Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 7
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 Tax-Free Bond Trust, Series 6
(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.
SL6OCT1
ITNT-B 6-7-91 6-1 jl 12/14/93
INSURED TAX FREE SERIES 6
BOND TRUST 4,443 Units
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 Tax Free Bond 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>
SL6SEP2
ITNT-A 4-10-91 6-2
<TABLE>
INSURED TAX FREE BOND TRUST, SERIES 6
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>
ITNT
<S> <C>
-------------------
General Information
Principal Amount (Par Value) of Securities .............................................................. $ 4,020,000
Number of Units ......................................................................................... 4,443
Fractional Undivided Interest in Trust per Unit ......................................................... 1/ 4,443
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio ...................................................... $ 3,951,172.30
Aggregate Bid Price of Securities per Unit .......................................................... $ 889.30
Sales charge 5.374% (5.1% of Public Offering Price excluding principal cash) ........................ $ 47.77
Principal Cash per Unit ............................................................................. $ (.40)
Public Offering Price per Unit <F1>.................................................................. $ 936.67
Redemption Price per Unit ............................................................................... $ 888.90
Excess of Public Offering Price per Unit over Redemption Price per Unit ................................. $ 47.77
Minimum Value of the Trust under which Trust Agreement may be terminated ................................ $ 1,001,000
Annual Premium on Portfolio Insurance ................................................................... $ 7,057.21
Minimum Principal Distribution ...$1.00 per Unit
Date of Deposit ..................February 6, 1986
Mandatory Termination Date .......December 31, 2035
Evaluator's Annual Supervisory Fee Maximum of $0.25 per Unit
Evaluator's Annual Fee <F4>.......$2,236
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>
Semi-
Monthly Annual
<S> <C> <C>
------------- -------------
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit ................................................... $ 68.17 $ 68.17
Less: Estimated Annual Expense excluding Insurance .......................................... $ 2.30 $ 1.71
Less: Annual Premium on Portfolio Insurance ................................................. $ 1.59 $ 1.59
Estimated Net Annual Interest Income per Unit ............................................... $ 64.28 $ 64.87
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income ........................................................ $ 64.28 $ 64.87
Divided by 12 and 2, respectively ........................................................... $ 5.36 $ 32.44
Estimated Daily Rate of Net Interest Accrual per Unit ........................................... $ .17857 $ .18020
Estimated Current Return Based on Public Offering Price <F2><F3>................................. 6.86% 6.92%
Estimated Long-Term Return <F2><F3>.............................................................. 4.54% 4.60%
Record and Computation Dates FIRST day of the month as follows: monthly - each
month; semi-annual - June and December.
<FN>
Distribution Dates ..........FIFTEENTH day of the month as follows: monthly -
each month; semi-annual - June and December.
Trustee's Annual Fee ........$1.24 and $0.69 per $1,000 principal amount of
Bonds respectively, for those portions of the
Trust under the monthly and semi-annual
distribution plans.
<F1>Plus accrued interest to the date of settlement (five business days
after purchase) of $11.75 and $12.34 respectively, for those portions of the
Trust under the monthly 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 7.09% 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 4.77%.
<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 $.30 per $1,000 principal
amount of Bonds per Trust 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>
SL6OCT3
ITNT-A 12-28-88 6-3
PORTFOLIO
In selecting Bonds for the Insured Tax Free Bond Trust, Series 6, 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 (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 10
issues which are payable from the income of a specific project or authority.
The portfolio is divided by purpose of issue as follows: General Obligation, 1
(12%); Pre-refunded, 3 (37%); Single Family, 2 (8%); Wholesale Electric, 3
(37%) and Miscellaneous, 1 (6%). The portfolio consists of 10 Bond issues in 8
states. See "Bond Portfolio" herein and "Description of Securities Ratings"
in Part Two.
<TABLE>
PER UNIT INFORMATION
<CAPTION>
1986<F1> 1987 1988 1989 1990
<S> <C> <C> <C> <C> <C>
------------ ----------- ----------- ------------ -----------
Net asset value per Unit at
beginning of period ..... $ 951.00 $ 1,000.95 $ 815.27 $ 879.06 $ 887.68
============ =========== =========== ============ ===========
Net asset value per Unit at
end of period ........... $ 1,000.95 $ 815.27 $ 879.06 $ 887.68 $ 871.00
============ =========== =========== ============ ===========
Distributions to Unitholders
of investment income
including accrued interest
to carry paid on Units
redeemed (average Units
outstanding for entire
period) <F2>............. $ 28.44 $ 73.46 $ 67.55 $ 66.66 $ 65.71
============ =========== =========== ============ ===========
Distributions to Unitholders
from Bond redemption
proceeds (average Units
outstanding for entire
period) ................. $ -- $ 106.44 $ -- $ -- $ 3.56
============ =========== =========== ============ ===========
Unrealized appreciation
(depreciation) of Bonds
(per Unit outstanding at
end of period) .......... $ 24.83 $ (68.38) $ 61.34 $ 9.62 $ (12.78)
============ =========== =========== ============ ===========
Distributions of investment
income by frequency of
payment <F2>
Monthly .............. $ 36.54 $ 71.67 $ 65.88 $ 65.92 $ 65.35
Semiannual ........... $ 11.45 $ 75.48 $ 66.00 $ 66.18 $ 65.96
Units outstanding at end of
period .................. 5,001 4,940 4,477 4,466 4,462
<FN>
<F1>For the period from February 6, 1986 (date of deposit) through October 31,
1986.
<F2>Unitholders may elect to receive distributions on a monthly or semi-annual
basis.
</TABLE>
<TABLE>
PER UNIT INFORMATION
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
----------- ----------- ------------
Net asset value per Unit at
beginning of period ..... $ 871.00 $ 897.75 $ 901.08
=========== =========== ============
Net asset value per Unit at
end of period ........... $ 897.75 $ 901.08 $ 918.14
=========== =========== ============
Distributions to Unitholders
of investment income
including accrued interest
to carry paid on Units
redeemed (average Units
outstanding for entire
period) <F2>............. $ 65.50 $ 65.22 $ 65.11
=========== =========== ============
Distributions to Unitholders
from Bond redemption
proceeds (average Units
outstanding for entire
period) ................. $ 1.48 $ -- $ 2.49
=========== =========== ============
Unrealized appreciation
(depreciation) of Bonds
(per Unit outstanding at
end of period) .......... $ 28.47 $ 3.20 $ 20.34
=========== =========== ============
Distributions of investment
income by frequency of
payment <F2>
Monthly .............. $ 64.99 $ 64.92 $ 64.81
Semiannual ........... $ 65.69 $ 65.60 $ 65.59
Units outstanding at end of
period .................. 4,459 4,446 4,443
<FN>
<F1>For the period from February 6, 1986 (date of deposit) through October 31,
1986.
<F2>Unitholders may elect to receive distributions on a monthly or semi-annual
basis.
</TABLE>
Page 3
<PAGE>
SL6OCT4
ITNT-D 5-24-91 6-4
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders of
Insured Tax Free Bond Trust, Series 6:
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Insured Tax Free Bond
Trust, Series 6 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 Tax Free Bond Trust,
Series 6 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>
SL6OCT5
ITNT-D 5-24-91 6-5
INSURED TAX FREE BOND TRUST
SERIES 6
Statement of Condition
October 31, 1993
<CAPTION>
ITNT
<S> <C>
------------------
Trust property
Cash overdraft ........................................................................................ $ 6,083
Tax-exempt securities at market value, (cost $3,693,039) (note 1) ..................................... 3,971,569
Accrued interest ...................................................................................... 101,644
------------------
$ 4,079,296
==================
Liabilities and interest of Unitholders
Interest to Unitholders ............................................................................... $ 4,079,296
------------------
$ 4,079,296
==================
</TABLE>
<TABLE>
Analysis of Net Assets
<CAPTION>
Interest of Unitholders (4,443 Units of fractional undivided interest outstanding)
<S> <C>
Cost to original investors of 5,001 Units (note 1) .................................................... $ 5,001,000
Less initial underwriting commission (note 3) ................................................... 245,001
------------------
4,755,999
Less redemption of 558 Units .................................................................... 455,092
------------------
4,300,907
Undistributed net investment income
Net investment income ........................................................................... 2,374,829
Less distributions to Unitholders ............................................................... 2,279,417
------------------
95,412
Realized gain (loss) on Bond sale or redemption ....................................................... (31,723)
Unrealized appreciation (depreciation) of Bonds (note 2) .............................................. 278,530
Distributions to Unitholders of Bond sale or redemption proceeds ...................................... (563,830)
------------------
Net asset value to Unitholders ............................................................... $ 4,079,296
==================
Net asset value per Unit (4,443 Units outstanding) ........................................................ $ 918.14
==================
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE>
<TABLE>
SL6OCT6
ITNT-D 5-30-90 6-6
INSURED TAX FREE BOND TRUST, SERIES 6
Statements of Operations--Years ended October 31,
<CAPTION>
1991 1992 1993
<S> <C> <C> <C>
------------------ ----------------- ------------------
Investment income
Interest income .................................................. $ 306,611 $ 305,908 $ 304,775
Expenses
Trustee fees and expenses ..................................... 6,374 6,584 6,390
Evaluator fees ................................................ 965 922 2,236
Insurance expense ............................................. 7,139 7,123 7,102
Supervisory fees .............................................. 738 418 1,355
------------------ ----------------- ------------------
Total expenses .......................................... 15,216 15,047 17,083
------------------ ----------------- ------------------
Net Investment Income ......................................... 291,395 290,861 287,692
Realized gain (loss) from Bond sale or redemption
Proceeds ......................................................... 5,000 5,000 30,000
Cost ............................................................. 5,300 5,300 31,800
------------------ ----------------- ------------------
Realized gain (loss) .......................................... (300) (300) (1,800)
Net change in unrealized appreciation (depreciation)
of Bonds ........................................................... 126,955 14,246 90,386
------------------ ----------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS ............................................ $ 418,050 $ 304,807 $ 376,278
================== ================= ==================
</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 ......................................... $ 291,395 $ 290,861 $ 287,692
Realized gain (loss) on Bond sale or redemption ............... (300) (300) (1,800)
Net change in unrealized appreciation (depreciation)
of Bonds .................................................... 126,955 14,246 90,386
------------------ ----------------- ------------------
Net increase (decrease) in net assets resulting
from operations .......................................... 418,050 304,807 376,278
Distributions to Unitholders from:
Net investment income ......................................... (292,152) (290,339) (289,423)
Bond sale or redemption proceeds .............................. (6,604) -- (11,071)
Redemption of Units (note 4) ......................................... (2,603) (11,346) (2,694)
------------------ ----------------- ------------------
Total increase (decrease) .................................. 116,691 3,122 73,090
Net asset value to Unitholders
Beginning of period ........................................... 3,886,393 4,003,084 4,006,206
------------------ ----------------- ------------------
End of period (including undistributed net investment income of
$96,621, $97,143 and $95,412, respectively) .................
$ 4,003,084 $ 4,006,206 $ 4,079,296
================== ================= ==================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 6
<PAGE>
<TABLE>
SL6OCT7
ITNT-A 11-01-85 6-7 mu 12/9/93
INSURED TAX FREE BOND TRUST
PORTFOLIO as of October 31, 1993
SERIES 6
<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 $ 500,000 Village of Rosemont Illinois, (Cook County) AAA 1996 @ 102 $ 546,245
General Obligation Corporate Purpose Bonds
Tax Increment Project #3 Series 1985 D
(BIG Insured
9.000% Due 01/01/05
- ---------------------------------------------------------------------------------------------------------------------------------
B 250,000 City and County of Denver, Colorado, Excise A1* 1995 @ 102 247,500
Tax Revenue Bonds, Series 1985 A 2002 @ 100 S.F.
5.000% Due 11/01/08
- ---------------------------------------------------------------------------------------------------------------------------------
C 310,000 State of Indiana, Indiana Toll Road Finance AAA 1995 @ 102 341,803
Authority Toll Road Revenue Bonds, Series
1985
9.000% Due 07/01/14
- ---------------------------------------------------------------------------------------------------------------------------------
D 250,000 Wisconsin Housing Finance Authority Home AA* 2006 @ 42.341 S.F. 30,235
Ownership Revenue Bonds, 1983 Series I
0.000% Due 07/01/14
- ---------------------------------------------------------------------------------------------------------------------------------
E 500,000 The Hospital Authority of The City of Fort AAA 1995 @ 102 552,305
Wayne, Indiana Hospital Revenue Refunding
Bonds (Ancilla System Incorporated) Series
1985A (BIG Insured)
9.125% Due 07/01/15
- ---------------------------------------------------------------------------------------------------------------------------------
F 650,000 City of Chicago, Chicago-O-Hare A+ 1994 @ 102 663,149
International Airport General Airport
Revenue Bonds, 1985 Series A
8.750% Due 01/01/16
- ---------------------------------------------------------------------------------------------------------------------------------
G 500,000 Municipal Electric Authority of Georgia AA- 1995 @ 102 532,325
Power Revenue Bonds, Series K 2008 @ 100 S.F.
9.875% Due 01/01/16
- ---------------------------------------------------------------------------------------------------------------------------------
H 60,000 Missouri Housing Development Commission AA 2008 @ 100 S.F. 60,082
Single Family Mortgage Revenue Bonds,
(Insured Mortgage Loans) Issue of April 1,
1985
9.375% Due 04/01/16
- ---------------------------------------------------------------------------------------------------------------------------------
I -- 0 -- Illinois Housing Development Authority -- 0 --
Multi-Family Housing Bonds, 1985 Series C
9.375% Due 07/01/18
- ---------------------------------------------------------------------------------------------------------------------------------
J 500,000 North Carolina Municipal Power Agency #1 A 1996 @ 100 499,905
Catawba Electric Revenue Bonds, Series 2018 @ 100 S.F.
1985 B
6.000% Due 01/01/20
- ---------------------------------------------------------------------------------------------------------------------------------
K -- 0 -- Jacksonville Electric Authority -- 0 --
(Jacksonville, Florida) St. Johns River
Power Park System Revenue Bonds, Issue
One, Series Five
9.500% Due 10/01/20
- ---------------------------------------------------------------------------------------------------------------------------------
L 500,000 Intermountain Power Agency (A Political AA 1995 @ 100 498,020
Subdivision of The State of Utah) Power 2020 @ 100 S.F.
Supply Revenue Refunding Bonds, 1985
Series H
6.000% Due 07/01/21
---------------- ----------------
$ 4,020,000 $ 3,971,569
================ ================
_________________________________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of this statement.
Page 7
<PAGE>
SL6OCT8
ITNT-A 5-30-90 6-8
INSURED TAX FREE BOND TRUST
SERIES 6
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 (February 6, 1986). Since the valuation is based
upon the bid prices the Trust recognized a downward adjustment of $40,530 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 appreciation reported in the financial statements for the period
ended October 31, 1986.
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 8
<PAGE>
SL6OCT9
ITNT-A 8-21-91 6-9
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 $ 319,074
Unrealized Depreciation (40,544)
-----------------
$ 278,530
=================
</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, 3 Units, 13 Units
and 3 Units, respectively, were presented for redemption.
Page 9
NATIONAL AND STATE TRUSTS 39
INSURED TAX FREE
BOND TRUST
FIRST FAMILY PROSPECTUS
OF TRUSTS PART TWO
In the opinion of counsel, interest to the Fund and to Unitholders, with
certain exceptions, is excludable under existing law from gross income for
Federal income taxes. In addition, the interest income of the State Trust is,
in the opinion of counsel, exempt to the extent indicated from state and local
taxes, when held by residents of the state where the issuers of Bonds in such
Trust are located. Capital gains, if any, are subject to Federal tax.
The Fund. The objectives of the Fund are Federal and, in the case of the State
Trust, Federal and state tax-exempt income and conservation of capital through
an investment in a diversified, insured portfolio of tax-exempt bonds. The
Fund consists of a series of separate unit investment trusts, some of which
are contained in Insured Tax Free Bond Trust, Insured Multi-Series. The
various trusts collectively are referred to herein as the "Trusts" while the
Insured Tax Free Bond Trust, Limited Maturity Trust is sometimes referred to
herein as the "Limited Maturity Trust" and the New York Insured Tax Free Bond
Trust is sometimes referred to herein as the "State Trust". Each Trust
consists of such securities as may continue to be held (the "Bonds" or
"Securities"). Such Securities are interest-bearing obligations issued by or
on behalf of municipalities and other governmental
authorities, the interest on which is, in the opinion of recognized bond
counsel to the issuing governmental authority, excludable from Federal gross
income under existing law. In addition, the interest income of the State Trust
is, in the opinion of counsel, exempt to the extent indicated from state and
local taxes, when held by residents of the state where the issuers of Bonds
in such Trust are located.
The Fund and "AAA" Rating.Insurance guaranteeing the payments of principal and
interest, when due, on the Securities in the portfolio of each 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 Fund. Insurance obtained by
a Trust applies only while Bonds are retained in such Trust while insurance
obtained by a Bond issuer is effective so long as such Bonds are outstanding.
Bonds for which insurance has been obtained by the issuer thereof or by the
Sponsor prior to the deposit of such Bonds in the Fund are referred to herein
as "Preinsured Bonds". All issues of a Trust are insured under one or more
insurance policies obtained by the Trust, if any, except for certain issues
of certain Trusts which are Preinsured Bonds. Insurance obtained by a Trust,
if any, applies only while Bonds are retained in such Trust while insurance
obtained on Preinsured Bonds is effective so long as such Bonds are
outstanding. The Trustee, upon sale of a Bond insured under an insurance
policy obtained by a 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 respective
Trust and not to the Units offered hereby or to the market value thereof. As
a result of such insurance, the Units of each 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 each Trust or sales by each Trust of Bonds for
less than the purchase price by such Trust will reduce payment to
Unitholders of the interest and principal required to be paid on such Bonds.
See "lnsurance on the Bonds". No representation is made as to any insurer's
ability to meet its commitments.
Public Offering Price. The secondary market Public Offering Price of each Trust
will be equal to the aggregate bid price of the Securities in such Trust plus
the sales charge referred to under "Public Offering General".
If the Securities in each Trust were available for direct purchase by
investors, the purchase price of the Securities would not include the sales
charge included in the Public Offering Price of the Units.
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.
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 FUND
Each series of the Fund was created under the laws of the State of New
York pursuant to a Trust Indenture and Agreement (the "Trust Agreement"),
dated the Date of Deposit, among Van Kampen Merritt Inc., as Sponsor, American
Portfolio Evaluation Services, a division of Van Kampen Investment Advisory
Corp., as Evaluator, and The Bank of New York, as Trustee, or their respective
predecessors.
The Fund consists of various Trusts, each of which contains a portfolio
of interest bearing obligations issued by or on behalf of states and
territories of the United States, and political subdivisions and authorities
thereof, the interest on which is, in the opinion of recognized bond counsel
to the issuing authorities, excludable from gross income for Federal income
tax under existing law. All issuers of Securities in a State Trust are located
in the State for which such Trust is named, in the Commonwealth of Puerto Rico
or in certain territories of the United States; consequently, in the opinion
of recognized bond counsel to such State issuers, the related interest earned
on such Securities is exempt to the extent indicated from state and local
taxes of such State. Unless otherwise terminated as
provided therein, the Trust Agreement for
each Trust other than the Limited Maturity Trust will terminate at the end of
the calendar year prior to the fiftieth anniversary of its execution while the
Trust Agreement for a Limited Maturity Trust will terminate at the end of the
year prior to the twentieth anniversary of its execution.
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 yield on the discount obligation, but at the same time eliminates the
holder's ability to reinvest at higher rates in the future. For this reason,
zero coupon bonds are subject to substantially greater price fluctuations
during periods of changing market interest rates than are securities of
comparable quality which pay interest currently. See note (6) in "Notes to
Portfolio" in Part One of this Prospectus.
Each Unit of each Trust represents a fractional undivided interest in the
principal and net income of such Trust. To the extent that any Units are
redeemed by the Trustee, the fractional undivided interest in a Trust
represented by each unredeemed Unit will
increase, although the actual interest
in such 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 Fund are
income exempt from Federal and, in the case
of a State Trust, Federal and state
income taxation and conservation of capital
through an investment in diversified, insured portfolios of Federal and state
tax-exempt obligations. There is, of course, no guarantee that the Fund will
achieve its objectives. The Fund may be an appropriate investment vehicle for
investors who desire to participate in a portfolio of tax-exempt fixed income
securities with greater diversification than they might be able to acquire
individually. In addition, securities of the type deposited in the Fund are
often not available in small amounts.
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in each Trust has been obtained by such Trust from Bond
Investors Guaranty Insurance Company ("BIG") (the "Portfolio Insurer"), or by
the issuer of the Bonds ("Preinsured Bonds") from BIG or AMBAC Indemnity
Corporation ("AMBAC Indemnity")(collectively, the "Preinsured Bond Insurers").
On January 5, 1990, Municipal Bond Investors Assurance Corporation ("MBIA
Corporation") acquired the capital stock of Bond Investors Group, Inc., the
parent company of BIG. Through a reinsurance agreement, BIG has ceded all of
its net insured risks, as well as its unearned premiums and contingency
reserves, to MBIA Corporation and MBIA Corporation will reinsure BIG's net
outstanding exposure (see "lnsurance on the Bonds"). Insurance obtained by a
Trust is effective only while the Bonds thus insured are held in such Trust.
Insurance relating to Bonds insured by the issuer is effective so long as such
Bonds are outstanding. Preinsured Bonds insured by AMBAC Indemnity are
additionally insured by a Trust while Preinsured Bonds insured by BIG are not
additionally insured by a Trust. There is, of course, no guarantee that the
Fund'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 a Trust 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 Securities 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 a Trust for the
portfolio insurance obtained by such Trust. All bonds insured by the Portfolio
Insurer and the Preinsured Bond Insurers receive a "AAA" rating by Standard &
Poor's Corporation. See "lnsurance on the Bonds".
In selecting Securities for a Trust the following facts, among others,
were considered by the Sponsor: (a) either the Standard & Poor's Corporation
rating of the Securities was in no case less than "BBB
", or the Moody's Investors Service, Inc. rating the Securities was in no case
less than "Baa" including provisional or
conditional ratings, respectively, or,
if not rated, the Securities had, in the opinion of the Sponsor, credit
characteristics sufficiently similar to the credit characteristics of i
nterest-bearing tax-exempt obligations that were so rated as to be acceptable
for acquisition by the Trust (see
"Description of Securities Ratings"), (b) the
prices of the Securities relative to other bonds of comparable quality and
maturity, (c) the diversification of Securities 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 Securities.
Subsequent to the Date of Deposit, a Security may cease to be rated or its
rating may be reduced below the minimum required as of the Date of Deposit.
Neither event requires elimination of such Security from the portfolio of a
Trust but may be considered in the
Sponsor's determination as to whether or not
to direct the Trustee to dispose of the
Security (see "Trust Administration and
Expenses
Portfolio Administration").
TRUST PORTFOLIO
Portfolio Concentrations. Certain of the Bonds in certain of the Trusts are
obligations which derive their payments 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. See "General" herein.
Certain of the Bonds in certain of the Trusts are health care revenue
bonds. Included among such Bonds may be
bonds which are FHA insured. In view of
this an investment in such a 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 req
uired, physicians' confidence in the facility, management capabilities,
economic developments in the service
area, competition, efforts by insurers and
governmental agencies to limit rates, legislation establishing state
rate-setting agencies, expenses, the cost and possible unavailability of
malpractice insurance, the funding of Medicare, Medicaid and other similar
third party payor programs, and government regulation. Federal legislation has
been enacted which implemented a system of prospective Medicare reimbursement
for periods beginning on or after October 1, 1983 which may restrict the flow
of revenues to hospitals and other
facilities which are reimbursed for services
provided under the Medicare program.
Future legislation or changes in the areas
noted above, among other things, would affect all hospitals to varying degrees
and, accordingly, any adverse change in these areas may affect the ability of
such issuers to make payment of principal and interest on Securities held in
the portfolio of a Trust. Such adverse changes also may adversely affect the
ratings of Securities held in the
portfolio of a Trust; however, because of the
insurance obtained by each Trust, the "AAA" rating of the Units of each Trust
would not be affected. Hospitals and other health care facilities are subject
to claims and legal actions by patients and others in the ordinary course of
business. Although these claims are generally covered by insurance, there can
be no assurance that a claim will not exceed the insurance coverage of a health
care facility or that insurance coverage will be available to a facility. In
addition, a substantial increase in the cost of insurance could adversely
affect the results of operations of a hospital or other health care facility.
Certain hospital bonds may provide for redemption at par at any time upon the
sale by the issuer of the hospital facilities to a non-affiliated entity or in
other circumstances. For example, certain hospitals may have the right to call
bonds at par if the hospital may legally be required because of the bonds to
perform procedures against specified religious principles. Certain FHA insured
bonds may provide that all or a portion
of those bonds, otherwise callable at a
premium, can be called at par in certain circumstances. If a hospital defaults
upon a bond obligation, the realization of Medicare and Medicaid receivables
may be uncertain and, if the bond obligation is secured by the hospital
facilities, legal restrictions on the ability to foreclose upon the facilities
and the limited alternative uses to which a hospital can be put may reduce
severely its collateral value. See "General" herein.
Certain of the Bonds in certain of the Trusts are obligations of public
utility issuers, including those selling wholesale and retail electric power
and gas. In view of this an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. General problems of such issuers would include the
difficulty in financing large construction programs in an inflationary period,
the limitations on operations and increased costs and delays attributable to
environmental considerations, the
difficulty of the capital market in absorbing
utility debt, the difficulty in obtaining fuel at reasonable prices and the
effect of energy conservation. All of such issuers have been experiencing
certain of these problems in varying degrees. In addition, Federal, state and
municipal governmental authorities may from time to time review existing, and
impose additional, regulations governing the licensing, construction and
operation of nuclear power plants, which may adversely affect the ability of
the issuers of certain of the Bonds in the portfolio to make payments of
principal and/or interest on such Bonds. The ability of state and local joint
action power agencies to make payments on bonds they have issued is dependent
in large part on payments made to them pursuant to power supply or similar
agreements. Courts in Washington and Idaho have held that certain agreements
between the Washington Public Power Supply System ("WPPSS") and the WPPSS
participants are unenforceable because the participants did not have the
authority to enter into the agreements. While these decisions are not
specifically applicable to agreements entered into by public entities in other
states, they may cause a reexamination of the legal structure and economic
viability of certain projects financed by joint action power agencies, which
might exacerbate some of the problems referred to above and possibly lead to
legal proceedings questioning the enforceability of agreements upon which
payment of these bonds may depend. See "General" herein.
Certain of the Bonds in certain of
the Trusts are industrial revenue bonds
("IRBs"). In view of this an investment in such a 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
resolutions 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
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. See "General"
herein.
Bond Redemptions. Because certain of the Bonds in certain of the Trusts 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 any 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 certain of
the Trusts 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 reserve fund accumulated over a period of time
for retirement of debt. A callable debt obligation is one which is subject to
redemption or refunding prior to maturity at the option of the issuer. A
refunding is a method by which a debt obligation is redeemed, at or before
maturity, by the proceeds of a new debt
obligation. In general, call provisions
are more likely to be exercised when the offering side valuation is at a
premium over par than when it is at a discount from par.
The exercise of redemption or call provisions will (except to the
extent the proceeds of the called Bonds are
used to pay for Unit redemptions) result in the distribution of principal and
may result in a reduction in the amount of subsequent interest distributions
and it may also offset the current return on Units of the Trust. Each Trust
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 including, but not limited to, a final determination that the interest
on the Bonds is taxable; the substantial
damage or destruction by fire or other
casualty of the project for which the proceeds of the Bonds were used; an
exercise by a local, state or Federal
governmental unit of its power of eminent
domain to take all or substantially all of the project for which the proceeds
of the Bonds were used; changes in the economic availability of raw materials,
operating supplies or facilities or
technological or other changes which render
the operation of the project for which the proceeds of the Bonds were used
uneconomic; changes in law or an administrative or judicial decree which
renders the performance of the agreement under which the proceeds of the Bonds
were made available to finance the project impossible or which creates
unreasonable burdens or which imposes excessive liabilities, such as taxes, not
imposed on the date the Bonds are issued
on the issuer of the Bonds or the user
of the proceeds of the Bonds; an administrative or judicial decree which
requires the cessation of a substantial part of the operations of the project
financed with the proceeds of the Bonds; an overestimate of the costs of the
project to be financed with the proceeds of the Bonds resulting in excess
proceeds of the Bonds which may be
applied to redeem Bonds; or an underestimate
of a source of funds securing the Bonds resulting in excess funds which may be
applied to redeem Bonds. The Sponsor is unable to predict all of the
circumstances which may result in such redemption of an issue of Bonds. See
"Trust Portfolio" and note (3) in "Notes to Portfolio" in Part One of this
Prospectus. See also the discussion of single family mortgage and multi-family
revenue bonds above for more information on the call provisions of such Bonds.
Distributions. Distributions of interest received by a Trust pro-rated on an
annual basis, will be made on a semi-annual basis, unless the Unitholder elects
to receive them monthly. Distributions from the Principal Account will be made
on a semi-annual basis, except under
certain special circumstances (see "Public
Offering
Distributions of Interest and Principal"). Record dates for monthly
distributions for each Trust are the first day of each month and record dates
for semi-annual distributions for each Trust are the first day of the months
indicated under "Per Unit Information" in Part One of this Prospectus.
Distributions are made on the fifteenth day of the month subsequent to the
respective record dates.
Change of Distribution Option. The plan of distribution selected by a
Unitholder remains 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.
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 each 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 which plan 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,
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 re-issued
(other 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.
ESTIMATED CURRENT RETURNS AND
ESTIMATED LONG-TERM RETURNS
As of the opening of business on
the date indicated therein, the Estimated
Current 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 Return is calculated by
dividing the estimated net annual interest income per Unit by the Public
Offering Price. The estimated net annual
interest income per Unit will vary with
changes in fees and expenses of the Trustee and the Evaluator and with the
principal prepayment, redemption, maturity, exchange or sale of Securities
while the Public Offering Price will vary with changes in the bid price of the
underlying Securities; therefore, there is no assurance that the present
Estimated Current Return will be realized in the future. Estimated Long-Term
Return is calculated using a formula with (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 and
the expenses of the Trust will change, there is no assurance that the present
Estimated Long-Term Return will be realized in the future. Estimated Current
Return and Estimated Long-Term Return are expected to differ because the
calculation of Estimated Long-Term Return reflects the estimated date and
amount of principal returned while Estimated Current Return calculations
include only Net Annual Interest Income and Public Offering Price.
PUBLIC OFFERING
General. Units are offered at the Public
Offering Price, which in the secondary
market is based on the bid prices of the Securities and includes the 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 to be the date upon which they mature; or
(b) such Bonds are subject to a "mandatory tender", in which case such ma
ndatory 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 be 5.10%.
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 each Trust is
actually paid either monthly or semi-annually to such Trust. However,
interest on the Securities in each Trust is accounted for daily on an
accrual basis. Because of this, each 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 of a Trust until it receives
interest payments on the Securities in
such Trust. The Trustee is obligated to provide its own funds, at times, in
order to advance interest distributions. The Trustee will recover these
advancements when such interest is received. Interest Account balances are
established so that it will not be
necessary on a regular basis for the Trustee
to advance its own funds in connection with such interest distributions. The
Interest Account balances are also structured so that there will generally be
positive cash balances and since the funds held by the Trustee may be used by
it to earn interest thereon, it benefits thereby. If a Unitholder sells or
redeems all or a portion of his Units of a Trust or if the Bonds in such Trust
are sold or otherwise removed or if such 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 each Trust.
As indicated above, 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 Securities an amount equal to
the applicable sales charge expressed as a percentage of the aggregate bid
price of the Bonds and dividing the sum so obtained by the number of Units
outstanding. This computation produced a gross commission equal to such sales
charge expressed as a percentage of the Public Offering Price.
For secondary market purposes an appraisal and adjustment with respect to
a Trust will be made by the Evaluator as of 4:00 P.M. Eastern time on days in
which the New York Stock Exchange is open for each day on which any Unit of
such Trust is tendered for redemption, and it shall determine the aggregate
value of any Trust as of 4:00 P.M. Eastern time at such other times as may be
necessary.
The aggregate price of the Securities in each 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. Market
prices of the Securities will generally fluctuate with changes in market
interest rates. 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 and which are covered by
insurance obtained by the Trust the value of the insurance guaranteeing
interest and principal payments as well as the market value of the Bonds and
the market value of bonds of issuers whose bonds, if identifiable, carry
identical interest rates and maturities and are of a credit worthiness of
minimum investment grade. If such other bonds are not identifiable, the
Evaluator will compare prices of bonds which have substantially identical
interest rates and maturities and which are of a creditworthiness of minimum
investment grade. In any case the Evaluator will consider the ability of an
insurer to meet its commitments under the Trust's insurance policy. For
example, if the Trust was to hold the defaulted Bonds of a municipality, the
Evaluator would first consider in its evaluation the market price of the
defaulted Bonds. The Evaluator would
ascribe a value to the insurance feature of
the defaulted Bonds which would be equal to the difference between the market
value of the defaulted Bonds insured by such Trust and the market value of
bonds of minimum investment grade as
described herein which were not in default
in payment of interest or in significant risk of such default. The Evaluator
intends to use a similar valuation method with respect to Bonds insured by the
Trust if there is a significant risk of
default and a resulting decrease in the
market value. It is the position of the Sponsor that this is a fair method of
valuing insured Bonds and reflects a
proper valuation method in accordance with
the provisions of the Investment Company Act of 1940. For a description of the
circumstances under which a full or partial suspension of the right of
Unitholders to redeem their Units may occur, see "Redemption of Units" below.
Although payment is normally made five business days following the order
for purchase, payment may be made prior
thereto. A person will become the owner
of Units on the date of settlement
provided payment has been received. Cash, if
any, made available to the Sponsor prior to the date of settlement for the
purchase of Units may be used in the
Sponsor's business and may be deemed to be
a benefit to the Sponsor, subject to the
limitations of the Securities Exchange
Act of 1934. Delivery of certificates representing Units so ordered will be
made five business days following such order or shortly thereafter. See
"Redemption of Units" below for information regarding the ability to redeem
Units ordered for purchase.
Market for Units. 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 of each Trust plus
interest accrued to the date of settlement and
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. f 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 of any Trust desiring to dispose of his
Units may be able to dispose of such Units only by tendering them to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the Securities in the portfolio of such Trust. The
aggregate bid prices of the underlying
Securities in a Trust are expected to be
less than the related aggregate offering prices. See "Redemption of Units"
below. 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.
Distributions of Interest and Principal. Interest received by a Trust,
including that part of the proceeds of any disposition of Securities which
represents accrued interest, is credited
by the Trustee to the Interest Account
for the Trust. Other receipts are credited to the Principal Account for the
Trust. All distributions will be net of
applicable expenses. The pro rata share
of cash in the Principal Account of a Trust 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 any Principal or Interest Account
(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 therein 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
of a Trust 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 Unitholder's
pro rata share of the Estimated Net Annual Interest Income in the Interest
Account of such Trust after deducting estimated expenses attributable as is
consistent with the distribution plan
chosen. Because interest payments are not
received by a Trust at a constant rate throughout the year, such interest
distribution may be more or less than the amount credited to such Interest
Account as of the record date. For the purpose of minimizing fluctuations in
the distributions from an 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 applicable Interest Account on the
ensuing record date. Persons who purchase Units between a record date and a
distribution date will receive their first distribution on the second
distribution date after the purchase, under the applicable plan of
distribution.
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 for thunder "Trust Administration and Expenses").
The Trustee also may withdraw from said accounts such amounts, if any, as it
deems necessary to establish a reserve
for any governmental charges payable out
of the Trust. Amounts so withdrawn shall not be considered a part of the
Trust's assets until such time as the Trustee shall return all or any part of
such amounts to the proper 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.
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. New York
Insured Municipals Income Trust and New York Insured Municipals Income Trust
Intermediate Series Unitholders, other than those residing in the Commonwealth
of Massachusetts, may elect to have each distribution of interest income,
capital gains and/or principal on their Units automatically reinvested in
shares of First Investors New York Insured Tax Free Fund, Inc., a fund which
invests primarily in securities exempt
from federal and New York state and city
income tax. 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 First Investors New York Insured Tax Free
Fund, Inc., in which case the sales charge will be $1.50 per $100 of
reinvestment, or except if the
participant selects the Van Kampen Merritt Money
Market Fund or the Van Kampen Merritt Tax Free Money Fund in which case no
sales charge applies. A minimum of one-half of such sales charge would be paid
to Van Kampen Merritt Inc.
Confirmations of all reinvestments by a Unitholder into a Reinvestment
Fund will be mailed to the Unitholder by such Reinvestment Fund.
A participant may a tany 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 charge or other penalty for such
termination. Each Reinvestment Fund, its sponsor and investment adviser have
the right to terminate at any time the
reinvestment plan relating to such fund.
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 the New York Stock
Exchange, the date of tender is the next
day on which such Exchange is open for
trading and such Units will be deemed to have been tendered to the Trustee on
such day for redemption at the Redemption Price computed on that day.
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 by such regulations. Any amount so withheld is
transmitted to the Internal Revenue Service and may be recovered by the
Unitholder only when filing a return. Under normal circumstances the Trustee
obtains the Unitholder's tax identification number from the selling broker.
However, at any time a Unitholder elects to tender Units for redemption, such
Unitholder should provide a tax identification number to the Trustee in order
to avoid this possible "back-up withholding" in the event the Trustee has not
been previously provided such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is
insufficient, from the Principal Account.
All other amounts will be withdrawn from the Principal Account. The Trustee is
empowered to sell underlying Securities of a Trust 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 each Trust as of 4:00 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 each Trust on
the basis of (i) the cash on hand in such Trust or moneys in the process of
being collected, (ii) the value of the Securities in such Trust based on the
bid prices of the Securities therein, except for 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 such
Trust and (b) the accrued expenses of such Trust. The Evaluator may determine
the value of the Securities in each 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 on the Bonds in a 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 policy obtained by a 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 a Trust's 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 such Trust
will tend to diminish. See "Trust Administration and Expenses
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
Exchange Commission determines that trading on that Exchange is restricted or
an emergency exists, as a result of which disposal or evaluation of the
Securities in the Trust is not reasonably practicable, or for such other
periods as the Securities and Exchange Commission may by order permit. Because
insurance obtained by a Trust terminates as to Bonds which are sold by the
Trustee and because the insurance
obtained by a Trust does not have a realizable
cash value which can be used by the
Trustee to meet redemptions of Units, under
certain circumstances the Sponsor may apply to the Securities and Exchange
Commission for an order permitting a
full or partial suspension of the right of
Unitholders to redeem their Units if a significant portion or the Bonds in the
portfolio of a Trust is in default in payment of principal or interest or in
significant risk of such default.
Reports Provided. The Trustee shall furnish Unitholders of a Trust in
connection with each distribution a
statement of the amount of interest and the
amount of other receipts (received since the preceding distribution), if any,
being distributed expressed in each case
as a dollar amount representing the pro
rata share of each Unit of a Trust outstanding. For as long as the Trustee
deems it to be in the best interests of the Unitholders the accounts of each
Trust shall be audited, not less frequently than annually, by independent
certified public accountants and the report of such accountants shall be
furnished by the Trustee to Unitholders 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 of a Trust 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 applicable taxes and for fees and
expenses of the Trust, 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 Trustee, 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 number of 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.
The Trust Agreement requires each Trust to be audited on an annual basis
at the expense of such Trust by independent public accountants selected by the
Sponsor. The Trustee shall not be required, however, to cause such an audit to
be performed if its cost to a Trust shall exceed $.50 per Unit on an annual
basis. Unitholders may obtain a copy of such audited financial statements upon
request.
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 a Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in respect
of the other plan of distribution so
that Unitholders may be informed regarding
the results of such other plan of distribution.
INSURANCE ON THE BONDS
Insurance has been obtained by each 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 a Trust guaranteeing prompt payment of interest and principal,
when due, in respect of the Bonds in
such Trust. See "Objectives and Securities
Selection". An insurance policy obtained
by a Trust, if any, is non-cancellable
and will continue in force so long as
such Trust is in existence, the Portfolio
Insurer referred to below is still in business and the Bonds described in such
policy continue to be held by such Trust (see "Portfolio" for the respective
Trust). Any portfolio insurance premium for an Insured Trust, which is an
obligation of such Trust, is paid by
each Trust on a monthly basis. Non-payment
of premiums on a policy obtained by a
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 such Trust. Premium rates for each issue of Bonds
protected by a policy obtained by a 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 a 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 a Trust, "when due"
generally means the stated maturity date for the payment of principal 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
Portfolio Insurer 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
affected 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 a Trust, if any, is only effective as to Bonds owned by
and held in such 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 Insurer, the
Trustee, upon the sale of a Bond covered under a portfolio insurance policy
obtained by a Trust, has the right to obtain permanent insurance with respect
to such Bond (i.e., insurance to 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 a 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
affected 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 sale proceeds 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 the creditworthiness of each Bond.
The Sponsor believes that the Permanent Insurance option provides an
advantage to a Trust in that each Bond insured by a Trust insurance policy may
be sold out of the affected 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 a Trust's portfolio insurance). 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 a Trust were to
be comprised of a substantial percentage of Bonds in default or significant
risk of default, it is much less likely that such Trust would need at some
point in time to seek a suspension of redemptions of Units than if such Trust
were to have no such option (see "Public Offering
Redemption of Units") and (b) at the time of termination of a Trust, if such
Trust were holding defaulted Bonds or
Bonds in significant risk of default such
Trust would not need to hold such Bonds until their respective maturities in
order to realize the benefits of such
Trust's portfolio insurance (see "General
Amendment or Termination").
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,
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 its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Indemnity. The address of AMBAC
Indemnity's administrative offices and its telephone number are One State
Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Indemnity has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Indemnity has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
Except as indicated below, insurance obtained by a Trust has no effect on
the price or redemption value of Units. It is the present intention of the
Evaluator to attribute a value for such insurance (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 insignificant 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. See "Public Offering
Offering Price". 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 a 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
element of 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 a Trust, if any,
with respect to the Bonds in such Trust were issued by the Portfolio Insurer.
Any other Preinsured Bond insurance policy (or commitment therefor) was issued
by one of the Preinsured Bond Insurers. See "Objectives and Securities
Selection".
Municipal Bonds Investors Assurance Corporation ("MBIA Corporation") 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 Corporation. MBIA Corporation is a limited liability corporation
rather than a several liability association. MBIA Corporation is domiciled in
the State of New York and licensed to do business in all fifty states, the
District of Columbia and the Commonwealth of Puerto Rico. As of December 31,
1991, MBIA Corporation 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 Corporation 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 Corporation's financial statements
prepared in accordance with statutory accounting practices are available from
MBIA Corporation. The address of MBIA Corporation is 113 King Street, Armonk,
New York 10504.
Effective December 31, 1989, MBIA
Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA Corporation 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
Corporation "Aaa" and short term loans "MIG 1," both designated to be of the
highest quality.
Standard & Poor's Corporation rates all new issues insured by MBIA "AAA"
Prime Grade.
The Moody's Investors Service, Inc. rating of MBIA Corporation should be
evaluated independently of the Standard & Poor's Corporation rating of MBIA
Corporation. No application has been made to any other rating agency in order
to obtain additional ratings on the Bonds. The ratings reflect the respective
rating agency's current assessment of the creditworthiness of MBIA Corporation
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.
In order to be in an Insured Trust, Bonds must be insured by one of the
Preinsured Bond Insurers or be eligible for the insurance being obtained by
such Trust from the Portfolio Insurer. In determining eligibility for
insurance, the Preinsured Bond Insurers AMBAC Indemnity and Financial Guaranty
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 used in the selection of Bonds
by the Sponsor. To the extent the standards of the Preinsured Bond Insurers
AMBAC Indemnity and Financial Guaranty 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 a Trust. Thus,
all of the Bonds in the portfolios of
the Trusts in the Fund are insured either
by the respective 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 a Trust.
Because the Bonds are insured by 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 each Trust it's
"AAA" investment rating. See
"Description of Securities Ratings". The obtaining
of this rating by a 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 such Trust or of the Units.
On the date indicated therein, the Estimated Current Return and Estimated
Long-Term Return for the respective Trust is that percentage set forth in Part
One of this Prospectus. The Estimated Current Return and Estimated Long-Term
Return on an identical portfolio without the insurance obtained by the Trust
would have been higher. However, an objective of portfolio insurance obtained
by a Trust is to obtain a higher yield on the portfolio of such Trust 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.
Preinsured Bonds in a Trust (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 a Trust,
the Sponsor has applied the criteria hereinbefore described.
In the event of nonpayment of interest or principal, when due, in respect
of a Bond, the appropriate insurer shall make such payment not later than one
business day after it 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 Insurer and the
Preinsured Bond Insurers are substantially identical insofar as obligations to
a 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 a 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 "Federal Tax Status of the
Trusts".
MBIA Corporation is subject to regulation by the department of insurance
in each state in which it is qualified to do business. Such regulation,
however, is no guarantee that it will be able to perform on its contract of
insurance in the event a claim should be made thereunder at some time in the
future. At the date hereof, it is
reported that no claims have been submitted or
are expected to be submitted to MBIA Corporation which would materially impair
the ability of MBIA Corporation to meet its commitments pursuant to any
contract of bond or portfolio insurance.
The information relating to MBIA Corporation contained herein has been
furnished by MBIA Corporation. The financial information with respect to MBIA
Corporation 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. Neither the Fund, the Units nor
the portfolio is insured directly or indirectly by Xerox Corporation.
FEDERAL TAX STATUS OF THE TRUSTS
At the date of closing of each Trust Chapman and Cutler, counsel for the
Sponsor, rendered an opinion substantially to the effect that under existing
law:
(1) Each Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on Bonds
which is excludable from gross income under the Internal Revenue Code of 1986
("the Code") will retain its status when distributed to Unitholders. A
Unitholder's share of the interest on certain Bonds in the Trust will be
included as an item of tax preference for both individuals and corporations
subject to the alternative minimum tax ("AMT Bonds"). In the case of certain
corporations owning Units, interest and accrued original issue discount with
respect to Bonds other than AMT Bonds held by a Trust may be subject to the
alternative minimum tax, an additional tax on branches of foreign corporations
and the environmental tax (the "Superfund Tax");
(2) Each Unitholder is considered
to be the owner of a pro rata portion of
the respective Trust under subpart E,
subchapter J of chapter 1 of the Code and
will have a taxable event when such Trust disposes of a Bond, or when the
Unitholder redeems or sells his Units.
Unitholders must reduce the tax basis of
their Units for their share of accrued interest received by the respective
Trust, if any, on Bonds delivered after the Unitholders pay for their Units to
the extent that such interest accrued on such Bonds during the period from the
Unitholder's settlement date to the date such Bonds are delivered to the
respective Trust and, consequently, such Unitholders may have an increase in
taxable gain or reduction in capital loss upon the disposition of such Units.
Gain or loss upon the sale or redemption of Units is measured by comparing the
proceeds of such sale or redemption with the adjusted basis of the Units. If
the Trustee disposes of Bonds (whether
by sale, payment on maturity, redemption
or otherwise), gain or loss is recognized to the Unitholder. The amount of any
such gain or loss is measured by comparing the Unitholder's pro rata share of
the total proceeds from such disposition
with the Unitholder's basis for his or
her fractional interest in the asset disposed of. In the case of a Unitholder
who purchases Units, such basis (before adjustment for earned original issue
discount and amortized bond premium, if any) is determined by apportioning the
cost of the Units among each of the Trust assets ratably according to value as
of the date of acquisition of the Units.
The tax cost reduction requirements of
the Code relating to amortization of bond premium may, under some
circumstances, result in the Unitholder
realizing a taxable gain when his Units
are sold or redeemed for an amount equal to his original cost.
(3) Any proceeds paid under an
insurance policy or policies dated March 4,
1993, issued to an Insured Trust by AMBAC Indemnity, Financial Guaranty or a
combination thereof 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
(4) Any proceeds paid under individual policies obtained by issuers of
Bonds which represent maturing interest on defaulted obligations held by the
Trustee will be excludable from Federal
gross income if, and to the same extent
as, such interest would have been so
excludable if paid in the normal course by
the issuer of the defaulted obligations.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a B
ond exceeds the original issue price
plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price") to prior owners. The application of these rules will also vary
depending on the value of the Bond on the date a Unitholder acquires his Units
and the price the Unitholder pays for his Units. Investors with questions
regarding these Code sections should consult with their tax advisers.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depends upon
the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the
Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings" over an
amount equal to its alternative minimum taxable income (before such adjustment
item and the alternative minimum tax net operating loss deduction). "Adjusted
current earnings" includes all tax exempt interest, including interest on the
Bonds in the Fund. Unitholders are urged to consult their tax advisers with
respect to the particular tax consequences to them including the corporate
alternative minimum tax, the Superfund Tax and the branch profits tax imposed
by Section 884of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred
or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest 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 Fund, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user"
of the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such securities are held by such a user or
related person, will not be excludible from Federal gross income, although
interest on such Bonds received by others would be excludible from Federal
gross income. "Substantial user" and "related person" are defined under U.S.
Treasury Regulations. Any person who believes that he or she may be a
"substantial user" or a "related person" as so defined should contact his or
her tax adviser.
In the opinion of special counsel to the Fund for New York tax matters,
under existing law, the Fund and each Trust are not associations taxable as
corporations and the income of each Trust will be treated as the income of the
Unitholders under the income tax laws of the State and City of New York.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, state or other tax
purposes are the opinions of counsel and
are to be so construed.
At the respective times of issuance
of the Bonds, opinions relating to the
validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
Section 86 of the Code, in general provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social Security
benefits received exceeds a"base amount". It should be noted that under
recently proposed legislation, the proportion of Social Security benefits
subject to inclusion in taxable income would be increased. No prediction is
made as to the likelihood that
legislation with this or a 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 and by including tax-exempt interest. To the
extent that Social Security benefits are includible in gross income, they will
be treated as any other item of gross income.
Although tax-exempt interest is
included in modified adjusted gross income
solely for the purpose of determining what portion, if any, of Social Security
benefits will be included in gross income, no tax-exempt interest, including
that received from a Trust, will be subject to tax. A taxpayer whose adjusted
gross income already exceeds the base amount 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.
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 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.
For a discussion of the state tax status of income earned on Units of a
Trust, see "Tax Status" for the applicable Trust. Except as noted therein, the
exemption of interest on state and local obligations for Federal income tax
purposes discussed above does not necessarily result in exemption under the
income or other tax laws of any State or City. The laws of the several States
vary with respect to the taxation of such obligations.
DESCRIPTION AND STATE TAX STATUS OF THE STATE TRUST
New York Trust
The Portfolio of the New York Trust includes obligations issued by New
York State (the"State"), by its various public bodies (the "Agencies"), and/or
by other entities located within the
State, including the City of New York (the
"City").
Some of the more significant events
relating to the financial situation in
New York are summarized below. This section provides only a brief summary of
the complex factors affecting the financial situation in New York and is based
in part on Official Statements issued by, and on other information reported by
the State, the City and the Agencies in connection with the issuance of their
respective securities.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal
Obligations held in the portfolio of the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
(1) The State: The State has
historically been one of the wealthiest states
in the nation. For decades, however, the State economy has grown more slowly
than that of the nation as a whole, gradually eroding the State's relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx
of generally less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and the West have
had in attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high state and local tax burden
relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
Slowdown of Regional Economy. A national recession commenced in mid-1990.
The downturn continued throughout the State's 1990-91 fiscal year and was
followed by a period of weak economic
growth during the 1991 calendar year. For
calendar year 1992, the national economy continued to recover, although at a
rate below all post-war recoveries. For calendar year 1993, the economy is
expected to continue to grow faster than in 1992, but still at a very moderate
rate of growth. The national recession has been more severe in the State
because of factors such as a significant
retrenchment in the financial services
industry, cutbacks in defense spending, and an overbuilt real estate market.
1993-94 Fiscal Year. The Governor released on January 19, 1993 the
recommended Executive Budget for the 1993-94 fiscal year which commences on
April 1, 1993 ("the Recommended 1993-94 State Financial Plan") which plan
projects a balanced General Fund. General Fund receipts and transfers from
other funds are projected at $31.563 billion, including $184 million carried
over from the 1992-93 fiscal year.
To achieve General Fund budgetary balance in the 1993-94 State fiscal
year, the Governor has recommended various actions requiring legislative
approval. These include: proposed spending reductions and other actions that
would reduce General Fund spending($1.6 billion); continuing the freeze on
personal income and corporate tax reductions and on hospital assessments ($1.3
billion); retaining moneys in the General Fund that would otherwise have been
deposited in dedicated highway and transportation funds ($516 million); a
21-cent increase in the cigarette tax ($180 million); and new revenues from
miscellaneous sources ($91 million).
There can be no assurance that the Legislature will enact the Recommended
1993-94 State Financial Plan as proposed nor can there be any assurance that
the Legislature will enact a budget for the 1993-94 fiscal year prior to the
beginning of the fiscal year. In recent fiscal years, the State has failed to
enact a budget prior to the beginning of the State's fiscal year. Because the
Recommended 1993-94 State Financial Plan contains proposed spending cuts from
baseline projections that are greater than in most recent fiscal years, delay
in enactment of the 1993-94 fiscal year budget could have greater consequences
than similar delays in recent years. Delay in legislative enactment of the
1993-94 fiscal year budget may reduce the effectiveness of many of the actions
proposed to close the potential gap. The 1993-94 State Financial Plan, when
formulated after enactment of the budget, would have to take into account any
reduced savings arising from any late budget enactment.
The Recommended 1993-94 State Financial Plan would result in sharp
reductions in aid to all levels of local government units, from amounts
expected. To offset a portion of such
reductions, the Recommended 1993-94 State
Financial Plan contains a package of
mandate relief, cost containment and other
proposals to reduce the costs of many programs for which local governments
provide funding. There can be no assurance, however, that localities that
suffer cuts will not be adversely affected, leading to further requests for
State financial assistance
There can be no assurance that the State will not face substantial
potential budget gaps in the future resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions
to align recurring receipts and disbursements.
1992-93 Fiscal Year. On January 21, 1992, the Governor released the
recommended 1992-93 Executive Budget which included the revised 1991-92 State
Financial Plan (the "Revised 1991-92 State Financial Plan") indicating a
projected $531 million General Fund cash basis operating deficit in the 1991-92
fiscal year. The projected $531 million deficit was met through tax and revenue
anticipation notes (the "1992 Deficit Notes") which were issued on March 30,
1992 and are required by law to be repaid in the State's 1992-93 fiscal year.
The $531 million projected deficit follows $407 million in administrative
actions taken by the Governor intended to reduce the 1991-92 disbursements and
to increase revenues.
The recommended 1992-93 Executive Budget contained projections for the
1992-93 State fiscal year which began on April 1, 1992. The Governor indicated
that, for the 1992-93 fiscal year, the State faced a $4.8 billion budget gap,
including the $531 million needed in the 1992-93 fiscal year to repay the 1992
Deficit Notes. The recommended 1992-93 Executive Budget reflects efforts to
achieve budgetary balance by reducing disbursements by $3.5 billion and
increasing revenues by $1.3 billion, from levels previously anticipated.
The 1992-93 State budget was enacted by the Legislature on April 2, 1992
and was balanced through a variety of spending cuts and revenue increases, as
reflected in the State Financial Plan
for the 1992-93 fiscal year (the "1992-93
State Financial Plan") announced on
April 13, 1992. The 1992-93 State Financial
Plan projects that General Fund receipts and transfers from other funds will
total $31.382 billion, after provision to repay the 1992 Deficit Notes. The
1992-93 State Financial Plan includes increased taxes and other revenues,
deferral of scheduled personal income
and corporate tax reductions, significant
reductions from previously projected levels in aid to localities and State
operations and other budgetary actions that limit the growth in General Fund
disbursements.
Pursuant to Statute, the State updates the State Financial Plan at least
on a quarterly basis. The first quarterly revision to the State Financial Plan
for the State's 1992-93 fiscal year was issued on July 30, 1992 (the "Revised
1992-93 State Financial Plan").
In February 1992, the Division of the Budget estimated the potential
budget imbalance for the State's 1993-94 fiscal year at approximately $1.6
billion.
For a number of years the State has encountered difficulties in achieving
a balance of expenditures and revenues. The 1991-92 fiscal year was the fourth
consecutive year in which the State incurred a cash-basis operating deficit in
the General Fund and issued deficit notes. There can be no assurance that the
State will not continue to face budgetary difficulties in the future, due to a
number of factors including economic, fiscal and political factors, and that
such difficulties will not lead to further adverse consequences for the State.
As a result of changing economic conditions and information, public
statements or reports may be released by the Governor, members of the State
Legislature, and their respective staffs, as well as others involved in the
budget negotiation process from time to time. Those statements or reports may
contain predictions, projections or
other items of information relating to the
State's financial condition, as reflected in the Recommended 1993-94 State
Financial Plan, that may vary materially and adversely from the information
provided herein.
Indebtedness. As of December 31, 1991, the total amount of long-term State
general obligation debt authorized but not issued stood at $2.6 billion, of
which approximately $1.3 billion was part of a general obligation bond
authorization for highway and bridge
construction and rehabilitation. As of the
same date, the State had approximately$5.1 billion in general obligation bonds
and $293 million in bond anticipation notes outstanding. The State issued $3.9
billion in tax and revenue anticipation notes ("TRANs") on June 21, 1991, $531
million in 1992 Deficit Notes on March 30, 1992 and $2.3 billion in TRANs on
April 28, 1992. The Division of the Budget also projects the issuance of $1.4
billion in TRANs during the first quarter of the State's 1992-93 fiscal year.
The Governor has recommended the issuance of $761 million in borrowings
for capital purposes during the State's 1993-94 fiscal year. In addition, the
State expects to issue $140 million in bonds for the purpose of redeeming
outstanding bond anticipation notes. The Governor has also recommended the
issuance of up to $85 million in certificates of participation during the
State's 1993-94 fiscal year for personal and real property acquisitions. The
projection of the State regarding its borrowings for the 1993-94 fiscal years
may change if actual receipts fall short of State projections or if other
circumstances require.
In June 1990, legislation was enacted creating the "New York Local
Government Assistance Corporation" ("LGAC"), a public benefit corporation
empowered to issue long-term obligations to fund certain payments to local
governments traditionally funded through
the State's annual seasonal borrowing.
To date, LGAC has issued its bonds to provide net proceeds of $3.02 billion.
LGAC has been authorized to issue additional bonds to provide net proceeds of
$975 million during the State's 1992-93 fiscal year of which $621 million has
been issued to date.
Ratings. The $2.3 billion in TRANs issued by the State in April 1992 were
rated SP-1 by S&G and MIG-2 by Moody's.
The $3.9 billion in TRANs issued by the
State in June 1991 were rated SP-1 the same. S&P in so doing stated that the
outlook is changed to "negative"from
"stable." The $4.1 billion in TRANs issued
by the State in June 1990 and the $775 million in TRANs issued by the State in
March 1990 were rated the same. In contrast, the $3.9 billion of TRANs issued
by the State in May 1989 had been rated SP-1+ by S&P and MIG-1 by Moody's.
As of the date of this Prospectus, Moody's rating of the State's general
obligation bonds stood at A, but under review for possible downgrade and S&P's
rating stood at A-
with a negative outlook. Moody's placed the bonds under review on January 6,
1992. Previously, Moody's lowered its rating to A on June 6, 1990, its rating
having been A1 since May 27, 1986. S&P lowered its rating from A to A-
on January 13, 1992. S&P's previous ratings were A from March 1990 to January
1992, AA-
from August 1987 to March 1990 and A+ from November 1982 to August 1987.
On September 18, 1992, Moody's in placing the bonds under review for
possible downgrade stated:
Chronic financial problems weigh most heavily in the evaluation of New
York State's credit. In the past five years, the State has been unable to
maintain a balanced budget and has had to issue deficit notes in each of the
past four years. The budget for the fiscal year which began April 1, 1992 was
adopted nearly on time, relies somewhat less on non-recurring actions, and
provides for some expenditure reductions, mainly due to a planned reduction in
the size of the State workforce.
However, although growth in major aid programs
to local governments is modest, major
structural reform of State programs which
would provide enduring budget relief has not been enacted. The State budget is
still narrowly balanced and the State could face additional fiscal pressure if
the economy performs worse than anticipated or cost-reduction programs fail to
generate anticipated savings.
On November 16, 1992, S&P, in affirming its A-
rating and negative outlook of the State's general obligation bonds, stated:
The rating reflects ongoing economic weakness, four years of operating
deficits and a large accumulated deficit position.
The ratings outlook is "negative", as budget balance remains fragile.
(2) The City and the Municipal Assistance Corporation ("MAC"):The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In February 1975, the New York State Urban Development Corporation
("UDC"), which had approximately $1 billion of outstanding debt, defaulted on
certain of its short-term notes. Shortly after the UDC default, the City
entered a period of financial crisis. Both the State Legislature and the United
States Congress enacted legislation in response to this crisis. During 1975,
the State Legislature (i) created MAC to assist with long-term financing for
the City's short-term debt and other cash requirements and(ii) created the
State Financial Control Board (the "Control Board") to review and approve the
City's budgets and City four-year financial plans (the financial plans also
apply to certain City-related public agencies (the "Covered Organizations")).
Over the past three years, the rate of economic growth in the City has
slowed substantially, and the City's economy is currently in recession. The
City projects, and its current four-year
financial plan assumes, a continuation
of the recession in the New York City region in the 1992 calendar year with a
recovery early in the 1993 calendar year. The Mayor is responsible for
preparing the City's four-year financial plan, including the City's current
financial plan. The City Comptroller has issued reports concluding that the
recession of the City's economy will be more severe and last longer than is
assumed in the financial plan.
For each of the 1981 through 1991
fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP") and experts to achieve balanced operating results for the
1992 fiscal year. During its 1991 fiscal year, as a result of the recession,
the City experienced significant
shortfalls from its July 1990 projections in virtually every major
category of tax revenues. The City was required to close
substantial budget gaps in its 1990 and 1991 fiscal years in order to maintain
balanced operating results. There can be no assurance that the City will
continue to maintain a balanced budget, or that it can maintain a balanced
budget without additional tax or other revenue increases or reductions in City
services, which could adversely affect the City's economic base. The City
Comptroller has issued reports that have warned of the adverse effects on the
City's economy of the tax increases that were imposed during fiscal years 1991
and 1992.
Pursuant to State law, the City prepares a four-year annual financial
plan, which is reviewed and revised on a
quarterly basis and which includes the
City's capital, revenue and expense
projections. The City is required to submit
its financial plans to review bodies, including the Control Board. If the City
were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and imminence of the occurrence of an
annual operating deficit of more than
$100 million or the loss of access to the
public credit markets to satisfy the City's capital and seasonal financing
requirements, the Control Board would be required by State law to exercise
powers, including prior approval of City financial plans, proposed borrowings
and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. As a result of the
national and regional economic recession, the State's projections of tax
revenues for its 1991 and 1992 fiscal
years were substantially reduced. For its
1993 fiscal year, the State, before
taking any remedial action reflected in the
State budget enacted by the State Legislature on April 2, 1992 reported a
potential budget deficit of $4.8 billion. If the State experiences revenue
shortfalls or spending increases beyond its projections during its 1993 fiscal
year or subsequent years, such developments could result in reductions in
projected State aid to the City. In addition, there can be no assurance that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that there will not be adverse effects on the City's cash flow and
additional City expenditures as a result of such delays.
The City's projections set forth in its financial plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major
assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies
include the timing of any regional and local economic recovery, the absence of
wage increases in excess of the increases assumed in its financial plan,
employment growth, provision of State
and Federal aid and mandate relief, State
legislative approval of future State budgets, levels of education expenditures
as may be required by State law, adoption of future City budgets by the New
York City Council, and approval by the Governor or the State Legislature and
the cooperation of MAC with respect to various other actions proposed in such
financial plan.
The City's ability to maintain a
balanced operating budget is dependent on
whether it can implement necessary service and personnel reduction programs
successfully. The financial plan submitted to the Control Board on June 11,
1992 contains substantial proposed expenditure cuts for the 1993 through 1996
fiscal years. The proposed expenditure reductions will be difficult to
implement because of their size and the substantial expenditure reductions
already imposed on City operations in the past two years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities sucessfully in the public credit markets. The City's
financing program for fiscal years 1993 through 1996 contemplates issuance of
$13.3 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make capital
investments. A significant portion of such bond financing is used to reimburse
the City's general fund for capital
expenditures already incurred. In addition,
the City issues revenue and tax anticipation notes to finance its seasonal
working capital requirements. The terms and success of projected public sales
of City general obligation bonds and
notes will be subject to prevailing market
conditions at the time of the sale, and no assurance can be given that the
credit markets will absorb the projected
amounts of public bond and note sales.
In addition, future developments concerning the City and public discussion of
such developments, the City's future financial needs and other issues may
affect the market for outstanding City general obligation bonds and notes. If
the City were unable to sell its general obligation bonds and notes, it would
be prevented from meeting its planned operating and capital expenditures.
The City Comptroller, the staff of the Control Board, the Office of the
State Deputy Comptroller for the City of New York (the "OSDC") and other
agencies and public officials have issued reports and made public statements
which, among other things, state that projected revenues may be less and future
expenditures may be greater than those forecast in the financial plan. In
addition, the Control Board and other
agencies have questioned whether the City
has the capacity to generate sufficient
revenues in the future to meet the costs
of its expenditure increases and to provide necessary services. It is
reasonable to expect that such reports and statements will continue to be
issued and to engender public comment.
Fiscal Years 1991 and 1992.The City
achieved balanced operating results as
reported in accordance with GAAP for the 1991 fiscal year. During the 1990 and
1991 fiscal years, the City implemented various actions to offset a projected
budget deficit of $3.2 billion for the 1991 fiscal year, which resulted from
declines in City revenue sources and increased public assistance needs due to
the recession. Such actions included $822 million of tax increases and
substantial expenditure reductions.
The quarterly modification to the City's financial plan submitted to the
Control Board on May 7, 1992 (the "1992 Modification") projected a balanced
budget in accordance with GAAP for the 1992 fiscal year after taking into
account a discretionary transfer of $455
million to the 1993 fiscal year as the
result of a 1992 fiscal year surplus. In
order to achieve a balanced budget for
the 1992 fiscal year, during the 1991 fiscal year, the City proposed various
actions for the 1992 fiscal year to close a projected gap of $3.3 billion in
the 1992 fiscal year.
1993-1996 Financial Plan. On June 11, 1992, the City submitted to the
Control Board the Financial Plan for the 1993 through 1996 fiscal years, which
relates to the City, the Board of Education ("BOE") and the City University of
New York ("CUNY") and is based on the City's expense and capital budgets for
the City's 1993 fiscal year. The
1993-1996 Financial Plan projects revenues and
expenditures for the 1993 fiscal year balanced in accordance with GAAP.
The 1993-1996 Financial Plan sets forth actions to close a previously
projected gap of approximately $1.2 billion in the 1993 fiscal year. The
gap-closing actions for the 1993 fiscal year include $489 million of
discretionary transfers from a City surplus in the 1992 fiscal year.
The 1993-1996 Financial Plan also sets forth projections and outlines a
proposed gap-closing program for the 1994 through 1996 fiscal years to close
projected budget gaps. On August 26, 1992, the City modified the 1993-96
Financial Plan. As modified, the Financial Plan projects a balanced budget for
fiscal year 1993 based upon revenues of $29.6 billion but projects budget gaps
of $1.3 billion, $1.2 billion and $1.7 billion, respectively, in the 1994
through 1996 fiscal years. On February 9, 1993, the City issued a modification
to the 1993-1996 Financial Plan (the "February Modification"). The February
Modification projects budget gaps for fiscal years 1994, 1995 and 1996 of $2.1
billion, $3.1 billion and $3.8 billion, respectively.
Various actions proposed in the 1993-1996 Financial Plan are subject to
approval by the Governor and approval by the State Legislature, and the
proposed increase in Federal aid is subject to approval by Congress and the
President. In addition, MAC has set conditions upon its cooperation in the
City's realization of the proposed transitional funding contained in the
Financial Plan for the 1994 fiscal year. If these actions cannot be
implemented, the City will be required to take other actions to decrease
expenditures or increase revenues to maintain a balanced financial plan.
The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, on the
proceedings and claims are not currently predictable, adverse determination in
certain of them might have a material
adverse effect upon the City's ability to
carry out its financial plan. As of June 30, 1991, legal claims in excess of
$322 billion were outstanding against
the City for which the City estimated its
potential future liability to be $2.1 billion.
Ratings. As of the date of this prospectus, Moody's rating of the City's
general obligation bonds stood at Baa1 and S&P's rating stood at A-.
On February 11, 1991, Moody's had lowered its rating from A.
On October 19, 1992, in confirming its Baa1 rating, Moody's noted that:
Financial operations continue to be satisfactorily maintained[.] . . .
Nevertheless, significant gaps in the later years of the [four year
financial] plan remain and have not changed from prior projections. The
ability of the City to successfully close those gaps, as well as fully
implement all currently planned gap closing measures without slippage will
be a politically and financially complex task.
On October 19, 1992, S&P affirmed its rating, with a negative outlook,
stating that:
Per capita debt remains high, and debt service as a portion of total
spending will continue to grow above 10% as the City issues $3-$4 billion
of new bonds for the next several years. Economically, the City is in one
of its deepest recessions, with
additional job losses this year expected to
approach 130,000 before moderating in 1993. Long-term job growth is
expected to be slow.
City financial plans will continue to be burdened by weak economic
factors, and continued risks to State and federal actions that the City is
relying on to balance future budgets.
The outlook remains negative. Labor negotiations also present some risk,
given City assumptions of no wage increase in 1993-1994
Previously, Moody's had raised its rating to A in May, 1988, to Baa1 in
December, 1985, to Baa in November, 1983 and to Ba1 in November, 1981. S&P had
raised its rating to A-
in November, 1987, to BBB+ in July, 1985, and to BBB in March, 1981.
On May 9, 1990, Moody's revised downward its rating on outstanding City
revenue anticipation notes from MIG-1 to
MIG-2 and rated the $900 million Notes
then being sold MIG-2. On April 30, 1991, Moody's confirmed its MIG-2 rating
for the outstanding revenue anticipation notes and for the $1.25 billion in
notes then being sold. On April 29, 1991, S&P revised downward its rating on
City revenue anticipation notes from SP-1 to SP-2.
As of June 30, 1992, the City and
MAC had, respectively, $19.5 billion and
$5.9 billion of outstanding net long-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced
substantial financial difficulties which could adversely affect the ability of
such Agencies to make payments of interest on, and principal amounts of, their
respective bonds. The difficulties have in certain instances caused the State
(under so-called "moral obligation" provisions which are non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of
the Agencies. Moreover, it is expected
that the problems faced by these Agencies will continue and will require
increasing amounts of State assistance
in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those Agencies
having financial difficulties to meet their obligations could result in a
default by one or more of the Agencies. Such default, if it were to occur,
would be likely to have a significant
adverse effect on investor confidence in,
and therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of
certain conditions that must be
satisfied in connection with Federal guarantees
of City and MAC obligations and could thus jeopardize the City's long-term
financing plans.
As of September 30, 1992, the State reported that there were eighteen
Agencies that each had outstanding debt
of $100 million or more. These eighteen
Agencies had an aggregate of $62.2 billion of outstanding debt, including
refunding bonds, of which the State was obligated under lease-purchase,
contractual obligation or moral obligation provisions on $25.3 billion.
(4) State Litigation: The State is a defendant in numerous legal
proceedings pertaining to matters incidental to the performance of routine
governmental operations. Such litigation includes, but is not limited to,
claims asserted against the State arising from alleged torts, alleged breaches
of contracts, condemnation proceedings and other alleged violations of State
and Federal laws. Included in the State's outstanding litigation are a number
of cases challenging the
constitutionality or the adequacy and effectiveness of
a variety of significant social welfare programs primarily involving the
State's mental hygiene programs. Adverse judgments in these matters generally
could result in injunctive relief coupled with prospective changes in patient
care which could require substantial increased financing of the litigated
programs in the future.
The State is also engaged in a
variety of contract and tort claims wherein
significant monetary damages are sought. Actions commenced by several Indian
nations claim that significant amounts of land were unconstitutionally taken
from the Indians in violation of various treaties and agreements during the
eighteenth and nineteenth centuries. The claimants seek recovery of
approximately six million acres of land as well as compensatory and punitive
damages.
Adverse developments in the
foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the 1992-93 fiscal
year or thereafter.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State
assistance. The Recommended 1993-94
State Financial Plan includes a significant
reduction in State aid to localities in such programs as revenue sharing and
aid to education from projected base-line growth in such programs. It is
expected that such reductions will result in the need for localities to reduce
their spending or increase their
revenues. The potential impact on the State of
such actions by localities is not
included in projections of State revenues and
expenditures in the State's 1992-93 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the
Financial Control Board for the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipalities and school districts
have engaged in substantial short-term
and long-term borrowings. In 1990, the total indebtedness of all localities in
the State was approximately $26.9 billion, of which $13.5 billion was debt of
New York City (excluding $7.1 billion in MAC debt). State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units other than New York City authorized by State law to
issue debt to finance deficits during
the period that such deficit financing is
outstanding. Seventeen localities had outstanding indebtedness for state
financing at the close of their fiscal year ending in 1990.
Certain proposed Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities.
If the State, New York City or any of the Agencies were to suffer serious
financial difficulties jeopardizing their respective access to the public
credit markets, the marketability of notes and bonds issued by localities
within the State, including bonds in the New York Insured Trust, could be
adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions, and long-range
economic trends. The longer-range potential problems of declining urban popula
tion, increasing expenditures, and other
economic trends could adversely affect
certain localities and require increasing State assistance in the future.
At the time of the closing for each New York Trust, special counsel to
each New York Trust for New York Tax matters, rendered an opinion under then
existing New York law substantially to the effect that:
The New York Trust is not an association taxable as a corporation and the
income of the New York Trust will be treated as the income of the
Unitholders under the income tax laws of the State and City of New York.
Individuals who reside in New York State or City will not be subject to
State and City tax on interest
income which is exempt from Federal income
tax under Section 103 of the Internal Revenue Code of 1986 and derived
from obligations of New York State or a political subdivision thereof,
although they will be subject to
New York State and City tax with respect
to any gains realized when such
obligations are sold, redeemed or paid at
maturity or when any such Units are sold or redeemed.
TRUST ADMINISTRATION AND EXPENSES
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, lllinois 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 Trusts. The
information is included herein only for the purpose of informing investors as
to the financial responsibility of the
Sponsor and its ability to carry out its
contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
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 Trustor 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 the mutual
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: 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; Van Kampen Merritt California Insured Tax Free
Fund; Van Kampen Merritt Tax Free High Income Fund; Investors' Quality
Municipals Trust, AMT Series; Investors' Quality Tax-Exempt Trust; Investors'
Quality Tax-Exempt Trust, 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; and Van Kampen Merritt Blue Chip
Opportunity and Treasury Trust.
Van Kampen Merritt Inc. is the distributor of the following mutual funds:
Van Kampen Merritt U.S. Government Fund; Van Kampen Merritt Insured Tax Free
Income Fund; Van Kampen Merritt High Yield Fund; Van Kampen Merritt Growth and
Income Fund; Van Kampen Merritt Pennsylvania Tax Free Income Fund; Van Kampen
Merritt Money Market Fund; and Van Kampen Merritt Tax Free Money Fund; Van
Kampen Merritt Tax Free High Income
Fund; Van Kampen Merritt California Insured
Tax Free 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; and
Van Kampen Merritt Pennsylvania Quality Municipal Trust; Van Kampen Merritt
Adjustable Rate U.S. Government Fund; Van Kampen Merritt Trust for Investment
Grade Municipals; Van Kampen Merritt Trust for Insured Municipals; Van Kampen
Merritt Trust for Investment Grade CA Municipals; Van Kampen Merritt Trust for
Investment Grade FL Municipals; Van
Kampen Merritt Trust for Investment Grade NJ
Municipals; Van Kampen Merritt 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 rates 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 Fund as provided therein or
(iii) continue to act as Trustee without terminating the Trust Agreement.
All costs and expenses incurred in creating and establishing the Fund,
including the cost of the initial preparation, printing and execution of the
Trust Agreement and the certificates, legal and accounting expenses,
advertising and selling expenses, expenses of the Trustee, initial evaluation
fees and other out-of-pocket expenses have been borne by the Sponsor at no cost
to the Fund.
Compensation of Sponsor and Evaluator.
The Sponsor will not receive any fees in
connection with its activities relating to the Trusts. However, American
Portfolio Evaluation Services, a division of Van Kampen Merritt Investment
Advisory Corp., which is a wholly-owned subsidiary corporation of the Sponsor,
will receive an annual supervisory fee
as indicated under "Summary of Essential
Financial Information" for providing portfolio supervisory services for such
series. Such fee (which is based on the number of Units outstanding 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 total amount received for
portfolio supervisory services rendered to all such series and to any other
unit investment trusts sponsored by the Sponsor for which the Evaluator
provides portfolio supervisory services 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 as indicated
under "Summary of Essential Financial Information" for regularly evaluating
each 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. 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 Bonds for the portfolios of any of the Trusts.
In accordance with the Trust Agreement, the Trustee shall keep proper
books of record and account of all transactions at its office for the Fund.
Such records shall include the name and
address of, and the certificates issued
by the Fund to, every Unitholder of the Fund. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during the usual
business hours. The Trustee shall make
such annual or other reports as may from
time to time be required under any
applicable state or Federal statute, rule or
regulation (see "Public Offering
Reports Provided"). The Trustee is required to keep a certified copy or
duplicate original of the Trust Agreement on file in its office available for
inspection at all reasonable times during the usual business hours by any
Unitholder, together with a current list of the Securities held in the Fund.
Under the Trust Agreement, the
Trustee or any successor trustee may resign
and be discharged of the trusts 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 Fund
Unitholders then of record, not less than 60 days before the date specified in
such notice when such resignation is to
take effect. The Sponsor upon receiving
notice of such resignation is obligated to appoint a successor trustee
promptly. If, upon such resignation, no successor trustee has been appointed
and has accepted the appointment within 30 days after notification, the
retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The Sponsor may remove the Trustee and appoint a
successor trustee as provided in the 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.
Trustee's Fee. For its services the
Trustee will receive an annual fee based on
the largest aggregate amount of Securities in each Trust at any time during
such period. Such fee will be computed at $.51 per $1,000 principal amount of
Securities for that portion of each Trust under the semi-annual distribution
plan and $.91 per $1,000 principal amount of Securities for that portion of
each Trust under the monthly distribution plan. The Trustee's fees are payable
monthly on or before the fifteenth day of each month from the Interest Account
of each Trust to the extent funds are available and then from the Principal
Account of each Trust, with such payments being based on each Trust's portion
of such expenses. Since the Trustee has the use of the funds being held in the
Principal and Interest Accounts for future distributions, payment of expenses
and redemptions and since such accounts are non-interest bearing to
Unitholders, the Trustee benefits thereby. Part of the Trustee's compensation
for its services to each Trust is expected to result from the use of these
funds. 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. 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".
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 Securities, will consider a variety of factors, including (a)
interest rates, (b) market value and (c) marketability. In connection with the
Trusts 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 such Trust's portfolio will tend to diminish. Except as described in this
section 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 from a Trust which are
in default in payment of principal or interest or in significant risk of such
default and for which value has been attributed for the insurance obtained by
such Insured Trust. Because of such restrictions on the Trustee under certain
circumstances, the Sponsor may seek a full or partial suspension of the right
of Unitholders to redeem their Units in an Insured Trust. See "Public Offering
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 Securities to issue new obligations in exchange or
substitution for any Security 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 Security or (2) in
the written opinion of the Sponsor the issuer will probably default with
respect to such Security 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
Securities originally deposited thereunder. Within five days after the deposit
of obligations in exchange or substitution for underlying Securities, the
Trustee is required to give notice thereof to each Unitholder of the Trust
thereby affected, identifying the
Securities eliminated and the Securities subs
tituted therefor. Except as provided herein, the acquisition by the Fund of
any securities other than the Securities initially deposited is not permitted.
If any default in the payment of principal or interest on any Security
occurs and no provision for payment is made therefor within 30 days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails to
instruct the Trustee to sell or to hold such Security within 30 days after
notification by the Trustee to the Sponsor of such default, the Trustee may in
its discretion sell the defaulted Security and not be liable for any
depreciation or loss thereby incurred.
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 be tendered 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.
Insurance Premiums. Insurance premiums, which are obligations of each Trust,
are payable monthly by the Trustee on
behalf of the respective Trust so long as
such Trust retains the Bonds. The cost of the portfolio insurance obtained by
the respective Trust is set forth in footnote (5) in "Notes to Portfolio" in
Part One of this Prospectus. As Bonds in the portfolio of a Trust 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 such Trust. A 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.
Miscellaneous Expenses. The following
additional charges are or may be incurred
by the Trusts: (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 of any action taken by the Trustee to protect the Trusts 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 Fund without
negligence, bad faith or willful misconduct on its part, (f) any special
custodial fees payable in connection with the sale of any of the Bonds in a
Trust and (g)expenditures incurred in contacting Unitholders upon termination
of the Trusts.
The fees and expenses set forth
herein are payable out of the Trusts. When
such fees and expenses are paid by or
owing to the Trustee, they are secured by
a lien on the portfolio or portfolios of
the applicable Trust or Trusts. If the
balances in the Interest and Principal
Accounts are insufficient to provide for
amounts payable by the Fund, the Trustee has the power to sell Securities to
pay such amounts.
GENERAL
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 Fund, except for the
substitution of certain refunding securities for such Securities. In the event
of any amendment, the Trustee is obligated to notify promptly all Unitholders
of the substance of such amendment.
A Trust may be terminated at any time by consent of Unitholders of 51% of
the Units of such Trust then outstanding or by the Trustee when the value of
such 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 each Trust shall terminate
upon the redemption, sale or other disposition of the last Security held in
such Trust, but in no event shall it continue beyond the end of the year
indicated under "The Fund". In the event of termination of any Trust,
written notice thereof will be sent by the Trustee to each Unitholder of
such Trust at his address appearing on the registration books of
the Fund 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 such Trust
and shall deduct from the funds of such Trust any accrued costs, expenses or
indemnities provided by the Trust Agreement, including estimated compensation
of 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 Trustee shall then distribute to each
Unitholder his share of the balance of the Interest and Principal Accounts.
With such distribution the Unitholder shall be furnished a final distribution
statement of the amount distributable. At such time as the Trustee in its 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, it should be noted that because the portfolio insurance obtained
by a Trust is applicable only while Bonds so insured are held by a 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 if retention 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 deteriorated market prices resulting from
a significant risk of default. Since the Preinsured Bonds 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 no liability 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 gross negligence 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 Fund which the Trustee may be required to pay under any present or
future law of the United States of America or of any other taxing authority
having jurisdiction. In addition, the 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 information available to 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 of its obligations and duties.
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 Fund available to
their customers on an agency basis. A
portion of the sales charge paid by these
customers (equal to the agency commission referred to above) is retained by or
remitted to the banks. Under the Glass-Steagall Act, banks are prohibited from
underwriting Units of the Fund; 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 time pursuant 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 in part, 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 Compensation. Dealers will receive the gross sales
commission as described under "Public Offering
General".
As stated under "Public Offering
Market for Units", the Sponsor intends to, and certain of the dealers may,
maintain a secondary market for the Units of the Fund. In so maintaining a
market, such person or persons will also 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 (which price is based on the bid prices of
the Securities in such Trust and includes a sales charge). In addition, such
person or persons 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.
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-exempt 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. The counsel which has provided a state tax opinion to
the respective Trust under "Description and State Tax Status of the State
Trust" has acted as special counsel to the Fund for the tax matters of such
state. Variouscounsel have acted as counsel for the Trustee and as special
counsel for the Fund for New York tax matters. None of the special counsel for
the Fund has expressed any opinion
regarding the completeness or materiality of
any matters contained in this Prospectus other than the tax opinions set forth
by such special counsel.
Auditors. The statements of condition and the related securities portfolios
included in this Prospectus have been audited at the date indicated therein 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 rating 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 likelihood and risk.
Moody's Investors Service, Inc. A brief description of the applicable Moody's
Investors Service, Inc. rating symbols and their meanings follow:
Aaa
Bonds which are rated Aaa are judged to be 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 fluctuations.
Aa
Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with
the occasional exception of oversupply
in a few specific instances.
A
Bonds which are rated A possess many favorable investment attributes and are
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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27
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or any dealer. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, securities in any state to any
person to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
Title Page
The Fund ............................................ 2
Objective and Securities Selection .................. 2
Trust Portfolio ..................................... 3
Portfolio Concentrations ...................... 3
Bond Redemptions .............................. 5
Distributions ................................. 6
Change of Distribution Option ................. 6
Certificates .................................. 6
Estimated Current Returns and
Estimated Long-Term Returns......................... 7
Public Offering ..................................... 7
General ....................................... 7
Accrued Interest (Accrued Interest to Carry) .. 8
Offering Price ................................ 8
Market for Units .............................. 9
Distributions of Interest and Principal ....... 9
Reinvestment Option ........................... 10
Redemption of Units ........................... 11
Reports Provided .............................. 12
Insurance on the Bonds .............................. 13
Federal Tax Status of the Trusts .................... 17
Description and State Tax
Status of the State Trust ........................ 19
New York Trust ................................ 19
Trust Administration and Expenses ................... 27
Sponsor ....................................... 27
Compensation of Sponsor and Evaluator ......... 29
Trustee ....................................... 29
Trustee's Fee ................................. 30
Portfolio Administration ...................... 30
Sponsor Purchases of Units .................... 31
Insurance Premiums ............................ 31
Miscellaneous Expenses ........................ 31
General ............................................. 31
Amendment or Termination ...................... 31
Limitation on Liabilities ..................... 32
Unit Distribution ............................. 33
Sponsor and Dealer Compensation ............... 33
Other Matters ....................................... 33
Legal Matters ................................. 33
Legal Opinions ................................ 34
Auditors ...................................... 34
Description of Securities Ratings ................... 34
This Prospectus contains information concerning the Trust and the Sponsor, but
does not contain all of the information set forth in the registration
statements and exhibits relating thereto, which the Fund has filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, and to which reference is
hereby made.
National and State
Trusts
INSURED TAX FREE
BOND 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
Suite 1300
1735 Market Street
Philadelphia, Pennsylvania 19103
Please retain this Prospectus
for future reference.
Contents of Post-Effective Amendment
to Registration Statement
This Post-Effective Amendment to the Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Insured Tax-Free Bond Trust, Series 6, 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 Tax-Free Bond Trust, Series 6
(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 Tax-Free Bond Trust, Series 6 as of
September 30, 1993, and for the period then ended, contained in this Post-
Effective Amendment No. 7 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
