
Guaranty, (7) Capital Market Assurance Corporation ("CapMAC") and/or (8)
Financial Security Assurance Inc. ("Financial Security" or "FSA")
(collectively, the "Preinsured Bond Insurers") (see "Insurance on the Bonds").
Insurance obtained by the Trust is effective only while the Bonds thus insured
are held inthe Trust. The Trustee has the right to acquire permanent insurance
from a Portfolio Insurer with respect to each Bond insured by the respective
Portfolio Insurer under a Trust portfolio insurance policy. Insurance relating
to Bonds insured by the issueris effective so long as such Bonds are
outstanding. Bonds insured under a policy of insurance obtained by the issuer
or a prior owner from one of the Preinsured Bond Insurers (the "Preinsured
Bonds") are not additionally insured by the Trust. There is, of course, no
guarantee that the Trust's objectives will be achieved. No representation is
made as to any insurer's ability to meet its commitments.
Neither the Public Offering Price
nor any evaluation of Units for purposes
of repurchases or redemptions reflects any element of value for the insurance
obtained by the Trust, if any, unless Bonds are in default in payment of
principal or interest or in significant risk of such default. See "Public
Offering
Offering Price". On the other hand, the
value, if any, of insurance obtained by
the issuer of the Bonds is reflected and included in the market value of such
Bonds.
In order for bonds to be eligible for insurance, they must have credit
characteristics which would qualify them for 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
bonds, when due, is issued by the insurer. A single premium is paid for bonds
insured by the issuer and a monthly premium is paid by the Trust for the
insurance obtained by it. The Trustee has the right to obtain permanent
insurance from a Portfolio Insurer in connection with the sale of a Bond
insured under the insurance policy obtained from the respective Insurer by the
Trust upon the payment of a single predetermined insurance premium from the
proceeds of the sale of such Bond. Accordingly, any Bond in the Trust is
eligible to be sold on an insured basis. All bonds insured by the Portfolio
Insurers and the Preinsured Bond
Insurers received a "AAA" rating by Standard &
Poor's Corporation on the date such bonds were deposited in the Trust. See
"Insurance on the Bonds".
In selecting Bonds for the Trust, the following facts, among others, were
considered by the Sponsor: (a) 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 Trust (see "Description of
Bond Ratings"), (b) the prices of the Bonds relative to other bonds of
comparable quality and maturity, (c) the
diversification of Bonds as to purpose
of issue and location of issuer, and (d)
the availability and cost of insurance
for the prompt payment of principal and interest, when due, on the Bonds.
Subsequent to the Date of Deposit, a Bond may cease to be rated or itsrating
may be reduced below the minimum required as of the Date of Deposit. Neither
event requires 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 the Bond (see "Trust Administration
Portfolio Administration").
TRUST PORTFOLIO
Portfolio Concentrations. Certain of the Bonds in the Trust may be general
obligations of a governmental entity that 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. All other Bonds in the Trust are revenue bonds
payable from the incomeof 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 theother 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 Fund, both within a particular classification and between
classifications, depending on numerous factors. See "General" for each Trust.
Certain of the Bonds in the Trust may be health care revenue bonds.
Included among such Bonds may be bonds which are FHA insured. 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 the Securities held in the portfolio of the Trust; however, because
of the insurance obtained by the Trust, the "AAA" rating of the Units of the
Trust would not be affected.
Certain of the Bonds in the Trust may be obligations which derive their
payment from mortgage loans. Certain of such housing bonds may be FHA insured
or may be single family mortgage revenue bonds 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. 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. 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. These bonds were issued under Section
103A of the Internal Revenue Code, which Section contains certain requirements
relating to the use of the proceeds of such bonds in order for the interest on
such bonds to retain its tax-exempt status. In each case the issuer of the
bonds has covenanted to comply with
applicable requirements and bond counsel to
such issuer has issued an opinion that
the interest on the bonds is exempt from
Federal income tax under existing laws and regulations. Certain issuers of
housing bonds have considered various ways to redeem bonds they have issued
prior to the stated first redemption dates for such bonds. In connection with
the housing Bonds held by the Trust, the Sponsor has not had any direct
communications with any of the issuers thereof, but at the Date of Deposit it
was not aware that any of the respective issuers of such Bonds were actively
considering the redemption of such Bonds prior to their respective stated
initial call dates.
Certain of the Bonds in the Trust may be obligations of public utility
issuers, 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 ofsuch 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 mayfrom 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 certain of the Bonds in the portfolio to make payments of
principal and/or interest on such Bonds.
Certain of the Bonds in the Trust may be obligations of issuers whose
revenues are derived from the sale of water and/or sewerage services. 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. Such bonds are generally payable from user fees. The problems of such
issuers include the ability to obtain
timely and adequate rate increases, popul
ation decline resulting in decreased user fees, the difficulty of financing
large construction programs, the limitations on operations and increased costs
and delays attributable to environmental considerations, the increasing
difficulty of obtaining or discovering new supplies of fresh water, the effect
of conservation programs and the impact of "no-growth" zoning ordinances. All
of such issuers have been experiencing certain of these problems in varying
degrees.
Certain of the Bonds in the Trust may be industrial revenue bonds
("IRBs"). 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. IRBs have generally been issued under bond resolut
ions pursuant to which the revenues and
receipts payable under the arrangements
with the operator of a particular project have been assigned and pledged to
purchasers. In some cases, a mortgage on the underlying project may have been
granted as security for the IRBs. Regardless of the structure, payment of IRBs
is solely dependent upon the creditworthiness of the corporate operator of the
project or corporate guarantor. Corporate operators or guarantors may be
affected by many factors which may have
an adverse impact on the credit quality
of the particular company or industry. These include cyclicality of revenues
and earnings, regulatory and environmental restrictions, litigation resulting
from accidents or environmentally-caused illnesses, extensive competition and
financial deterioration resulting from a corporate restructuring pursuant to a
leveraged buy-out, takeover or otherwise. Such a restructuring may result in
the operator of a project becoming highly leveraged which may impact on such
operator's creditworthiness which in turn would have an adverse impact on the
rating and/or market value of such Bonds. Further, the possibility of such a
restructuring may have an adverse impact
on the market for and consequently the
value of such Bonds, even though no actual takeover or other action is ever
contemplated or effected.
Certain of the Bonds in the Trust may be obligations that are secured by
lease payments of a governmental entity (hereinafter called "lease
obligations"). Lease obligations are often in the form of certificates of
participation. 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. Although
the lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation lease is ordinarily backed by the
municipality's covenant to budget for, appropriate and make the payments due
under the lease obligation. However, certain lease obligations contain
"non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. A
governmental entity that enters into such
a lease agreement cannot obligate future governments to appropriate for and
make lease payments but covenants to take such action as is necessary to
include any lease payments due in its budgets and to make the appropriations
therefor.A governmental entity's failure to appropriate for and to make
payments under its lease obligation could result in insufficient funds
available for payment of the obligations secured thereby. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the property in the event of foreclosure might prove difficult.
Certain of the Bonds in the Trust
may be obligations of issuers which are,
or which govern the operation of, schools, colleges and universities and whose
revenues are derived mainly from ad valorem taxes or for higher education
systems, from tuition, dormitory revenues, grants and endowments. 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 relating to
school bonds include litigation contesting
the State constitutionality of financing public education in part from ad
valorem taxes, thereby creating a disparity in educational funds available to
schools in wealthy areas and schools in poor areas. Litigation or legislation
on this issue may affect the sources of funds available for the payment of
school bonds in the Trust. General
problems relating to college and university
obligations include the prospect of a declining percentage of the population
consisting of "college" age individuals, possible inability to raise tuitions
and fees sufficiently to cover increased operating costs, the uncertainty of
continued receipt of Federal grants and state funding, and government
legislation or regulations which may adversely affect the revenues or costs of
such issuers. All of such issuers have been experiencing certain of these
problems in varying degrees.
Certain of the Bonds in the Trust may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. 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 major portion of an airport's gross
operating income is generally derived from fees received from signatory
airlines pursuant to use agreements which consist of annual payments for
leases, occupancy of certain terminal
space and service fees. Airport operating
income may therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe fi
nancial difficulties. The Sponsor cannot predict what effect these industry
conditions may have on airport revenues which are dependent for payment on the
financial condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Bonds related to other facilities is dependent
on revenues from the projects, such as
user fees from ports, tolls on turnpikes
and bridges and rents from buildings. Therefore, payment may be adversely
affected by reduction in revenues due to such factors as increased cost of
maintenance, decreased use of a facility, lower cost of alternative modes of
transportation, scarcity of fuel and reduction or loss of rents.
Certain of the Bonds in the Trust may be obligations which are payable
from and secured by revenues derived from the operation of resource recovery
facilities. 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. Resource recovery facilities are designed to process
solid waste, generate steam and convert
steam to electricity. Resource recovery
bonds may be subject to extraordinary optional redemption at par upon the
occurrence of certain circumstances, including but not limited to: destruction
or condemnation of a project; contracts relating to a project becoming void,
unenforceable or impossible to perform;
changes in the economic availability of
raw materials, operating supplies or facilities necessary for the operation of
a project or technological or other
unavoidable changes adversely affecting the
operation of a project; administrative or judicial actions which render
contracts relating to the projects void, unenforceable or impossible to
perform; or impose unreasonable burdens or excessive liabilities. The Sponsor
cannot predict the causes or likelihood of the redemption of resource recovery
bonds in such a Trust prior to the stated maturity of the Bonds.
Bond Redemptions.Because certain of the Bonds in the Trust may from time to
time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that the Trust will retain for any length of time its present size and
composition. Neither the Sponsor nor the
Trustee shall be liable in any way for
any default, failure or defect in any Bond.
Certain of the Bonds in the Trust may be subject to redemption prior to
their stated maturity date pursuant to
sinking fund provisions, call provisions
or extraordinary optional or mandatory redemption provisions or otherwise. A
sinking fund is a reservefund 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 exercise of redemption or call
provisions will (except to the extent the proceeds of the called Bondsare 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. The portfolio
contains a listing of the sinking fund and call provisions, if any, with
respect to each of the debt obligations.
Extraordinary optional redemptions and
mandatory redemptions result from the happening of certain events. Generally,
events that may permit the extraordinaryoptional redemption of Bonds or may
require the mandatory redemption of Bonds include, among others: a final
determination that the interest on the
Bonds is taxable; the substantial damage
or destruction by fire or other casualty of the project for which the proceeds
of the Bonds were used; an exercise by a local, state or Federal governmental
unit of its power of eminent domain to take all or substantially all of the
project for which the proceeds of the Bonds were used; changes in the economic
availabilityof 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 areissued 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 ofthe
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.
ESTIMATED LONG-TERM RETURNS
AND ESTIMATED CURRENT RETURNS
As of the opening of business on
the date indicated therein, the Estimated
Current Returns and the Estimated Long-Term Returns for each Trust under the
monthly and semi-annual distribution plans were as set forth under "Per Unit
Information" for the applicable Trust in
Part One of this Prospectus. Estimated
Current Returns are calculated by dividing the Estimated Net Annual Interest
Income per Unit by the Public Offering
Price. The Estimated Net Annual Interest
Income per Unit will vary with changes in fees and expenses of the Trustee and
the Evaluator and with the principal
prepayment, redemption, maturity, exchange
or sale of Securities while the Public
Offering Price will vary with changes in
the offering price of the underlying Securities; therefore, there is no
assurance that the present Estimated Current Returns will be realized in the
future. Estimated Long-Term Returns are calculated using a formula which (1)
takes into consideration, and determines
and factors in the relative weightings
of, the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all of
the Securities in the Trust and (2) takes into account the expenses and sales
charge associated with each Trust Unit. Since the market values and estimated
retirements of the Securities andthe expenses of the Trust will change, there
is no assurance that the present Estimated Long-Term Returns will be realized
in the future. Estimated Current Returns and Estimated Long-Term Returns are
expected to differ because the calculation of Estimated Long-Term Returns
reflects the estimated date and amount of principal returned while Estimated
Current Returns calculations include
only Net Annual Interest Income and Public
Offering Price.
TRUST OPERATING EXPENSES
Compensation of Sponsor and Evaluator.
The Sponsor will not receive any fees in
connection with its activities relating to the Trust. However, in connection
with certain series of the Trust, American Portfolio Evaluation Services, a
division of Van Kampen Merritt Investment Advisory Corp.,which is a
wholly-owned subsidiary of the Sponsor (the "Evaluator"), will receive an
annual supervisory fee, which is not to exceed the amount set forth under
"Summary of Essential Financial Information" in Part One of this Prospectus,
for providing portfolio supervisory services for such series. Such fee (which
is based on the number of Units outstanding in the Trust on January 1 of each
year) may exceed the actual costs of providing such supervisory services for
such series, but at no time will the totalamount received for portfolio
supervisory services rendered to Series 65 and subsequent series of Insured
Municipals Income Trust in any calendar year exceed the aggregate cost to the
Evaluator of supplying such services in such year. In addition, the Evaluator
shall receive an annual evaluation fee in the amount set forth in "Summary of
Essential Financial Information" (which is based on the outstanding principal
amount of Securities on January 1 of each year) for regularly evaluating the
Trust's portfolio. Both of the foregoing
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 Sponsor and the dealers will
receive sales commissions and may realize other profits (or losses) in
connection with the sale of Units as described under "Public Offering".
Trustee's Fee. For its services, the Trustee will receive an annual fee from
the Trust based on the largest aggregate amount of Securities in the Trust at
any time during such period. Such fee
will be computed at the amounts set forth
in Part I to this Prospectus for that portion of the Trust under the
semi-annual distribution plan and for those portions of the Trust representing
monthly and quarterly distribution plans. The Trustee's fees are payable
monthly on or before the fifteenth day of each monthfrom the Interest Account
to the extent funds are available and then from the Principal Account. Such
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.
Since the Trustee has the use of the funds being held in the Principal and
Interest Accounts for future
distributions, payment of expenses and redemptions
and since such Accounts are non-interest bearing to Unitholders, the Trustee
benefits thereby. Part of the Trustee's compensation for its services to the
Trust is expected to result from the use
ofthese funds. For a discussion of the
services rendered by the Trustee pursuant to its obligations under the Trust
Agreement, see "Rights of Unitholders
Reports Provided" and "Trust Administration".
Insurance Premiums. The cost of the portfolio insurance obtained by the Trust,
if any, is the amount shown in "Summary of Essential Financial Information" in
Part One of this Prospectus. The premium is payable each year that the Trust
retains the Bonds. Premiums, if any, which are Trustobligations, are payable
monthly by the Trustee on behalf of the Trust. As Bonds in the portfolio are
redeemed by their respective issuers or are sold by the Trustee, the amount of
the premium will be reduced in respect of those Bonds no longer owned by and
held in the Trust. If the Trustee exercises the right to obtain permanent
insurance, the premiums payable for such permanent insurance will be paid
solely from the proceeds of the sale of the related Bonds. The premiums for
such permanent insurance withrespect to
each Bond will decline over the life of
the Bond. The Trust does not incur any expense for insurance which has been
obtained by an issuer of a Bond, since the premium or premiums for such
insurance have been paid by the respective issuers of such bonds. Bonds for
which insurance has been obtained by the
issuer from one of the Preinsured Bond
Insurers are not additionally insured by the Trust. See "Objectives and
Securities Selection".
Miscellaneous Expenses. The following
additional charges are or may be incurred
by the Trust: (a) fees of the Trustee for extraordinary services, (b) expenses
of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsor, (c) various governmental charges, (d) expenses and
costs ofany action taken by the Trustee
to protect the Trust and the rights and
interests of Unitholders, (e) indemnification of the Trustee for any loss,
liability or expenses incurred by it in
the administration of the Trust without
negligence, bad faith or willful misconduct on its part and (f) expenditures
incurred in contacting Unitholders upon termination of the Trust.
The fees and expenses set forth herein are payable out of the Trust. When
such fees and expenses are paid by or
owing to the Trustee, they are secured by
a lien on the portfolio of the Trust. If the balances in the Interest and
Principal Accounts are insufficient to provide for amounts payable by the
Trust, the Trustee has the power to sell Securities to pay such amounts.
INSURANCE ON THE BONDS
Insurance has been obtained by the Trust or by the issuer of such Bonds,
or by a prior owner of such Bonds, or by the Sponsor prior to the deposit of
such Bonds in the Trust guaranteeing prompt payment of interest and principal,
when due, in respect of the Bonds in the Trust. See "Objectives and Securities
Selection". An insurance policy obtained by the Trust, if any, is
non-cancellable and will continue in force so long as the Trust is in
existence, the respective Portfolio Insurer is still inbusiness and the Bonds
described in such policy continue to be held by the Trust. Any portfolio
insurance premium for the Trust, which is an obligation of the Trust, is paid
by the Trust on a monthly basis. Non-payment of premiums on a policy obtained
bythe Trust will not result in the
cancellation of insurance but will force the
insurer to take action against the Trustee to recover premium payments due it.
The Trustee in turn will be entitled to recover such payments from the Trust.
Premium rates for each issue of Bonds protected by a policy obtained by the
Trust, if any, are fixed for the life of the Trust. The premium for any
Preinsured Bond insurance has been paid by such issuer, by a prior owner of
such Bonds or the Sponsor 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 respective Preinsured Bond Insurer remains in business. If the provider of
an original issuance insurance policy is unable to meet its obligations under
such policy or if the rating assigned to the claims-paying ability of any such
insurer deteriorates, the Portfolio Insurers have no obligation to insure any
issue adversely affected by either of the above described events.
The aforementioned portfolio insurance obtained by the Trust, if any,
guarantees the timely payment of principal and interest on the Bonds as they
fall due. For the purposes of insurance obtained by the Trust, "when due"
generally means the stated maturity date for the payment ofprincipal and
interest. However, in the event (a) an
issuer of a Bond defaults in the payment
of principal or interest on such Bond,
(b) such issuer enters into a bankruptcy
proceeding or (c) the maturity of such Bond is accelerated, the affected
PortfolioInsurer has the option, in its
sole discretion, after receiving notice
of the earliest to occur of such a default, bankruptcy proceeding or
acceleration to pay the outstanding principal amount of such Bond plus accrued
interest to the date of such payment and
thereby retire the Bond from the Trust
prior to such Bond's stated maturity
date. The insurance does not guarantee the
market value of the Bonds or the value of the Units. Insurance obtained by the
Trust, if any, is only effective as to Bonds owned byand held in the Trust. In
the event of a sale of any such Bond by the Trustee, such insurance terminates
as to such Bond on the date of sale.
Pursuant to an irrevocable commitment of the Portfolio Insurers, the
Trustee, upon the sale of a Bond covered under a portfolio insurance policy
obtained by the Trust, has the right to
obtain permanent insurance with respect
to such Bond (i.e., insuranceto maturity of the Bonds regardless of the
indentity of the holder thereof) (the "Permanent Insurance") upon the payment
of a single predetermined insurance premium and any expenses related thereto
from the proceeds of the sale of such Bond. Accordingly, any Bond in the Trust
is eligible to be sold on an insured basis. It is expected that the Trustee
would exercise the right to obtain Permanent Insurance only if upon such
exercise the Trust would receive net proceeds (sale of Bond proceeds less the
insurance premium and related expenses
attributable to the Permanent Insurance)
from such sale in excess of the saleproceeds if such Bonds were sold on an
uninsured basis. The insurance premium with respect to each Bond eligible for
Permanent Insurance would be determined based upon the insurability of each
Bond as of the Date of Deposit and would not be increased or decreased for any
change in creditworthiness of each Bond.
The Sponsor believes that the Permanent Insurance option provides an
advantage to the Trust in that each Bond insured by a Trust insurance policy
may be sold out of the Trust with the benefits of the insurance attaching
thereto. Thus, the value of the insurance, if any, at the time of sale, can be
realized in the market value of the Bond so sold (which is not the case in
connection with any value attributable to an Insured Trust's portfolio insura
nce). See "Public Offering
Offering Price". Because any such
insurance value may be realized in the market
value of the Bond upon the sale thereof upon exercise of the Permanent
Insurance option, the Sponsor anticipates that (a) in the event the Trust were
to be comprised of a substantial percentage of Bonds in default or significant
risk of default, it is much less likely
that the Trust would need at some point
in time to seek a suspension of redemptions of Units than if the Trust were to
have no such option and (b) at the time of termination of the Trust, if the
Trust were holding defaulted Bonds or Bonds in significant risk of default the
Trust would not need to hold such Bonds until their respective maturities in
order to realize the benefits of the Trust's portfolio insurance.
Except as indicated below,
insurance obtained by the Trust, if any, 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 (including the right
to obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units if the 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 (i) the market value of a
Bond which is in default in payment of principal or interest or in significant
risk of such default assuming the exercise of the right to obtain Permanent
Insurance (less the insurance premium and related expenses attributable to the
purchase of Permanent Insurance) and (ii) the market value of such Bonds not
covered by Permanent Insurance. It is
also the present intention of the Trustee
not to sell such 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
Offering Price" herein for a more
complete description of the Trust's method of
valuing defaulted Bonds and Bonds which have a significant risk of default.
Insurance obtained by the issuer of a
Bond is effective so long as such Bond is
outstanding. Therefore, any such insurance may be considered to represent an
elementof market value in regard to the Bonds thus insured, but the exact
effect, if any, of this insurance on such market value cannot be predicted.
The portfolio insurance policy or policies obtained by the Trust, if any,
with respect to the Bonds in the Trust were issued by one or more of the
Portfolio Insurers. Any other Preinsured Bond insurance policy (or commitment
therefor) was issued by one of the Preinsured Bond Insurers. See "Objectives
and Securities Selection".
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin and licensed to do business in 50 states
and the District of Columbia and the
Commonwealth of Puerto Rico, with admitted
assets of approximately $1,503,000,000 (unaudited) and statutory capital of
approximately $862,000,000 (unaudited) as of September 30, 1992. 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 AMBAC Indemnity's 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 agreement under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Indemnity has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
Municipal Bond Investors Assurance Corporation ("MBIA") is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed company.
MBIA, Inc. is not obligated to pay the
debts of or claims against MBIA. MBIA is
a limited liability corporation rather than a several liability association.
MBIA is domiciled in the State of New York and licensed to do business in all
fifty states, the District of Columbia andthe Commonwealth of Puerto Rico. As
of December 31, 1991, MBIA had admitted
assets of $2.0 billion (audited), total
liabilities of $1.4 billion (audited), and total capital and surplus of $647
million (audited) determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities. As of September
30, 1992, MBIA had admitted assets of $2.3 billion (unaudited), total
liabilities of $1.6 billion (unaudited), and total capital and policyholders'
surplus of $758 million (unaudited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's year end financial statements prepared in
accordance with statutory accounting practices are available from MBIA. The
address of MBIA is 113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA
Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA acquired all of the outstanding stock of Bond
Investors Group, Inc., the parent of Bond Investors Guaranty Insurance Company
(BIG), now known as MBIA Insurance Corp. of Illinois. Through a reinsurance
agreement, BIG has ceded all of its net insured risks, as well as its unearned
premium and contingency reserves, to MBIA and MBIA has reinsured BIG's net
outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA
"Aaa" and short term loans "MIG 1," both designated to be of the highest
quality.
Standard and Poor's Corporation
rates all new issues insured by MBIA "AAA"
Prime Grade.
The Moody's Investors Service rating of MBIA should be evaluated
independently of the Standard & Poor's Corporation rating of MBIA. No
application has been made to any other rating agency in order to obtain ad
ditional ratings on the Bonds. The ratings reflect the respective rating
agency's current assessment of the creditworthiness of MBIA and its ability to
pay claims on its policies of insurance. Any further explanation as to the
significance of the above ratings may be obtained only from the applicable
rating agency.
The above ratings are not recommendations to buy, sell or hold the Bonds,
and such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of either or both ratings
may have an adverse effect on the market price of the Bonds.
Financial Guaranty ("Financial Guaranty" or "FGIC") is a wholly-owned
subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company.
The Corporation is a wholly-owned subsidiary of General Electric Capital
Corporation ("GECC"). Neither the Corporation nor GECC is obligated to pay the
debts of or the claims against Financial Guaranty. Financial Guaranty is
domiciled in the State of New York and
is subject to regulation by the State of
New York Insurance Department. As of December 31, 1991, the total capital and
surplus of Financial Guaranty was approximately $621,000,000. Copies of
Financial Guaranty's financial statements, prepared on thebasis of statutory
accounting principles, and the Corporation's financial statements, prepared on
the basis of statutory accounting principles, and the Corporations financial
statements, prepared on the basis of
generally accepted accounting principles,
may be obtained by writing to Financial
Guaranty at 115 Broadway, New York, New
York 10006, Attention: Communications Department, telephone number: (212)
312-3000 or to the New York State Insurance Department at 160 West Broadway,
18th Floor, New York, New York 10013, Attention: Property Companies Bureau,
telephone number: (212) 602-0389.
In addition, Financial Guaranty Insurance Company is currently authorized
to write insurance in 49 states and the District of Columbia.
Financial Security Assurance
("Financial Security" or "FSA") is a monoline
insurance company incorporated on March
16, 1984 under the laws of the State of
New York. The operations of Financial Security commenced on July 25, 1985, and
Financial Security received its New York State Insurance license on September
23, 1985. Financial Security and its two
wholly owned subsidiaries are licensed
to engage in the financial guaranty insurance business in 49 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial
guaranty insurance consists of the issuance of
a guaranty of scheduled payments of an issuer's securities, thereby enhancing
the credit rating of those securities, in consideration for payment of a
premium to the insurer.
Financial Security is 91.6% owned by US West, Inc. and 8.4% owned by The
Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine"). Neither U S WEST,
Inc. nor Tokio Marine is obligated to pay the debts of or the claims against
Financial Security. Financial Security is domiciled in the State of New York
and is subject to regulation by the State of New York Insurance Department. As
of September 30, 1992, the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of Financial
Security and its consolidated subsidiaries were, in accordance with generally
accepted accounting principles, approximately $456,840,000 (unaudited) and
$231,686,000 (unaudited), and the total shareholders' equity and the total
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $615,376,000 (unaudited) and $213,838,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York, New
York 10022, Attention: Communications
Department. Its telephone number is (212)
826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under
any financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc, and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securitiesand are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company ("Capital Guaranty") was incorporated
in Maryland on June 25, 1986, and is a wholly-owned subsidiary of Capital
Guaranty Corporation, a Maryland insurance holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas and Electric;
Fleet/Norstar Financial Group, Inc.; Safeco Corporation; Sibag Finance Cor
poration, an affiliate of Siemens A.G.;
and United States Fidelity and Guaranty
Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline financial
guaranty insurer engaged in the underwriting and development of financial
guaranty insurance. Capital Guaranty insures general obligation, tax supported
and revenue bonds structured as tax-exempt and taxable securities as well as
selectively insures taxable corporate/asset backed securities. Standard &
Poor's Corporation rates the claims paying ability of Capital Guaranty "AAA".
Capital Guaranty's insured
portfolio currently includes over $9 billion in
total principal and interest insured. As of December 31, 1990, the total
policyholders' surplus of Capital Guaranty was $103,802,396 (audited), and the
total admitted assets were $180,118,227 (audited) as reported to the Insurance
Department of the State of Maryland. Financial statements for Capital Guaranty
Insurance Company, that have been prepared in accordance with statutory
insurance accounting standards, are available upon request. The address of
Capital Guaranty's headquarters and its telephone number are Steuart Tower,
22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance.
CapMAC is licensed in 48 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate and other financial obligations in the
domestic and foreign capital markets. CapMAC may also provide financial
guarantee reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation ("Standard &
Poor's"), and "AAA" by Duff & Phelps, Inc. ("Duff & Phelps"). Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees. CapMAC commenced operations on December 24,
1987 as an indirect, wholly-owned subsidiary of Citibank (New York State), a
wholly-owned subsidiary of Citicorp. On June 25, 1992, Citibank (New York
State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by
CapMAC or any debts of CapMAC or to make
additional capital contributions.
CapMAC is regulated by the
Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to
regulation by the insurance departments
of the other jurisdictions in which it is licensed. CapMACis subject to
periodic regulatory examinations by the same regulatory authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and acquisitions. The
amount of exposure per risk that CapMAC may retain, after giving effect to
reinsurance, collateral or other security, is also regulated. Statutory and
regulatory accounting practices may prescribe appropriate rates at which
premiums are earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form of surety
bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bond(s).
THE [SURETY BOND(S)] [IS] [ARE] NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale,
Holdings and CapMAC entered into an Ownership
Policy Agreement (the "Ownership Policy
Agreement"), which sets forth Holdings'
intent with respect to its ownership and
control of CapMAC and provides certain
policies and agreements with respect to Holdings' exercise of its control of
CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the
term of the Ownership Policy Agreement, it will not, and will not permit any
stockholder of Holdings to enter into
any transaction the result of which would
be a change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long term debt obligations or claims-paying ability of the
person which would control CapMAC after such transaction or its direct or
indirect parent are rated in a high investment grade category, unless Holdings
or CapMAC has confirmed that CapMAC's claims-paying ability rating by Moody's
(the "Rating") in effect immediately prior to any such change of control will
not be downgraded by Moody's upon such change of control or unless such change
of control occurs as a result of a public offering of Holdings' capital stock.
In addition, the Ownership Policy
Agreement includes agreements (i) not to
change the "zero-loss" underwriting standards or policies and procedures of
CapMAC in a manner that would materially and adversely affect the risk profile
of CapMAC's book of business, (ii) that CapMAC will adhere to the aggregate
leverage limitations and maintain capitalization levels considered by Moody's
from time to time as consistent with
maintaining CapMAC's Rating and (iii) that
until CapMAC's statutory capital surplus and contingency reserve ("qualified
statutory capital") equal$250 million, CapMAC will maintain a specified amount
of qualified statutory capital in excess of the amount of qualified statutory
capital that CapMAC is required at such time to maintain under the aggregate
leverage limitations set forth in Article 69 ofthe New York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date
on which a change of control of CapMAC occurs and the date on which CapMAC and
Holdings agree in writing to terminate
the Ownership Policy Agreement; provided
that, CapMAC or Holdings has confirmed that CapMAC's Rating in effect
immediately prior to any such termination will not be downgraded upon such
termination.
As at December 31, 1991 and 1990,
CapMAC had statutory capital and surplus
of approximately $232 million and $223 million, respectively, and had not
incurred any debt obligations. On June 26, 1992, CapMAC made a special
distribution (the "Distribution") to
Holdings in connection with the Sale in an
aggregate amount that caused the total of CapMAC's statutory capital and
surplus to decline to approximately $150 million. Holdings applied
substantially all of the proceeds of the Distribution to repay debt owed to
Citicorp that was incurred in connection
with the capitalization of CapMAC. As
ofJune 30, 1992, CapMAC had statutory
capital and surplus of approximately $150
million and had not incurred any debt obligations. In addition, at June 30,
1992 CapMAC had a statutory contingency reserve of approximately $13 million,
which is also available to cover claims under surety bonds issued by CapMAC.
Article 69 of the New York State
Insurance Law requires that CapMAC establishes
and maintains the contingency reserve.
In addition to its capital (including contingency reserve) and other
reinsurance available to pay claims under its surety bonds, on June 25, 1992,
CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop Loss
Agreement") with Winterthur Swiss
Insurance Company (the "Reinsurer"), which is
rated AAA by Standard & Poor's and Aaa by Moody's, pursuant to which the
Reinsurer will be required to pay any
losses incurred by CapMAC during the term
of the Stop Loss Agreement on the surety bonds covered under the Stop Loss
Agreement in excess of a specified amount of losses incurred by CapMAC under
such surety bonds (such specified amount initially being $100 million and
increasing annually by an amount equal to 66-2/3% of the increase in CapMAC's
statutory capital and surplus) up to an aggregate limit payable under the Stop
Loss Agreement of $50 million. The Stop Loss Agreement has an initial term of
seven years, is extendable for one-year periods and is subject to early
termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of banks rated A1+
/P1 by Standard & Poor's and Moody's, respectively, having a term of 360 days.
Under the Liquidity Facility CapMAC will
be able, subject to satisfying certain
conditions, to borrow funds from time to
time in order to enable it to fund any
claim payments or payments made in settlement or mitigation of claims payments
under its surety bonds, including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which
differ from generally accepted accounting
principles, and filed with the Insurance Department of the State of New York
are available upon request. CapMAC is located at 885 Third Avenue, New York,
New York 10022, and its telephone number is (212) 755-1155.
In order to be in the Trust, Bonds must be insured by one of the
Preinsured Bond Insurers or be eligible
for the insurance being obtained by the
Trust. In determining eligibility for
insurance, the Portfolio Insurers and the
Preinsured Bond Insurers have applied their own standards which correspond
generally to the standards they normally use in establishing the insurability
of new issues of municipal bonds and which are not necessarily the criteria u
sed in the selection of Bonds by the Sponsor. To the extent the standards of
the Portfolio Insurers and the Preinsured Bond Insurers are more restrictive
than those of the Sponsor, the
previously stated Trust investment criteria have
been limited with respect to the Bonds.
This decision is made prior to the Date
of Deposit, as debt obligations not
eligible for insurance are not deposited in
the Trust. Thus, all Bonds in the portfolio are insured either by the Trust or
by the issuer of the Bonds, by a prior owner of such Bonds or by the Sponsor
prior to the deposit of such Bonds in the Trust.
Because the Bonds are insured by one of the Portfolio Insurers or one of
the Preinsured Bond Insurers 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 has assigned to the Units of the Trust
its "AAA" investment rating. 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 of the Units.
The Estimated Current Return and the Estimated Long-Term Return on an
identical portfolio without the
insurance obtained by the Trust would have been
higher than the Estimated Current Return and the Estimated Long-Term Return on
the Securities in the Trust after payment of the insurance premium. 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 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 has
applied the criteria hereinbefore described.
In the event of nonpayment of interest or principal, when due, in respect
of a Bond, AMBAC Indemnity shall make such payment not later than 30 days and
Financial Guaranty shall make such payment within one business day after the
respective insurer has been notified that such nonpayment 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 policies issued by the Portfolio Insurers and the
Preinsured Bond Insurers are substantially identicalinsofar as obligations to
the Trust are concerned.
The Internal Revenue Service has issued a letter ruling which holds in
effect that insurance proceeds representing maturing interest on defaulted
municipal obligations paid to holders of
insured bonds, under policy provisions
substantially identical to the policies described herein, will be excludable
from Federal gross income under Section 103(a)(1) of the Internal Revenue Code
to the same extent as if such payments
were made by the issuer of the municipal
obligations. Holders of Units in the Trust should discuss with their tax
advisers the degree of reliance which they may place on this letter ruling.
However, 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".
Each Portolio Insurer 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 each Portfolio Insurer will be able
to perform on its contracts 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 any of the
Portfolio Insurers which would
materially impair the ability of such company to
meet its commitments pursuant toany contract of bond or portfolio insurance.
The information relating to each Portfolio Insurer has been furnished by
such companies. The financial information with respect to each Portfolio
Insurer 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 the closing for each
Trust, Chapman and Cutler, counsel for
the Sponsor, rendered an opinion substantially to the effect that:
(1) the 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 under the Internal
Revenue Code of 1986 will retain its status as tax-exempt interest for
Federal income tax purposes, except, in the case of Unitholders who are
corporations to the extent such interest is subject to the alternative
minimum tax and the environmental tax (the "Superfund Tax") as noted
below, when distributed to Unitholders;
(2) exemption of interest and accrued original issue discount on any
Securities for Federal income tax
purposes does not necessarily result in
tax exemption under the laws of
the several states as such laws vary with
respect to the taxation of such Securities and in many states all or a
part of such interest and accruedoriginal issue discount may be subject
to tax;
(3) each Unitholder is considered to be
the owner of a pro rata portion of the
Trust under subpart E, subchapter J of chapter 1 of the Internal Revenue
Code of 1986 and will have a taxable event when the 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 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 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 said
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;
(4) any proceeds paid under an insurance policy issued to the Trust by one of
the Portfolio Insurers with
respect to the Bonds which represent maturing
interest on defaulted obligations held by the Trustee will be excludable
from Federal gross income if, and to the same extent as, such interest
would have been so excludable if paid by the issuer of the defaulted
obligations; and
(5) 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 so excludable if paid in the
normal course by the issuer of the defaulted obligations.
Sections 1288 and 1272 of the Internal Revenue Code of 1986 (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 Bondon
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.
In the case of certain corporations, the alternative minimum taxand the
Superfund Tax 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" over an
amount equal to its alternativeminimum 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. Corporate unitholders are urged to consult their tax
advisers with respect to the particular
tax consequences to them resulting from
purchasing Units of the Trust, including
the corporate alternative minimum tax,
the Superfund Tax and the branch profits tax imposed by Section 884 of the Co
de.
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 consider 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, the opinions of bond
counsel indicate that interest on such securities received by a "substantial
user" of the facilities being financed with the proceeds of these securities,
or persons related thereto, for periods while such securities are held by such
a user or related person, will not be exempt from Federal income taxes,
although interest on such securities received by others would be exempt from
Federal income taxes. "Substantial user"
and "related person" are defined under
U.S. Treasury Regulations. Any person who believes he or she may be a
substantial user or 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, have rendered opinions substantially to the effect that the Trust is
not an association taxable as a
corporation and the income of the Trust will be
treated as the income of the Unitholders under the then existing income tax
laws of the State and City of New York.
All statements in the Prospectus concerning exclusion from gross income
for Federal, state or other taxes are the opinions of counsel and are to be so
construed.
At the respective times of issuance
of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
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 34%, effective for long-term capital gains realized
after December 31, 1986. 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 Internal Revenue Code provides, in general, 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". It should be
noted that under recently proposed legislation, the proportion of Social
Security benefits subject to inclusion
in taxable income would be raised to 55%
for taxable years starting in 1992 and
1993, and 60% for taxable years starting
after 1993. No prediction is made as to
the likelihood that this legislation or
other legislation with substantially similar effect will be enacted. 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 andby including
tax exempt interest. To the extent that
Social Security benefits are includable
in gross income, they will be treated as any other item of gross income.
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 the Trust, will be
subject to tax. A taxpayer whose adjusted
gross income already exceeds thebase amount must include fifty percent 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.
PUBLIC OFFERING
General. Units are offered at the Public Offering Price plus accrued and
undistributed interest to the settlement date. In the secondary market 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
each trust. For purposes of computation, Bonds will be deemed to mature on
their expressed maturity dates unless: (a) the Bonds 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 tobe the date
upon which they mature; or (b) such Bonds 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 to 30 .......... 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
sales charge on a Trust consisting entirely of a portfolio of Bonds with 15
years to maturity would be5.10%.
Accrued Interest (Accrued Interest to Carry). Accrued interest to carry
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 either monthly or 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 coupons that are not yet due. For this
reason, the Public Offering Price of Units will have added to it the
proportionate share of accrued and undistributed interest to the 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 until it receives interest
payments on the Securities in the 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 will be used by it to earn
interest thereon, it benefits thereby. If the Unitholder sells or redeems all
or a portion of his Units or if the Bonds in the Trust are sold or otherwise
removed or if the 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.
Offering Price. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Part One
of this Prospectus in accordance with fluctuations in the prices of the
underlying Securities in the Trust. The
price of the Units as of the opening of
business on the date of Part One of this
Prospectus was determined by adding to
the determination of the aggregate bid price of the Bonds the amount of the
sales charge expressed as a percentage of the aggregate bid price of the
Securities and dividing the sum so
obtained by the number of Units outstanding.
This computation produced a gross profitequal to the sales charge expressed as
a percentage of the Public Offering Price. For secondary market purposes an
appraisal and adjustment with respect to the Trust will be made by the
Evaluator as of 4:00 P.M. Eastern time on days on which the New YorkStock
Exchange is open for each day on which any Unit of the Trust is tendered for
redemption, and it shall determine the aggregate value of the Trust as of 4:00
P.M. Eastern time on such other days as may be necessary.
The aggregate price of the Securities in the Trust has been and will be
determined on the basis of bid prices: (a) 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; (b) if such prices are not
available for any particular Securities, on the basis of current market prices
for comparable bonds; (c) by causing the value of the Securities to be
determined by others engaged in the practice of evaluation, quoting or
appraising comparable bonds; or (d) by any combination of the above. Unless
Bonds are in default in payment of
principal or interest or in significant risk
of such default, the Evaluator will not attribute any value to the insurance
obtained by the Trust. On the other hand, the value, if any, of insurance
obtained by the issuer of Bonds is reflected and included in the market value
of such Bonds.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of such default (the "Defaulted Bonds") the value of the
insurance guaranteeing interest and principal payments. The value of the
insurance will be equal to the difference between (i) the market value of
Defaulted Bonds assuming the exercise of the right to obtain Permanent
Insurance (less the insurance premiums
and related expenses attributable to the
purchase of Permanent Insurance) and (ii) the market value of such Defaulted
Bonds not covered by Permanent Insurance. In addition, the Evaluator will
consider the ability of the affected Portfolio Insurer to meet its commitments
under any Trust insurance policy, including the commitments to issue Permanent
Insurance. It is the position of the Sponsor that this is a fair methodof
valuing the Bonds and the insurance
obtained by the Trust 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 "Rights of Unitholders
Redemption of Units".
Although payment is normally made five business days following the order
for purchase, payment may be made prior thereto. However, delivery of
certificates representing Units so ordered will be made five business days
following such order or shortly thereafter. A person will become the owner of
Units on the date of settlement provided payment has been received. Cash, if
any, made available to the Sponsor prior the date of settlement for the
purchase of Units may be used in the
Sponsor's business and may be deemed to be
a benefit to the Sponsor, subject to the
limitations of the Securities Exchange
Act of 1934. See "Rights of Unitholders-Redemption of Units" for information
regarding the ability to redeem Units ordered for purchase.
Unit Distribution. Units repurchased in the secondary market, if any, may be
offered by this Prospectus at the
secondary Public Offering Price in the manner
described.
Broker-dealers or others will be
allowed a concession or agency commission
in connection with secondary market transactions in the amount of 70% of the
applicable sales charge as determined
using the table found in "Public Offering
General". Certain commercial banks are making Units of the Trust available to
their customers on an agency basis. A
portion of the sales charge (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 Trust
Units; 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 addition, state securities
laws on this issue may differ from the
interpretations of federal law expressed
herein and banks and financial institutions may be required to register as
dealers pursuant to state law. The minimum purchase in the secondary market
will be one Unit.
Broker-dealers of the Trusts and/or others 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 forces of brokers,
dealers, and/or others may be eligible
to win other nominal awards for certain sales efforts, or under which the
Sponsor will reallow to any such brokers, dealers, and/or others that sponsor
sales contests or recognition programs conforming to criteria established by
the Sponsor, or participate in sales programs sponsored by the Sponsor, an
amount not exceeding the total applicable sales charges on the sales generated
by such persons at the public offering price during such programs. Also, the
Sponsor in its discretion may from time to timepursuant to objective criteria
established by the Sponsor pay fees to qualifying brokers, dealers or others
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 reject, in whole or inpart, any order
for the purchase of Units and to change the amount of the concession or agency
commission to dealers and others from time to time.
Sponsor and Dealer Profits. Dealers will receive the gross sales commission as
described under "Public Offering
General" above.
As stated under "Public Market"
below, the Sponsor intends to, and certain
of the dealers may, maintain a secondary market for the Units of the Trust. In
so maintaining a market, the Sponsor or
any such dealer will realize profits or
sustain losses in the amount of any
difference between the price at which Units
are purchased and the price at which
Units are resold. In addition, the Sponsor
or any such dealer will also realize
profits or sustain losses resulting from a
redemption of such repurchased Units at a price above or below the purchase
price for such Units, respectively.
Public Market. Although they are not obligated to do so, the Sponsor intends
to, and certain of the dealers may, maintain a market for the Units offered
hereby and to offer continuously to purchase such Units at prices, subject to
change at any time, based upon the aggregate bid prices of the Securities in
the portfolio plus interest accrued to the date of settlement plus any princ
ipal cash on hand, less any amounts representing taxes or other governmental
charges payable out of the Trust and less any accrued Trust expenses. If the
supply of Units exceeds demand or if some other business reason warrants it,
the Sponsor and/or the dealers may
either discontinue all purchases of Units or
discontinue purchases of Units at such prices. In the event that a market is
not maintained for the Units and the Unitholder cannot find another purchaser,
a Unitholder desiring to dispose of his Unitsmay be able to dispose of such
Units only by tendering them to the Trustee for redemption at the Redemption
Price, which is based upon the aggregate bid price of the Securities in the
portfolio. The aggregate bid prices of the underlying Securities in the Trust
are expected to be less than the related
aggregate offering prices. See "Rights
of Unitholders
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.
<PAGE>
RIGHTS OF UNITHOLDERS
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 of the Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor. Certificates are
transferable by presentation and surrender to the Trustee 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 an officer of a commercial bank or trust company, a
member firm of either the New York, American, Midwest or Pacific Stock
Exchange, or in such other manner as may be acceptable to the Trustee. In
certain instances the Trustee may
require additional documents such as, but not
limited to, trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority. Certificates will be
issued in denominations of one Unit or any multiple thereof. Certificates for
Units will bear appropriate notations on their face indicating whichplan of
distribution has been selected in respect thereof. If a change in plan of
distribution is made, the existing certificate must be surrendered to the
Trustee and a new certificate will be issued, at no charge to the Unitholder
(other than accrued interest due to the change in plan of distribution), to
reflect the currently effective plan of distribution.
Although no such charge is now made or contemplated, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate reissued (o
ther than as a result of a change in plan of distribution) or transferred and
to pay any governmental charge that may
be imposed in connection with each such
transfer or interchange. Destroyed,
stolen, mutilated or lost certificates will
be replaced upon delivery to the Trustee
of satisfactory indemnity, evidence of
ownership and payment of expenses incurred. Mutilated certificates must be
surrendered to the Trustee for replacement.
Distributions of Interest and Principal. Interest received by the Trust,
including that part of the proceeds of any disposition of Securities which
represents accrued interest and including any insurance proceeds representing
interest due on defaulted Bonds is credited by the Trustee to the Interest
Account. Other receipts are credited to the Principal Account. All
distributions will be net of applicable
expenses. The pro rata share of cash in
the Principal Account will be computed as of the semi-annual record date, and
distributions to the Unitholders as of such record date will be made on or
shortly after the fifteenth day of such month. Proceeds received from the
disposition of any of the Securities after such record date and prior to the
following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to
pay interest on funds held in the Principal or Interest Accounts (but may
itself earn interest thereon and
therefore 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 distribution to the Unitholders
as of each 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 Unitholders' pro rata share
of the Estimated Net Annual Unit Income
in the Interest Account after deducting
estimated expenses attributable 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 fluctuation 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. Persons who purchase Units will
commence receiving distributions only
after such person becomes a record owner.
Notification to the Trustee of the transfer of Units is theresponsibility of
the purchaser, but in the normal course of business such notice is provided by
the selling broker/dealer.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (as
determined on the basis set forthunder
"Trust Operating Expenses"). The Trustee
also may withdraw from said accounts such amounts, if any, as it deems
necessary toestablish 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 accounts. In
addition, the Trustee may withdraw from
the Interest and Principal Accounts such amounts as may be necessary to cover
redemptions of Units by the Trustee.
Distribution Options. Distributions of
interest received by the Trust, prorated
on an annual basis, will be made semi-annually unless the Unitholder has
elected to receive them monthly or quarterly. Distributions of funds from the
Principal Account will be made on a
semi-annual basis, except under the special
circumstances outlined in "Rights of Unitholders
Distributions of Interest and Principal" above. Record dates for monthly
distributions will be the first day of each month, record dates for quarterly
distributions will be the first day of
March, June, September and December, and
record dates for semi-annual distributions will be the first day of June and
December. Distributions will be made on the fifteenth day of the month
subsequent to the respective record dates.
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 that the Trustee may then require, to the Trustee.
Certificates should be sent only by registered or certified mail to minimize
the possibility of their being lost or
stolen. If the card and certificate are
properly presented 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
"Trust Administration
Sponsor" which are registered in the Unitholder's state of residence. 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 Market 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 on his
or her Units in cash. There will be no chargeor other penalty for such
termination. Each Reinvestment Fund, its sponsor and investment adviser shall
have the right to terminate at any time the reinvestment plan relating to such
fund.
Reports Provided. The Trustee shall
furnish Unitholders in connection with each
distribution a statement of the amount of interest and, if any, the amount of
other receipts (received since the preceding distribution) being distributed
expressed in each case as a dollar amount representing the pro rata share of
each Unit outstanding. 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 accountantsshall be furnished by the Trustee to Unitholders
upon request. Within a reasonable period
of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a registered Unitholder a statement (i) as to the Interest
Account: interest received (including amounts representing interest received
upon any disposition of Securities) and the percentage of such interest by
states in which the issuers of the
Securities are located, deductions for appli
cable taxes and for fees and expenses of
the Trust (including insurance costs),
for redemptions of Units, if any, and the balance remaining after such
distributions and deductions, expressed in each case both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (ii) as to the
Principal Account: the dates of disposition of any Securities and the net
proceeds received therefrom (excluding any portion representing accrued
interest), the amount paid for redemptions of Units, if any, deductions for
payment of applicable taxes and fees and expenses of the Trust, the amount of
"when issued" interest treated as a return of capital, if any, 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; (iii) a list
of the Securities held and the numberof Units outstanding on the last business
day of such calendar year; (iv) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (v) amounts
actually distributed during such calendar year from the Interest and Principal
Accounts, 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 in the Trust 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, 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 (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates) and by 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 theNew 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.
Under regulations issued by the
Internal Revenue Service, the Trustee will
be required to withhold 20% 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 bysuch 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 will be withdrawn from the Principal Account. The Trustee is
empowered to sell underlying Securities in order to make funds available for
redemption. Units so redeemed shall be cancelled.
The Redemption Price per Unit will be determined on the basis of the bid
price of the Securities in the Trust as of4:00 P.M. Eastern time on days of
trading on the New York Stock Exchange on the date any such determination is
made. While the Trustee has the power to determine the Redemption Price per
Unit when Units are tendered for redemption, such authority has been delegated
to the Evaluator which determines the price per Unit on a daily basis. The
Redemption Price per Unit is the pro rata share of each Unit in the Trust
determined on the basis of (i) the cash on hand in the Trust or monies in the
process of beingcollected, (ii) the value of the Securities in the Trust based
on the bid prices of the Securities, except for those cases in which the value
of insurance has been included, 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 Securities in the Trust by employing any of the methods set
forth in "Public Offering
Offering Price". In determining the Redemption Price per Unit no value will be
assigned to the portfolio insurance
maintained by the Trust on the Bonds in the
Trust unless such Bonds are in default in payment of principal or interest or
in significant risk of such default. On the other hand, Bonds insured under a
policy obtained by the issuer thereof 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. For a description of the situations in which the
Evaluator may value the insurance obtained by the Trust, see "Public Offering
Offering Price".
The price at which Units may be
redeemed could be less than the price paid
by the Unitholder.
As stated above, the Trustee may sell Securities to cover redemptions.
When 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. Since
the provisions of the insurance obtained by the Trust covering the timely
payment of principal and interest, when due, on the Bonds so insured do not
permit transfer of such related
insurance, the Bonds so insured must be sold on
an uninsured basis. To the extent that Bonds which are current in payment of
interest are sold from the Trust
portfolio in order to meet redemption requests
and defaulted Bonds are retained in the portfolio in order to preserve the
related insurance protection applicable
to said Bonds, the overall quality (and
therefore value) of the Bonds remaining
in the Trust will tend to diminish. See
"Trust Administration
Portfolio Administration" for the effect of selling defaulted securities to
meet redemption requests.
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 Exch
ange Commission determines that trading on that Exchange is restricted or an
emergency exists, as a result of which
disposal or evaluation of the Securities
in the Trust is not reasonably practicable, or for such other periods as the
Securities and Exchange Commission may by order permit. Under certain extreme
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.
<PAGE>
TRUST ADMINISTRATION
Sponsor Purchases of Units. 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 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
betendered to the 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.
Portfolio Administration. The Trustee is empowered to sell, for the purpose of
redeeming Units tendered by any
Unitholder, and for the payment of expenses for
which funds may not be available, such
of the Bonds 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, including (a)
interest rates, (b) market value and (c) marketability. To the extent that
Bonds are sold which are current in payment of principal and interest in order
to meet redemption requests and defaulted Bonds are retained in the portfolio
in order to preserve the related
insurance protection applicable to said Bonds,
the overall quality of the Bonds remaining in the Trust's portfolio will tend
to diminish. Except as described below and in certain other 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 interes
t or in such significant risk of such default and for which value has been
attributed for the insurance obtained by the Trust. Because of such
restrictions on the Trustee under certain circumstances the Sponsor may seek a
full or partial suspension of theright of Unitholders to redeem their Units.
See "Rights of Unitholders
Redemption of Units". The Sponsor is empowered, but not obligated, to direct
the Trustee to dispose of Bonds in the event of an advanced refunding.
The Sponsor is required to instruct the Trustee to reject any offer made
by an issuer of any of the Bonds to issue new obligations in exchange or
substitution for any Bond pursuant to a refunding or refinancing plan, except
that the Sponsor may instruct the Trustee to accept or reject such an offer or
to take any other action with respect
thereto as the Sponsor may deem proper if
(1) the issuer is in default with respect to such Bond or (2) in the written
opinion of the Sponsor the issuer will probably default with respect to such
Bond in the reasonably foreseeable future. Any obligation so received in
exchange or substitution will be held by the Trustee subject to the terms and
conditions of the Trust Agreement to the same extent as Bonds originally
deposited thereunder. Within five days after the deposit of obligations in
exchange or substitution for underlying Bonds, the Trustee is required to give
notice thereof to each Unitholder, identifying the Bonds eliminated and the
Bonds substituted therefor. Except as stated herein, the acquisition by the
Trust of any securities other than the Bonds initially deposited is not
permitted.
If any default in the payment of principal or interest on any Bond occurs
and no provision for payment is made therefor either pursuant to the portfolio
insurance, or otherwise, within 30 days, the Trustee is required to notify the
Sponsor thereof. If the Sponsor fails to instruct the Trustee to sell or to
hold such Bond within 30 days after notification by the Trustee to the Sponsor
of such default, the Trustee may in its discretion sell the defaulted Bond and
not be liable for any depreciation or loss thereby incurred.
Amendment or Termination. The Sponsor and the Trustee have the power to amend
the Trust Agreement without the consent of any of the Unitholders when such an
amendment is (a) to cure an ambiguity or
to correct or supplement any provision
of the Trust Agreement which may be defective or inconsistent with any other
provision contained therein or (b) 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 Trust Agreement may not be
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 Bonds. In the event of
any amendment, the Trustee is obligated to notify promptly all Unitholders of
the substance of such amendment.
All Trusts other than those indicated in the next sentence may be
terminated at any time by consent of
Unitholders representing 100% of the Units
of the Trust then outstanding. Each series of Insured Municipals Income Trust,
Series 98 and subsequent series may be
terminated at any time by consent of the
Unitholders representing 51% of the Units of such Trust then outstanding. In
addition, a Trust may be terminated by
the Trustee when the value of the Trust,
as shown by any semi-annual evaluation, is less than that indicated under
"Summary of Essential Financial Information" in Part One of this Prospectus.
The Trust Agreement provides that the Trust shall terminate upon the
redemption, sale or other disposition of the last Security held in the Trust,
but in no event shall it continue beyond the end of the year indicated under
"The Trust". In the event of termination of the Trust, written notice thereof
will be sent by the Trustee to each
Unitholder thereof at his address appearing
on the registration books of the Trust maintained by the Trustee, such notice
specifying the time or times at which the Unitholder may surrender his
certificate or certificates for cancellation. Within a reasonable time
thereafter the Trustee shall liquidate any Securities then held in the Trust
and shall deduct from the funds of the Trust any accrued costs, expenses or
indemnities provided by the Trust
Agreement, including estimated compensationof
the Trustee and costs of liquidation and any amounts required as a reserve to
provide for payment of any applicable taxes or other governmental charges. The
sale of Securities in the Trust upon termination may result in a lower amount
than might otherwise be realized if such sale were not required at such time.
For this reason, among others, the amount realized by a Unitholder upon
termination may be less than the principal amount of Securities represented by
the Units held by such Unitholder. The Trusteeshall then distribute to each
Unitholder his share of the balance of the Interest and Principal Accounts.
With such distribution the Unitholders shall be furnished a final distribution
statement of the amount distributable. At such time as the Trustee inits sole
discretion shall determine that any amounts held in reserve are no longer
necessary, it shall make distribution thereof to Unitholders in the same
manner.
Notwithstanding the foregoing, in connection with final distributions to
Unitholders, itshould be noted that
because the portfolio insurance obtained by
the Trust is applicable only while Bonds so insured are held by the Trust, the
price to be received by the Trust upon the disposition of any such Bond which
is in default, by reason of nonpayment of principal or interest, will not
reflect any value based on such insurance. Therefore, in connection with any
liquidation, it shall not be necessary
for the Trustee to, and the Trustee does
not currently intend to, dispose of any Bond or Bonds ifretention of such Bond
or Bonds, until due, shall be deemed to
be in the best interest of Unitholders,
including, but not limited to situations in which a Bond or Bonds so insured
are in default and situations in which a Bond or Bonds so insured have a det
eriorated market price resulting from a significant risk of default. Since the
Bonds which are insured by insurance obtained by the Bond issuer 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 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 Bond or Bonds become due and
applicable insurance proceeds have been received by the Trustee.
Limitation on Liabilities. The Sponsor, the Evaluator and the Trustee shall be
under noliability to Unitholders for taking any action or for refraining from
taking any action in good faith pursuant to the Trust Agreement, 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
Trust Agreement, the Trustee may act
thereunder and shall not be liable for any
action taken by it in good faith under the Trust Agreement.
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 Trust Agreement or upon or in respect
of the Trust which the Trustee maybe
required to pay underany present or future
law of the United States of America or of any other taxing authority having
jurisdiction. In addition, the Trust Agreement contains other customary
provisions limiting the liability of the 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 Trust Agreement shall be made in good
faith upon the basis of the best of information availableto it, provided,
however, that the Evaluator shall be
under no liability to the Trustee, Sponsor
or 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.
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 December 31, 1992, the total
stockholders' equity of Van Kampen Merritt Inc. was $299,865,984 (audited).
(This paragraph relates only to the Sponsor and not to the Trust. The
information is included herein only for
the purpose ofinforming investors as to
the financial responsibility of the Sponsor and its ability to carry out its
contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
As of December 31, 1992, the Sponsor managed, or conducted surveillance
and evaluation services with respect to, approximately $34 billion of
investment products. The Sponsor managed
$18.5 billion of assets, consisting of
$6.9 billion for 12 mutual funds, $6.1
billion for 22 closed-end funds and $5.5
billion for 38 institutional accounts. The Sponsor has also deposited over $22
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
or the IM-IT
trust. The Sponsor also provides surveillance and evaluation services at cost
for approximately $15 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 trusts listed below and the distributor of themutual
funds and closed-end funds listed below. Unitholders may only invest in the
trusts, mutual funds and closed-end funds which are registered for sale in the
state of residence of such Unitholder.
Van Kampen Merritt Inc. is the sponsor of the various series of the
following unit investment trusts: Investors' Quality Tax-Exempt Trust;
Investors' Quality Tax-Exempt Trust, Multi-Series; Insured Municipals Income
Trust; Insured Municipals Income Trust, Insured Multi-Series; 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' Corporate Income
Trust; Investors' Governmental Securities-Income Trust; Van Kampen Merritt
International Bond Income Trust; Van Kampen Merritt Utility Income Trust; Van
Kampen Merritt Insured Income Trust; Van Kampen Merritt Blue Chip Opportunity
Trust; Van Kampen Merritt Blue Chip Opportunity and Treasury Trust;and
Investors' Quality Municipals Trust, AMT Series.
Van Kampen Merritt Inc. is the distributor of the following mutual funds:
Van Kampen Merritt U.S. Government Fund; Van Kampen Merritt California Insured
Tax Free Fund; Van Kampen Merritt Tax
Free High Income Fund; Van Kampen Merritt
Insured Tax Free Income Fund; Van Kampen Merritt High Yield Fund; Van Kampen
Merritt Growth and Income Fund; Van
Kampen Merritt Pennsylvania Tax Free Income
Fund; Van Kampen Merritt Money Market Fund; Van Kampen Merritt TaxFree Money
Fund; Van Kampen Merritt Municipal Income Fund; Van Kampen Merritt Short-Term
Global Income Fund; and Van Kampen Merritt Adjustable Rate U.S. Government
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
KampenMerritt Trust for Investment Grade FL Municipals; Van Kampen Merritt
Trust for Investment Grade NJ Municipals; Van Kampen Merritt Trust for
Investment Grade NY Municipals; Van Kampen Merritt Trust 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; and Van Kampen Merritt Strategic Sector
Municipal Trust.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement 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 rate of compensation deemed
by the Trustee to be reasonable and not
exceeding amounts prescribed by the Securities and Exchange Commission, (ii)
terminate the Trust Agreement and liquidate the Trust as provided therein or
(iii) continue to act as Trustee without terminating the Trust Agreement.
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 its 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 Securities for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper
books of record and account of all transactions at its office for the Trust.
Such records shall include the name and
address of, and the certificates issued
by the Trust to, every Unitholder of the
Trust. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during the usual
business hours. The Trustee shall make
such annual or other reports as may from
time to time be required under any
applicable state or Federal statute, rule or
regulation (see "Rights of Unitholders
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 Trust.
Under the Trust Agreement, the
Trustee or any successor trustee may resign
and be discharged of the Trust created by the Trust Agreement 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
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 Trust Agreement 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.
OTHER MATTERS
Legal Matters. On January 20, 1993, a lawsuit was commenced by a unitholder of
one of the unit investment trusts sponsored by Van Kampen Merritt Inc.,
purportedly on behalf of all persons who purchased or held units in any tax-e
xempt unit investment trust sponsored by Van Kampen Merritt Inc., in the U.S.
District Court for the Northern District of Illinois, alleging overcharging of
evaluation and supervisory fees with respect to the unit investment trusts in
violation of Sections 26 and 36 of the Investment Company Act of 1940 (Robert
W. Barrett v. Van Kampen Merritt Inc. and Van Kampen Merritt Investment
Advisory Corp.). The complaint seeks to require the defendants to account for
all excessive fees paid and to pay to the unit investment trusts any damages
suffered from such alleged overcharging. The Sponsor has not had the
opportunity to make a detailed review of
this matter, although it preliminarily
believes the lawsuit is without merit.
Legal Opinions. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Various counsel have acted as counsel for the Trustee
and as special counsel for the Trust for New York tax matters.
Independent Certified Public Accountants. The statement of condition and the
related securities portfolio included in Part One of this Prospectus have been
audited by Grant Thornton, independent certified public accountants, as set
forth in their report in Part One of this Prospectus, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
DESCRIPTION OF SECURITIES RATINGS*
*As published by the ratings companies.
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 likelihoodand 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 as "gilt
edge". Interest payments are protected by a large, or by an exceptionally
stable, margin and principal issecure. 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 fluctuation.
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 grad
e 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.
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No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This
Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, securities in any state to any
persons to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
Title Page
The Trust ....................................... 2
Objectives and Securities
Selection ....................................... 3
Trust Portfolio ................................. 4
Estimated Long-Term Returns and
Estimated Current Returns........................ 7
Trust Operating Expenses ........................ 8
Insurance on the Bonds .......................... 9
Tax Status ...................................... 16
Public Offering ................................. 19
Rights of Unitholders ........................... 22
Trust Administration ............................ 26
Other Matters ................................... 30
Description of Bond Ratings ..................... 30
This Prospectus does not contain all the information set forth in the
registration statements and exhibits relating thereto, which the Trust has
filed with 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.
INSURED MUNICIPALS
INCOME TRUST
PROSPECTUS
PART TWO
Note: This Prospectus May Be Used Only When
Accompanied by Part One. Both Parts of this
Prospectus should be retained for future
reference.
Dated as of the date of the
Prospectus Part I accompanying
this Prospectus Part II.
Sponsor:
Van Kampen Merritt
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
and
Mellon Bank Center
1735 Market Street
Suite 1300
Philadelphia, Pennsylvania 19103
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, Insured Municipals Income Trust, Series 81, 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 21st day of February, 1994.
Insured Municipals Income Trust,
Series 81
(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 February 21, 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 December 17, 1993 accompanying the
financial statements of Insured Municipals Income Trust, Series 81 as of
September 30, 1993, and for the period then ended, contained in this Post-
Effective Amendment No. 10 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
February 21, 1994
