Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 8
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-Exempt Bond Trust, Series 6
(Exact Name of Trust)
Van Kampen American Capital Distributors, Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
Van Kampen American Capital Distributors, Inc. Chapman and Cutler
Attention: Don G. Powell 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 22, 1995 pursuant to paragraph (b) of Rule 485.
SERIES 6
4,389 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 22, 1995
Van Kampen American Capital
INSURED TAX FREE BOND TRUST, SERIES 6
Summary of Essential Financial Information
As of December 6, 1994
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
ITNT
<S> <C>
General Information
Principal Amount (Par Value) of Securities..................................... $ 3,075,000
Number of Units................................................................ 4,389
Fractional Undivided Interest in Trust per Unit................................ 1/4,389
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio................................ $ 2,967,063.35
Aggregate Bid Price of Securities per Unit.................................... $ 676.02
Sales charge 5.374% (5.1% of Public Offering Price excluding principal cash)... $ 36.29
Principal Cash per Unit....................................................... $ (.80)
Public Offering Price per Unit <F1>........................................... $ 711.51
Redemption Price per Unit...................................................... $ 675.22
Excess of Public Offering Price per Unit over Redemption Price per Unit........ $ 36.29
Minimum Value of the Trust under which Trust Agreement may be terminated....... $ 1,001,000.00
Annual Premium on Portfolio Insurance.......................................... $ 5,092.43
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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>..........$1,347
</TABLE>
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>
<CAPTION>
Semi-
Special Information Based On Various Distribution Plans Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit......................... $ 55.11 $ 55.11
Less: Estimated Annual Expense excluding Insurance................ $ 1.98 $ 1.52
Less: Annual Premium on Portfolio Insurance....................... $ 1.16 $ 1.16
Estimated Net Annual Interest Income per Unit..................... $ 51.97 52.43
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income.............................. $ 51.97 $ 52.43
Divided by 12 and 2, respectively................................. $ 4.33 $ 26.22
Estimated Daily Rate of Net Interest Accrual per Unit.............. $ .14435 $ .14564
Estimated Current Return Based on Public Offering Price <F2><F3>... 7.30% 7.36%
Estimated Long-Term Return <F2><F3>................................ 6.05% 6.11%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
FIRST day of the month as follows: monthly - each month; semi-annual - June and
Record and Computation Dates...December.
FIFTEENTH day of the month as follows: monthly - each month; semi-annual - June and
Distribution Dates.............December.
$1.24 and $0.69 per $1,000 principal amount of Bonds respectively, for those portions of
Trustee's Annual Fee...........the Trust under the monthly, quarterly and semi-annual distribution plans.
<FN>
<F1>Plus accrued interest to the date of settlement (five business days after
purchase) of $9.27 and $9.71, 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 and Estimated Long-Term Return on an identical
portfolio without the insurance obtained by the Trust would have been slightly
higher.
<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>
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, 1994, the Trust consists of 8
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
(16%); Pre-refunded, 2 (26%); Single Family, 1 (1%); Wholesale Electric, 3
(49%) and Miscellaneous, 1 (8%). The portfolio consists of 8 Bond issues in 8
states. See "Bond Portfolio" herein and "Description of Securities Ratings"
in Part Two.
PER UNIT INFORMATION
<TABLE>
<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
ofpayment <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>
PER UNIT INFORMATION (continued)
<TABLE>
<CAPTION>
1991 1992 1993 1994
<S> <C> <C> <C> <C>
Net asset value per Unit at beginning of period.......................... $ 871.00 $ 897.75 $ 901.08 $ 918.14
Net asset value per Unit at end of period................................ $ 897.75 $ 901.08 $ 918.14 $ 696.45
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 $ 58.79
Distributions to Unitholders from Bond redemption proceeds
(average Units outstanding for entire period)........................... $ 1.48 $ -- $ 2.49 $ 162.55
Unrealized appreciation (depreciation) of Bonds (per Unit outstanding
at end of period)....................................................... $ 28.47 $ 3.20 $ 20.34 $ (54.80)
Distributions of investment income by frequency of
payment <F2>
Monthly................................................................. $ 64.99 $ 64.92 $ 64.81 $ 56.95
Semiannual.............................................................. $ 65.69 $ 65.60 $ 65.59 $ 61.83
Units outstanding at end of period....................................... 4,459 4,446 4,443 4,389
<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>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, 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, 1994, and the related statements of
operations and changes in net assets for the three years ended October 31,
1994. 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,
1994 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, 1994, and the results of operations and changes in
net assets for the three years ended October 31, 1994, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
December 2, 1994
<TABLE>
INSURED TAX FREE BOND TRUST
SERIES 6
Statement of Condition
October 31, 1994
<CAPTION>
ITNT
<S> <C>
Trust property
Cash................................................................................ $ --
Tax-exempt securities at market value, (cost $2,946,026) (note 1)................... 2,984,035
Accrued interest.................................................................... 81,890
Receivable for securities sold...................................................... --
$ 3,065,925
Liabilities and interest to Unitholders
Cash overdraft...................................................................... $ 9,227
Redemptions payable................................................................. --
Interest to Unitholders............................................................. 3,056,698
$ 3,065,925
Analysis of Net Assets
Interest of Unitholders (4,389 Units of fractional undivided interest outstanding)
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 612 Units........................................................ 494,201
4,261,798
Undistributed net investment income
Net investment income............................................................... 2,614,962
Less distributions to Unitholders................................................... 2,538,812
76,150
Realized gain (loss) on Bond sale or redemption..................................... (38,248)
Unrealized appreciation (depreciation) of Bonds (note 2)............................ 38,009
Distributions to Unitholders of Bond sale or redemption proceeds.................... (1,281,011)
Net asset value to Unitholders...................................................... $ 3,056,698
Net asset value per Unit (4,389 Units outstanding)................................... $ 696.45
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
INSURED TAX FREE BOND TRUST, SERIES 6
Statements of Operations
Years ended October 31,
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Investment income
Interest income................................................ $ 305,908 $ 304,775 $ 253,451
Expenses
Trustee fees and expenses...................................... 6,584 6,390 5,435
Evaluator fees................................................. 922 2,236 1,347
Insurance expense.............................................. 7,123 7,102 5,420
Supervisory fees............................................... 418 1,355 1,116
Total expenses................................................. 15,047 17,083 13,318
Net investment income.......................................... 290,861 287,692 240,133
Realized gain (loss) from Bond sale or redemption
Proceeds....................................................... 5,000 30,000 740,488
Cost........................................................... 5,300 31,800 747,013
Realized gain (loss)........................................... (300) (1,800) (6,525)
Net change in unrealized appreciation (depreciation) of Bonds... 14,246 90,386 (240,521)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.$ 304,807 $ 376,278 $ (6,913)
</TABLE>
<TABLE>
Statements of Changes in Net Assets
Years ended October 31,
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income........................................................... $ 290,861 $ 287,692 $ 240,133
Realized gain (loss) on Bond sale or redemption................................. (300) (1,800) (6,525)
Net change in unrealized appreciation (depreciation) of Bonds................... 14,246 90,386 (240,521)
Net increase (decrease) in net assets resulting from operations................. 304,807 376,278 (6,913)
Distributions to Unitholders from:
Net investment income........................................................... (290,339) (289,423) (259,395)
Bonds sale or redemption proceeds............................................... -- (11,071) (717,181)
Redemption of Units (11,346) (2,694) (39,109)
Total increase (decrease)....................................................... 3,122 73,090 (1,022,598)
Net asset value to Unitholders
Beginning of period............................................................. 4,003,084 4,006,206 4,079,296
End of period (including undistributed net investment income of $97,143,
$95,412 and $76,150, respectively)............................................... $ 4,006,206 $ 4,079,296 $ 3,056,698
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
INSURED TAX FREE INCOME TRUST
PORTFOLIO as of October 31, 1994
<CAPTION>
October 31,
1994
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)
General Obligation Corporate Purpose Bonds Tax
Increment Project #3 Series 1985 D (BIG
Insured) 9.000% Due 01/01/05 ................... AAA 1996 @ 102 $ 519,090
B 250,000 City and County of Denver, Colorado, Excise Tax
Revenue Bonds, Series 1985 A 5.000% Due 1995 @ 102
11/01/08 ....................................... A 2002 @ 100 S.F. 214,135
C 290,000 State of Indiana, Indiana Toll Road Finance
Authority Toll Road Revenue Bonds, Series 1985
9.000% Due 07/01/14 ............................ AAA 1995 @ 102 301,142
D - 0 - Wisconsin Housing Finance Authority Home
Ownership Revenue Bonds, 1983 Series I 0.000%
Due 07/01/14 ................................... - 0 -
E 500,000 The Hospital Authority of The City of Fort
Wayne, Indiana Hospital Revenue Refunding Bonds
(Ancilla System Incorporated) Series 1985A (BIG
Insured) 9.125% Due 07/01/15 ................... AAA 1995 @ 102 519,615
F - 0 - City of Chicago, Chicago-O-Hare International
Airport General Airport Revenue Bonds, 1985
Series A 8.750% Due 01/01/16 ................... - 0 -
G 500,000 Municipal Electric Authority of Georgia Power 1995 @ 102
Revenue Bonds, Series K 9.875% Due 01/01/16 .... A+ 2008 @ 100 S.F. 506,865
H 35,000 Missouri Housing Development Commission Single
Family Mortgage Revenue Bonds, (Insured
Mortgage Loans) Issue of April 1, 1985 9.375%
Due 04/01/16 ................................... AA 2008 @ 100 S.F. 34,943
I - 0 - Illinois Housing Development Authority
Multi-Family Housing Bonds, 1985 Series C
9.375% Due 07/01/18 ............................ - 0 -
J 500,000 North Carolina Municipal Power Agency #1
Catawba Electric Revenue Bonds, Series 1985 B 1996 @ 100
6.000% Due 01/01/20 ............................ A 2018 @ 100 S.F. 446,050
K - 0 - Jacksonville Electric Authority (Jacksonville,
Florida) St. Johns River Power Park System
Revenue Bonds, Issue One, Series Five 9.500%
Due 10/01/20 ................................... - 0 -
L 500,000 Intermountain Power Agency (A Political
Subdivision of The State of Utah) Power Supply
Revenue Refunding Bonds, 1985 Series H 6.000% 1995 @ 100
Due 07/01/21 ................................... AA 2020 @ 100 S.F. 442,195
$ 3,075,000 $ 2,984,035
</TABLE>
The accompanying notes are an integral part of this statement.
INSURED TAX FREE BOND TRUST SERIES 6 Notes to Financial Statements October
31, 1992, 1993 and 1994
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. as these Bonds are not rated by Standard & Poor's Corporation.
N/R indicates that the Bond is not rated by Standard & Poor's Corporation or
Moody's 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.
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, 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 150,100
Unrealized Depreciation (112,091)
$ 38,009
</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, 1992, 1993 and 1994, 13 Units, 3 Units and
54 Units, respectively, were presented for redemption.
NATIONAL AND STATE TRUSTS
FIRST FAMILY PROSPECTUS
OF TRUSTS PART TWO
INSURED TAX FREE
BOND TRUST
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
and cash, if any, in the Principal Account held or owned by the 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
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 certain of the Trusts 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 Insured Trust has been obtained by such Trust
from either AMBAC Indemnity Corporation (" AMBAC Indemnity" ), Financial
Guaranty Insurance Company (" Financial Guaranty" or " FGIC" ) or
a combination thereof (collectively, the " Portfolio Insurers" ), or by
the issuer of such Bonds, by a prior owner of such Bonds, or by the Sponsor
prior to the deposit of such Bonds in such Trust from (1) AMBAC Indemnity or
one of its subsidiaries, American Municipal Bond Assurance Corporation ("
AMBAC" ) or MGIC Indemnity Corporation (" MGIC Indemnity" ), (2)
Financial Guaranty, (3) Municipal Bond Investors Assurance Corporation ("
MBIA" ), (4) Bond Investors Guaranty Insurance Company (" BIG" ), (5)
National Union Fire Insurance Company of Pittsburgh, PA. (" National
Union" ), (6) Capital Guaranty Insurance Company (" Capital Guaranty"
), (7) Capital Markets Assurance Corporation (" CapMAC" ) and/or (8)
Financial Security Assurance Inc. (" Financial Security" or "
FSA" ) (collectively, the " Preinsured Bond Insurers" ) (see "
Unitholder Explanations--Insurance on the Bonds in the Insured Trusts" in
Part One of this Prospectus for the applicable Trust.). Insurance obtained by
an Insured Trust is effective only while the Bonds thus insured are held in
such Trust. The Trustee has the right to acquire permanent insurance from a
Portfolio Insurer with respect to each Bond insured by the respective
Portfolio Insurer under a Trust portfolio insurance policy. Insurance relating
to Bonds insured by the issuer, by a prior owner of such Bonds or by the
Sponsor is effective so long as such Bonds are outstanding. Bonds insured
under a policy of insurance obtained by the issuer, by a prior owner of such
Bonds or by the Sponsor from one of the Preinsured Bond Insurers (the "
Preinsured Bonds" ) are not additionally insured by an Insured Trust. 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 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. Any premium or premiums relating to Preinsured Bonds insurance is
paid by the issuer, by a prior owner of such Bonds or by the sponsor, and a
monthly premium is paid by an Insured Trust for the portfolio insurance, if
any, obtained by such Trust. The Trustee has the right to obtain permanent
insurance from a Portfolio Insurer in connection with the sale of a Bond
insured under the insurance policy obtained from the respective Portfolio
Insurer by an Insured Trust upon the payment of a single predetermined
insurance premium from the proceeds of the sale of such Bond. Accordingly, any
Bond in an Insured Trust is eligible to be sold on an insured basis. All Bonds
insured by the Portfolio Insurers 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
interest-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 may be
general obligations of a governmental entity that are backed by the taxing
power of such entity. In view of this an investment in such a Trust should be
made with an understanding of the characteristics of such issuers and the
risks which such an investment may entail. All other Bonds in the Trusts are
revenue bonds payable from the income of a specific project or authority and
are not supported by the issuer's power to levy taxes. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. Revenue bonds, on the other
hand, are payable only from the revenues derived from a particular facility or
class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source. There are, of course, variations in the
security of the different Bonds in the Fund, both within a particular
classification and between classifications, depending on numerous factors. See
" General" for each Trust.
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. 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 may be affected by future events and conditions
including, among other things, demand for services and the ability of the
facility to provide the services required, physicians' confidence in the
facility, management capabilities, 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, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third
party payor programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing a
single nationwide schedule of rates. Prior to such legislation Medicare
reimbursements were based on the actual costs incurred by the health facility.
The current legislation may adversely affect reimbursements to hospitals and
other facilities for services provided under the Medicare program. Such
adverse changes also may adversely affect the ratings of Securities held in
the portfolios of the Fund; however, because of the insurance obtained by each
of the Insured Trusts, the " AAA" rating of the Units of each of the
Insured Trusts would not be affected. See " General" for each Trust.
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.
Certain of the Bonds in certain of the Trusts may be obligations of issuers
whose revenues are derived from the sale of water and/or sewerage services. In
view of this an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. Such Bonds are generally payable from user fees. The
problems of such issuers include the ability to obtain timely and adequate
rate increases, population decline resulting in decreased user fees, the
difficulty of financing large construction programs, the limitations on
operations and increased costs and delays attributable to environmental
considerations, the increasing difficulty' of obtaining or discovering new
supplies of fresh water, the effect of conservation programs and the impact of
" no-growth" zoning ordinances. All of such issuers have been
experiencing certain of these problems in varying degrees. See "
General" for each Trust.
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.
Certain of the Bonds in certain of the Trusts may be obligations that are
secured by lease payments of a governmental entity (hereinafter called "
lease obligations" ). Lease obligations are often in the form of
certificates of participation. In view of this an investment in such a Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. Although the lease
obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to appropriate for and make
the payments due under the lease obligation. However, certain lease
obligations contain " non-appropriation" clauses which provide that the
municipality has no obligation to make lease payments in future years unless
money is appropriated for such purpose on a yearly basis. A governmental
entity that enters into such a lease agreement cannot obligate future
governments to appropriate for and make lease payments but covenants to take
such action as is necessary to include any lease payments due in its budgets
and to make the appropriations therefor. A governmental entity's failure to
appropriate for and to make payments under its lease obligation could result
in insufficient funds available for payment of the obligations secured
thereby. Although " non-appropriation" lease obligations are secured by
the leased property, disposition of the property in the event of foreclosure
might prove difficult. See " General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of issuers
which are, or which govern the operation of, schools, colleges and
universities and whose revenues are derived mainly from ad valorem taxes or
for higher education systems, from tuition, dormitory revenues, grants and
endowments. In view of this an investment in 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 relating to school bonds
include litigation contesting the State constitutionality of financing public
education in part from ad valorem taxes, thereby creating a disparity in
educational funds available to schools in wealthy areas and schools in poor
areas. Litigation or legislation on this issue may affect the sources of funds
available for the payment of school bonds in the Trusts. General problems
relating to college and university obligations include the prospect of a
declining percentage of the population consisting of " college" age
individuals, possible inability to raise tuitions and fees sufficiently to
cover increased operating costs, the uncertainty of continued receipt of
Federal grants and state funding, and government legislation or regulations
which may adversely affect the revenues or costs of such issuers. All of such
issuers have been experiencing certain of these problems in varying degrees.
See " General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which are
payable from and secured by revenues derived from the ownership and operation
of facilities such as airports, bridges, turnpikes, port authorities,
convention centers and arenas. In view of this an investment in such a Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. The major portion of an
airport's gross operating income is generally derived from fees received from
signatory airlines pursuant to use agreements which consist of annual payments
for leases, occupancy of certain terminal space and service fees. Airport
operating income may therefore be affected by the ability of the airlines to
meet their obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. The Sponsor cannot predict what effect these industry
conditions may have on airport revenues which are dependent for payment on the
financial condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Bonds related to other facilities is dependent
on revenues from the projects, such as user fees from ports, tolls on
turnpikes and bridges and rents from buildings. Therefore, payment may be
adversely affected by reduction in revenues due to such factors as increased
cost of maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents. See
" General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which are
payable from and secured by revenues derived from the operation of resource
recovery facilities. In view of this an investment in such a Trust should be
made with an understanding of the characteristics of such issuers and the
risks which such an investment may entail. Resource recovery facilities are
designed to process solid waste, generate steam and convert steam to
electricity. Resource recovery bonds may be subject to extraordinary optional
redemption at par upon the occurrence of certain circumstances, including but
not limited to: destruction or condemnation of a project; contracts relating
to a project becoming void, unenforceable or impossible to perform; changes in
the economic availability of raw materials, operating supplies or facilities
necessary for the operation of a project or technological or other unavoidable
changes adversely affecting the operation of a project; administrative or
judicial actions which render contracts relating to the projects void,
unenforceable or impossible to perform; or impose unreasonable burdens or
excessive liabilities. The Sponsor cannot predict the causes or likelihood of
the redemption of resource recovery bonds in such a Trust prior to the stated
maturity of the Bonds. See " General" for each Trust.
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
issuer of certain Bonds in a Trust may have sold or reserved the right to
sell, upon the satisfaction of certain conditions, to third parties all or any
portion of its rights to call Bonds in accordance with the stated redemption
provisions of such Bonds. In such a case the issuer no longer has the right to
call the Bonds for redemption unless it reacquires the rights from such third
party. A third party pursuant to these rights may exercise the redemption
provisions with respect to a Bond at a time when the issuer of the Bond might
not have called a Bond for redemption had it not sold such rights. 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 a participant in the Securities Transfer Agents
Medallion Program (" STAMP" ) or such other signature guaranty program
in addition to, or in substitution for, STAMP, as may be accepted by the
Trustee. In certain instances the Trustee may require additional documents
such as, but not limited to, trust instruments, certificates of death,
appointments as executor or administrator or certificates of corporate
authority. Certificates will be issued in denominations of one Unit or any
multiple thereof.
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
mandatory tender will be deemed to be the date upon which they mature.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each Trust based upon the
dollar weighted average maturity of such Trust's Portfolio, in accordance
with the following schedule:
Years to Maturity Sales Charge Years to Maturity Sales Charge
1 1.523% 9 4.712%
2 2.041 10 4.932
3 2.564 11 4.932
4 3.199 12 4.932
5 3.842 13 5.374
6 4.058 14 5.374
7 4.275 15 5.374
8 4.493 16 to 30 6.045
The sales charges in the above table are expressed as a percentage of
the net amount invested. Expressed as a percent of the Public Offering Price,
the sales charge on a Trust consisting entirely of a portfolio of Bonds with
15 years to maturity would 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. No value has been ascribed to insurance
obtained by an Insured Trust, if any, as of the date of Part One of this
Prospectus.
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 open ended mutual funds
(except for B shares) 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 Laddered Maturity 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. for all Reinvestment Funds except First
Investors New York Insured Tax Free Fund, Inc., in which case such sales
charge would be paid to First Investors Management Company, Inc.
Confirmations of all reinvestments by a Unitholder into a Reinvestment
Fund will be mailed to the Unitholder by such Reinvestment Fund.
A participant may at any time prior to five days preceding the next
succeeding distribution date, by so notifying the Trustee in writing, elect to
terminate his or her reinvestment plan and receive future distributions on his
or her Units in cash. There will be no 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, 20th Floor, New York, New York 10286, of the certificates representing
the Units to be redeemed, duly endorsed or accompanied by proper instruments
of transfer with signature guaranteed (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 a specified percentage of the principal amount of
a Unit redemption if the Trustee has not been furnished the redeeming
Unitholder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal Revenue
Service and may be recovered by the Unitholder only when filing a return.
Under normal circumstances the Trustee obtains the Unitholder's tax
identification number from the selling broker. However, at any time a
Unitholder elects to tender Units for redemption, such Unitholder should
provide a tax identification number to the Trustee in order to avoid this
possible "back-up withholding" in the event the Trustee has not been
previously provided such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account or, if the balance therein is insufficient, from the Principal
Account. All other amounts 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. 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 a prior owner or by the Bond
issuer 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 is non-cancellable and will continue in
force so long as such Trust is in existence, the respective Portfolio Insurer
is still in business and the Bonds described in the policy continue to be held
by such Trust. Any portfolio insurance premium for a Trust, which is an
obligation of such Trust, is paid by each Trust on a monthly basis. Nonpayment
of premiums on the 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 the policy obtained by a Trust are fixed for the
life of the Trust. The premium for any insurance policy or policies obtained
on Preinsured Bonds has been paid in advance 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 insurer referred to below 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 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 Insurers, 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 identity 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").
Except as indicated below, insurance obtained by a Trust, if any, has no
effect on the price or redemption value of Units. It is the present intention
of the Evaluator to attribute a value for such insurance for the purpose of
computing the price or redemption value of Units if the Bonds covered by such
insurance are in default in payment of principal or interest or in significant
risk of such default. The value of the insurance will be the difference
between the market value of a Bond in default in payment of principal or
interest or in significant risk of such default and the market value of
similar bonds which are not in such situation as determined in accordance with
the Trust's method of valuing defaulted Bonds. 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 on a Preinsured 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.
Any policy obtained by a Trust with respect to the Bonds in such Trust and any
policy obtained on a Preinsured Bond was issued by one of the Portfolio
Insurers or one of the Preinsured Bond Insurers.
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 all 50 states, the
District of Columbia and the Commonwealth of Puerto Rico with admitted assets
of approximately $1,936,000,000 (unaudited) and statutory capital of
approximately $1,096,000,000 (unaudited) as of September 30, 1993. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and statutory
contingency reserve. AMBAC Indemnity is a wholly owned subsidiary of AMBAC
Inc., a 100% publicly-held company. Moody's Investors Service, Inc. and
Standard & Poor's Corporation have both assigned a triple-A claims-paying
ability rating to AMBAC Indemnity.
Copies of AMBAC Indemnity's financial statements prepared in accordance with
statutory accounting standards are available from AMBAC Indemnity. The address
of AMBAC Indemnity's administrative offices and its telephone number are One
State Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Indemnity has entered into a quota share reinsurance agreement under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Indemnity has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
Municipal Bond Investors Assurance Corporation ("MBIA") is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed company.
MBIA, Inc. is not obligated to pay the debts of or claims against MBIA. MBIA
is a limited liability corporation rather than a several liability
association. MBIA 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, 1992, MBIA had admitted assets
of $2.6 billion (audited), total liabilities of $1.7 billion (audited), and
total capital and surplus of $896 million (audited) prepared in accordance
with statutory accounting practices prescribed or permitted by insurance
regulatory authorities. As of September 30, 1993, MBIA had admitted assets of
$3.0 billion (unaudited), total liabilities of $2.0 billion (unaudited), and
total capital and policyholders' surplus of $951 million (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. Copies of MBIA's financial
statements prepared in accordance with statutory accounting practices are
available from MBIA. The address of MBIA is 113 King Street, Armonk, New York
10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group, Inc. On
January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company (BIG),
now known as MBIA Insurance Corp. of Illinois. Through a reinsurance
agreement, BIG has ceded all of its net insured risks, as well as it unearned
premium and contingency reserves, to MBIA and MBIA has reinsured BIG's net
outstanding exposure.
Moody's Investors Service rates all bond issues insured by MBIA "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 rating of MBIA should be evaluated independently
of the Standard & Poor's Corporation rating of MBIA. No application has been
made to any other rating agency in order to obtain additional ratings on the
Bonds. The ratings reflect the respective rating agency's current assessment
of the creditworthiness of MBIA and its ability to pay claims on its policies
of insurance. Any further explanation as to the significance of the above
ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the Bonds, and
such ratings may be subject to revision or withdrawal at any time by the
rating agencies. Any downward revision or withdrawal of either or both ratings
may have an adverse effect on the market price of the Bonds.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a wholly owned
subsidiary of General Electric Capital Corporation ("GECC"). Neither the
Corporation nor GECC is obligated to pay the debts of or the claims against
Financial Guaranty.
Financial Guaranty is domiciled in the State of New York and is subject to
regulation by the State of New York Insurance Department. As of September 30,
1993, the total capital and surplus of Financial Guaranty was approximately
$744,722,000. Copies of Financial Guaranty's financial statements, prepared on
the basis of statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York,
New York 10006, Attention: Communications Department. Financial Guaranty's
telephone number is (212) 312-3000 or to the New York State Insurance
Department at 160 West Broadway, 18th Floor, New York, New York 10013,
Attention: Property Companies Bureau, telephone number: (212) 602-0389.
Financial Guaranty is currently authorized to write insurance in all 50 states
and the District of Columbia.
Financial Security Assurance ("Financial Security" or "FSA") is a monoline
insurance company incorporated on March 16, 1984 under the laws of the State
of New York. The operations of Financial Security commenced on July 25, 1985,
and Financial Security received its New York State insurance license on
September 23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to engage in surety business in 49 states, the District of
Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by US WEST, Inc. and 8.4%
owned by the Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither US WEST, Inc. nor Tokio Marine is obligated to pay the debts of or the
claims against Financial Security. Financial Security is domiciled in the
State of New York and is subject to regulation by the State of New York
Insurance Department. As of March 31, 1993, the total policyholders' surplus
and contingency reserves and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were, in accordance
with generally accepted accounting principles, approximately $479,110,000
(unaudited) and $220,078,000 (unaudited), and the total shareholders' equity
and the total unearned premium reserve, respectively, of Financial Security
and its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York, New
York, 10022, Attention: Communications Department. Its telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security of either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. and "AAA" by Standard & Poor's Corporation, Nippon Investors
Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company ("Capital Guaranty") was incorporated in
Maryland on June 25, 1986, and is a wholly-owned subsidiary of Capital
Guaranty Corporation, a Maryland insurance holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc., an affiliate of Baltimore Gas and Electric;
Fleet/Norstar Financial Group, Inc.; Safeco Corporation; Sibag Finance
Corporation, an affiliate of Siemens A.G.; and United States Fidelity and
Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline financial
guaranty insurer engaged in the underwriting and development of financial
guaranty insurance. Capital Guaranty insures general obligation, tax supported
and revenue bonds structured as tax-exempt and taxable securities as well as
selectively insures taxable corporate/asset backed securities. Standard &
Poor's Corporation rates the claims paying ability of Capital Guaranty "AAA."
Capital Guaranty's insured portfolio currently includes over $9 billion in
total principal and interest insured. As of September 30, 1992, the total
policyholders' surplus of Capital Guaranty was $113,000,000 (unaudited), and
the total admitted assets were $220,000,000 (unaudited) as reported to the
Insurance Department of the State of Maryland. Financial statements for
Capital Guaranty Insurance Company, that have been prepared in accordance with
statutory insurance accounting standards, are available upon request. The
address of Capital Guaranty's headquarters and its telephone number are
Steuart Tower, 22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and
(415) 995-8000.
CapMAC is a New York-domiciled monoline stock insurance company which engages
only in the business of financial guarantee and surety insurance. CapMAC is
licensed in 48 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate and other financial obligations in the
domestic and foreign capital markets. CapMAC may also provide financial
guarantee reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation ("Standard &
Poor's"), and "AAA" by Duff & Phelps, Inc. ("Duff & Phelps"). Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company that is
owned by a group of institutional and other investors, including CapMAC's
management and employees. CapMAC commenced operations on December 24, 1987 as
an indirect, wholly-owned subsidiary of Citibank (New York State), a
wholly-owned subsidiary of Citicorp. On June 25, 1992, Citibank (New York
State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any claims
under any surety bond issued by CapMAC or any debts of CapMAC or to make
additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC is
subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC is bound by insurance laws and regulations regarding capital transfers,
limitations upon dividends, investment of assets, changes in control,
transactions with affiliates and consolidations and acquisitions. The amount
of exposure per risk that CapMAC may retain, after giving effect to
reinsurance, collateral or other security, is also regulated. Statutory and
regulatory accounting practices may prescribe appropriate rates at which
premiums are earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form of surety
bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bond(s).
THE [SURETY BOND(S)] [IS] [ARE] NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
In connection with the Sale, Holdings and CapMAC entered into an Ownership
Policy Agreement (the "Ownership Policy Agreement"), which sets forth
Holdings' intent with respect to its ownership and control of CapMAC and
provides for certain policies and agreements with respect to Holdings'
exercise of its control of CapMAC. In the Ownership Policy Agreement, Holdings
has agreed that, during the term of the Ownership Policy Agreement, it will
not, and will not permit any stockholder of Holdings to enter into any
transaction the result of which would be a change of control (as defined in
the Ownership Policy Agreement) of CapMAC, unless the long term debt
obligations or claims-paying ability of the person which would control CapMAC
after such transaction or its direct or indirect parent arerated in a high
investment grade category, unless Holdings or CapMAC has confirmed that
CapMAC's claims-paying ability rating by Moody's (the "Rating") in effect
immediately prior to any such change of control will not be downgraded by
Moody's upon such change of control or unless such change of control occurs as
a result of a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i) not to
change the "zero-loss" underwriting standards or policies and procedures of
CapMAC in a manner that would materially and adversely affect the risk profile
of CapMAC's book of business, (ii) that CapMAC will adhere to the aggregate
leverage limitations and maintain capitalization levels considered by Moody's
from time to time as consistent with maintaining CapMAC's Rating and (iii)
that until CapMAC's statutory capital surplus and contingency reserve
("qualified statutory capital") equal $250 million, CapMAC will maintain a
specified amount of qualified statutory capital in excess of the amount of
qualified statutory capital that CapMAC is required at such time to maintain
under the aggregate leverage limitations set forth in Article 69 of the New
York Insurance Law.
The Ownership Policy Agreement will terminate on the earlier of the date on
which a change of control of CapMAC occurs and the date on which CapMAC and
Holdings agree in writing to terminate the Ownership Policy Agreement;
provided that, CapMAC or Holdings has confirmed that CapMAC's Rating in effect
immediately prior to any such termination will not be downgraded upon such
termination.
As at December 31, 1992 and 1991, CapMAC had statutory capital and surplus of
approximately $148 million and $232 million, respectively, and had not
incurred any debt obligations. On June 26, 1992, CapMAC made a special
distribution (the "Distribution") to Holdings in connection with the Sale in
an aggregate amount that caused the total of CapMAC's statutory capital and
surplus to decline to approximately $150 million. Holdings applied
substantially all of the proceeds of the Distribution to repay debt owed to
Citicorp that was incurred in connection with the capitalization of CapMAC. As
of June 30, 1992, CapMAC had statutory capital and surplus of approximately
$150million and had not incurred any debt obligations. In addition, at
December 31, 1992 CapMAC had a statutory contingency reserve of approximately
$15 million, which is also available to cover claims under surety bonds issued
by CapMAC. Article 69 of the New York State Insurance Law requires that CapMAC
establishes and maintains the contingency reserve.
In addition to its capital (including contingency reserve) and other
reinsurance available to pay claims under its surety bonds, on June 25, 1992,
CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop Loss
Agreement") with Winterthur Swiss Insurance Company (the "Reinsurer"), which
is rated AAA by Standard & Poor's and Aaa by Moody's, pursuant to which the
Reinsurer will be required to pay any losses incurred by CapMAC during the
term of the Stop Loss Agreement on the surety bonds covered under the Stop
Loss Agreement in excess of a specified amount of losses incurred by CapMAC
under such surety bonds (Such specified amount initially being $100 million
and increasing annually by an amount equal to 66-2/3% of the increase in
CapMAC's statutory capital and surplus) up to an aggregate limit payable under
the Stop Loss Agreement of $50 million. The Stop Loss Agreement has an initial
term of seven years, is extendable for one-year periods and is subject to
early termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a syndicate of banks rated A1+/P1 by
Standard & Poor's and Moody's, respectively, having a term of 360 days. Under
the Liquidity Facility CapMAC will be able, subject to satisfying certain
conditions, to borrow funds from time to time in order to enable it to fund
any claim payments or payments made in settlement or mitigation of claims
payments under its surety bonds, including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance with statutory
accounting standards, which differ from generally accepted accounting
principles, and filed with the Insurance Department of the State of New York
are available upon request. CapMAC is located at 885 Third Avenue, New York,
New York 10022, and its telephone number is (212) 755-1155.
In order to be in a Trust, Bonds must be insured by one of the Preinsured Bond
Insurers or be eligible for the insurance being obtained by such Trust. 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, by the issuer of the Bonds, by a prior owner of such Bonds or by the
Sponsor prior to the deposit of the Bonds in a Trust.
Because the Bonds are insured by one of the Portfolio Insurers or one of the
Preinsured Bond Insurers as to the timely payment of principal and interest,
when due, and on the basis of the various reinsurance agreements in effect,
Standard & Poor's Corporation has assigned to the Units of each Trust its
"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 the Estimated
Long-Term Return for the respective Trust is that percentage set forth in Part
One of this Prospectus. The Estimated Current Return and the Estimated
Long-Term Return on an identical portfolio without the insurance obtained by
the Trust would have been higher.
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, AMBAC Indemnity shall make such payment not later than 30 days and
Financial Guaranty shall make such payment within one business day after the
respective insurer has been notified that such nonpayment has occurred or is
threatened (but not earlier than the date such payment is due). The insurer,
as regards any payment it may make, will succeed to the rights of the Trustee
in respect thereof. All policies issued by the Portfolio Insurers and the
Preinsured Bond Insurers are substantially 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".
Each Portfolio Insurer is subject to regulation by the department of insurance
in the state in which it is qualified to do business. Such regulation,
however, is no guarantee that they will be able to perform on their contracts
of insurance in the event a claim should be made thereunder at some time in
the future. At the date hereof, it is reported that no claims have been
submitted or are expected to be submitted to any of the Portfolio Insurers
which would materially impair the ability of such company to meet its
commitments pursuant to any contract of bond or portfolio insurance.
The information relating to each Portfolio Insurer has been furnished by such
companies. The financial information with respect to each Portfolio Insurer
appears in reports filed with state insurance regulatory authorities and is
subject to audit and review by such authorities. No representation is made
herein as to the accuracy or adequacy of such information or as to the absence
of material adverse changes in such information subsequent to the dates
thereof. Neither the Fund, the Units nor any portfolio is insured directly or
indirectly by the Sponsor.
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,
except to the extent such interest is subject to the alternative minimum tax,
an additional tax on branches of foreign corporations and the environmental
tax (the "Superfund Tax"), as noted below;
(2) Each Unitholder is considered to be the owner of a pro rata portion
of the respective Trust under subpart E, subchapter J of chapter 1 of the Code
and will have a taxable event when such Trust disposes of a 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 Date
of Deposit, 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
Bond exceeds the original issue price plus the amount of original issue
discount which would have previously accrued based upon its issue price (its
"adjusted issue price") to prior owners. The application of these rules will
also vary depending on the value of the Bond on the date a Unitholder acquires
his Units and the price the Unitholder pays for his Units. Investors with
questions regarding these Code sections
should consult with their tax advisers.
The Revenue Reconciliation Act of 1993'' (the "Tax Act'') subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30,1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued). Market discount can
arise based on the price a Trust pays for Bonds or the price a Unitholder pays
for his or her Units. Under the Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond would
be recognized as ordinary income by the Unitholders when principal payments
are received on the Bond, upon sale or at redemption (including early
redemption), or upon the sale or redemption of his or her Units, unless a
Unitholder elects to include market discount in taxable income as it accrues.
The market discount rules are complex and Unitholders should consult their tax
advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 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.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%, effective for long-term capital gains realized
in taxable years beginning on or after January 1, 1993. For taxpayers other
than corporations, net capital gains are subject to a maximum marginal stated
tax rate of 28 percent. However, it should be noted that legislative proposals
are introduced from time to time that affect tax rates and could affect
relative differences at which ordinary income and capital gains are taxed.
Under the Code, taxpayers must disclose to the Internal Revenue Service the
amount of tax-exempt interest earned during the year.
Section 86 of the Code, in general provides that fifty percent of Social
Security benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus fifty percent of the Social Security
benefits received exceeds a "base amount". The base amount is $25,000 for
unmarried taxpayers, $32,000 for married taxpayers filing a joint return and
zero for married taxpayers who do not live apart at all times during the
taxable year and who file separate returns. Modified adjusted gross income is
adjusted gross income determined without regard to certain otherwise allowable
deductions and exclusions from gross income and by including tax-exempt
interest. To the extent that Social Security benefits are includible in gross
income, they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in
gross income to the extent that the sum of "modified adjusted gross income"
plus 50% of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for unmarried taxpayers, $44,000
for married taxpayers filing a joint return, and zero for married taxpayers
who do not live apart at all times during the taxable year and who file
separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount must include fifty
percent or eighty-five percent, respectively, of his Social Security benefits
in gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits
in gross income.
For a discussion of the state tax status of income earned on Units of a
Trust, see "Tax Status" 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
A resident of New York State (or New York City) will be subject to New York
State (or New York City) personal income tax with respect to gains realized
when New York Obligations held in the New York Trust are sold, redeemed or
paid at maturity or when his Units are sold or redeemed, such gain will equal
the proceeds of sale, redemption or payment less the tax basis of the New York
Obligation or Unit (adjusted to reflect (a) the amortization of premium or
discount, if any, on New York Obligations held in the Trust, (b) accrued
original issue discount, with respect to each New York Obligation which, at
the time the New York Obligation was issued had original issue discount, and
(c) the deposit of New York Obligations with accrued interest in the Trust
after the Unitholder's settlement date).
Interest or gain from the New York Trust derived by a Unitholder who is not a
resident of New York State or New York City) will not be subject to New York
State (or New York City) personal income tax, unless the Units are property
employed in a business, trade, profession or occupation carried on in New York
State (or New York City).
Amounts paid on defaulted New York Obligations held by the Trustee under
Policies of insurance issued with respect to such New York Obligations will be
excludable from Income for New York State and New York City income tax
purposes, if and to the same extent as, such interest Would have been
excludable if paid by the respective issuer.
For purposes of the New York State and New York City franchise tax on
corporations, Unitholders which are subject to such tax will be required to
include in their entire net income any interest or gains distributed to them
even though distributed in respect of New York obligations.
If borrowed funds are used to purchase Units in the Trust, all (or part) of
the interest on such indebtedness will not be deductible for New York State
and New York City tax purposes. The purchase of Units may be considered to
have made with borrowed funds even though such funds are not directly
traceable to the purchase of Units in any New York Trust.
The Portfolio of the New York Trust includes certain 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.
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.
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 grow faster
than 1992, but still at a very moderate rate, as compared to other recoveries.
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. On April 5,1993, the State Legislature approved a $32.08
billion budget. Following enactment of the budget the 1993-94 State Financial
Plan was formulated on April 16, 1993. This Plan projects General Fund
receipts and transfers from other funds at $32.367 billion and disbursements
and transfers to other funds at $32.300 billion. In comparison to the
Governor's recommended Executive Budget for the 1993-94 fiscal year as revised
on February 18, 1993, the 1993-94 State Financial Plan reflects increases in
both receipts and disbursements in the General Fund of $811 million.
While a portion of the increased receipts was the result of a $487 million
increase in the State's 1992-93 positive year-end margin at March 31, 1993 to
$671 million, the balance of such increased receipts is based upon (i) a
projected $269 million increase in receipts resulting from improved 1992-93
results and the expectation of an improving economy, (ii) projected additional
payments of $200 million from the Federal government as reimbursements for
indigent medical care, (iii) the early payment of $50 million of personal tax
returns in 1992-93 which otherwise would have been paid in 1993-94; offset by
(iv) the State Legislature's failure to enact $195 million of additional
revenue-raising recommendations proposed by the Governor. There can be no
assurances that all of the projected receipts referred to above will be
received.
Despite the $811 million increase in disbursements included in the 1993-94
State Financial Plan, a reduction in aid to some local government units can be
expected. To offset a portion of such reductions, the 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. Before giving effect to a 1992-93 year-end deposit to the
refund reserve account of $671 million, General Fund receipts in 1992-93 would
have been $716 million higher than originally projected. This year-end deposit
effectively reduced 1992-93 receipts by $671 million and made those receipts
available for 1993-94.
The State's favorable performance primarily resulted from income tax
collections that were $700 million higher than projected which reflected both
stronger economic activity and tax-induced one-time acceleration of income
into 1992. In other areas larger than projected business tax collections and
unbudgeted receipts offset the loss of $200 million of anticipated Federal
reimbursement and losses of, or shortfalls in, other projected revenue
sources.
For 1992-93, disbursements and transfers to other funds (including the deposit
to the refund reserve account discussed above) totalled $30.829 billion, an
increase of $45 million above projections in April 1992.
Fiscal year 1992-93 was the first time in four years that the State did not
incur a cash-basis operating deficit in the General Fund requiring the
issuance of deficit notes or other bonds, spending cuts or other revenue
raising measures.
Indebtedness. As of March 31,1993, the total amount of long-term State general
obligation debt authorized but unissued stood at $2.4 billion. As of the same
date, the State had approximately $5.4 billion in general obligation bonds.
The State issued $850 million in tax and revenue anticipation notes ("TRANS")
on April 28, 1993. The State does not project the need to issue additional
TRANS during the State's 1993-94 fiscal year.
The State projects that its borrowings for capital purposes during the State's
1993-94 fiscal year will consist of $460 million in general obligation bonds
and $140 million in new commercial paper issuances. In addition, the State
expects to issue $140 million in bonds for the purpose of redeeming
outstanding bond anticipation notes. The Legislature has authorized 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 during
the State's 1993-94 fiscal year. The projection of the State regarding its
borrowings for the 1993-94 fiscal year 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 $3.28 billion. LGAC has
been authorized to issue additional bonds to provide net proceeds of $703
million during the State's 1993-94 fiscal year.
Ratings. The $850 million in TRANS issued by the State in April 1993 were
rated SP-1-Plus by S&P on April 26, 1993, and MIG-1 by Moody's on April
23,1993, which represents the highest ratings given by such agencies and the
first time the State's TRANS have received these ratings since its May 1989
TRANS issuance. Both agencies cited the State's improved fiscal position as a
significant factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at A on April 23,
1993, and S&P's rating stood at A- with a stable outlook on April 26, 1993, an
improvement from S&P's negative outlook prior to April 1993. 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.
Moody's, in confirming its rating of the State's general obligation bonds, and
S&P, in improving its outlook on such bonds from negative to stable, noted the
State's improved fiscal condition and reasonable revenue assumptions contained
in the 1993-94 State budget.
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 response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other
actions, 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")).
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 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.
Fiscal Year 1993 and 1993-1996 Financial Plan. The City's 1993 fiscal year
results are projected to be balanced in accordance with generally accepted
accounting principles ("GAAP"). The City was required to close substantial
budget gaps in its 1990, 1991 and 1992 fiscal years in order to maintain
balanced operating results.
The City's modified Financial Plan dated February 9, 1993 covering fiscal
years 1993-1996 projects budget gaps for 1994 through 1996. The Office of the
State Deputy Controller for the City of New York has estimated that under the
modified Financial Plan budget gaps will be $102 million for fiscal year 1994,
$196 million for fiscal year 1995 and $354 million for fiscal year 1996,
primarily due to anticipated higher spending on labor costs.
However, the City's modified Plan is dependent upon, a gap-closing program,
certain elements of which the staff of Control Board identified on March 25,
1993 to be at risk due to projected levels of State and Federal aid and
revenue and expenditures estimates which may not be achievable. The Control
Board indicated that the City's modified Financial Plan does not make progress
towards establishing a balanced budget process. The Control Board's report
identified budget gap risks of $1.0 billion, $1.9 billion, $2.3 billion and
$2.6 billion in fiscal years 1994 through 1997, respectively.
On June 3, 1993, the Mayor announced that State and federal aid for Fiscal
Year 1993-1994 would be $280 million less than projected and that in order to
balance the City's budget $176 million of previously announced contingent
budget cuts would be imposed. The Mayor indicated that further savings would
entail serious reductions in services. The State Comptroller on June 14, 1993
criticized efforts by the Mayor and City Council to balance the City's budget
which rely primarily on one-shot revenues. The Comptroller added that the
City's budget should be based on "recurring revenues that fund recurring
expenditures." Given the foregoing factors, 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.
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 certain 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 also 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. As discussed above, the City must identify additional
expenditure reductions and revenue sources to achieve balanced operating
budgets for fiscal years 1994 and thereafter. Any such 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 successfully in the public credit markets. The City's
financing program for fiscal years 1993 through 1996 contemplates issuance of
$15.7 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.
The City achieved balanced operating results as reported in accordance with
GAAP for the 1992 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.
On November 19, 1992, the City submitted to the Control Board the Financial
Plan for the 1993 through 1996 fiscal years, which is a modification to a
financial plan submitted to the Control Board on June 11, 1992 (the "June
Financial Plan"), and which relates to the City, the Board of Education
("BOE") and the City University of New York ("CUNY"). The 1993-1996 Financial
Plan projects revenues and expenditures of $29.9 billion each for the 1993
fiscal year balanced in accordance with GAAP.
During the 1992 fiscal year, the City proposed various actions to close a
previously projected gap of approximately $1.2 billion for the 1993 fiscal
year. The gap-closing actions for the 1993 fiscal year proposed during the
1992 fiscal year and outlined in the City's June Financial Plan included $489
million of discretionary transfers from the 1992 fiscal year. The 1993-1996
City Financial Plan includes additional gap-closing actions to offset an
additional potential $81 million budget gap.
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 1993 through 1996 fiscal years to close
projected budget gaps of $1.7 billion, $2.0 billion and $2.6 million,
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. The State Legislature has in the past failed to approve certain
proposals similar to those that the 1993-1996 Financial Plan assumes will be
approved by the State Legislature during the 1993 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.
On March 9, 1993, OSDC issued a report on the February Modification. The
report expressed concern that the budget gaps projected for fiscal years 1994
through 1996 are the largest the City has faced at this point in the financial
planning cycle in at least a decade, and concluded that the February
Modification represented a step backward in the City's efforts to bring
recurring revenues into line with recurring expenditures.
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 determinations 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, 1992, legal claims in excess of $341 billion
were outstanding against the City for which the City estimated its potential
future liability to be $2.3 billion.
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 March 30, 1993, in confirming
its Baa1 rating, Moody's noted that:
The financial plan for fiscal year 1994 and beyond shows an ongoing imbalance
between the City's expenditures and revenues. The key indication of this
structural imbalance is not necessarily the presence of sizable out-year
budget gaps, but the recurring use of one-shot actions to close gaps.
One-shots constitute a significant share of the proposed gap-closing program
for fiscal year 1994, and they represent an even larger share of those
measures which the City seems reasonably certain to attain. Several major
elements of the program, including certain state actions, federal counter
cyclical aid and part of the city's tax package, remain uncertain. However,
the gap closing plan may be substantially altered when the executive budget is
offered later this spring.
On March 30, 1993, S&P affirmed its A- rating with a negative outlook, stating
that:
The City's key credit factors are marked by a high and growing debt burden,
and taxation levels that are relatively high, but stable. The City's economy
is broad-based and diverse, but currently is in prolonged recession, with slow
growth prospects for the foreseeable future.
The rating outlook is negative, reflecting the continued fiscal pressure
facing the City, driven by continued weakness in the local economy, rising
spending pressures for education and labor costs of city employees, and
increasing costs associated with rising debt for capital construction and
repair.
The current financial plan for the City assumes substantial increases in aid
from national and state governments. Maintenance of the current rating, and
stabilization of the rating outlook, will depend on the City's success in
realizing budgetary aid from these governments, or replacing those revenues
with ongoing revenue-raising measures or spending reductions under the City's
control. However, increased reliance on non-recurring budget balancing
measures that would support current spending, but defer budgetary gaps to
future years, would be viewed by S&P as detrimental to New York City's single
\xd4 A-' rating.
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 December 31, 1992, the City and MAC had, respectively, $20.3 billion and
$4.7 billion of outstanding net long-term indebtedness.
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.
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 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.
The U.S. Supreme Court on March 30, 1993 referred to a Special Master for
determination of damages in an action by the State of Delaware to recover
certain unclaimed dividends, interest and other distributions made by issuers
of securities held by New York based-brokers incorporated in Delaware. (State
of Delaware v. State of New York.) The State had taken such unclaimed property
under its Abandoned Property Law. The State expects that it may pay a
significant amount in damages during fiscal year 1993-94 but it has indicated
that it has sufficient funds on hand to pay any such award, including funds
held in contingency reserves. The State's 1993-94 Financial Plan includes the
establishment of a $100 million contingency reserve fund which would be
available to fund such an award which some reports have estimated at $100-$800
million.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz 1993"),
petitioners have challenged the constitutionality of mass transportation
bonding programs of the New York State Thruway Authority and the Metropolitan
Transportation Authority. On May 24, 1993, the Supreme Court, Albany County,
temporarily enjoined the State from implementing those bonding programs. In
previous actions Mr. Schulz and others have challenged on similar grounds
bonding programs for the New York State Urban Development Corporation and the
New York Local Government Assistance Corporation. While there have been no
decisions on the merits in such previous actions, by an opinion dated May 11,
1993, the New York Court of Appeals held in a proceeding commenced on April
29, 1991 in the Supreme Court, Albany County (Schulz v. State of New York),
that petitioners had standing as voters under the State Constitution to bring
such action.
Petitioners in Schulz 1993 have asserted that issuance of bonds by the two
Authorities is subject to approval by statewide referendum. At this time there
can be no forecast of the likelihood of success on the merits by the
petitioners, but a decision upholding this constitutional challenge could
restrict and limit the ability of the State and its instrumentalities to
borrow funds in the future. The State has not indicated that the temporary
injunction issued by the Supreme Court in this action will have any immediate
impact on its financial condition or interfere with projects requiring
immediate action.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the future.
Certain localities in addition to New York City could have financial problems
leading to requests for additional State assistance. Both the Revised 1992-93
State Financial Plan and the recommended 1993-94 State Financial Plan include
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 1993-94 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 1991, the total indebtedness of all localities in the
State was approximately $31.6 billion, of which $16.8 billion was debt of New
York City (excluding $6.7 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. Fifteen localities had outstanding indebtedness for State
financing at the close of their fiscal year ending in 1991. In 1992, an
unusually large number of local government units requested authorization for
deficit financings. According to the Comptroller, ten local government units
have been authorized to issue deficit financing in the aggregate amount of
$131.1 million.
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 notes or bonds in the New York 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 population,
increasing expenditures, and other economic trends could adversely affect
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 income tax law applicable to taxpayers whose income is
subject to New York income taxation 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 September 30,
1993, the total stockholders' equity of Van Kampen Merritt Inc. was
$200,885,000 (unaudited). (This paragraph relates only to the Sponsor and not
to 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 November 30, 1993, the Sponsor and its affiliates managed or supervised
approximately $38.5 billion of investment products, of which over $25 billion
is invested in municipal securities. The Sponsor and its affiliates managed
$23 billion of assets, consisting of $8.2 billion for 19 mutual funds, $8.3
billion for 33 closed-end funds and $6.5 billion for 51 institutional
accounts. The Sponsor has also deposited over $23.5 billion of unit investment
trusts. Based on cumulative assets deposited, the Sponsor believes that it is
the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipal Income Trust or the IM-IT trust.
The Sponsor also provides surveillance and evaluation services at cost for
approximately $15.5 billion of unit investment trust assets outstanding. Since
1976, the Sponsor has opened over one million retail investor accounts through
retail distribution firms. Van Kampen Merritt Inc. is the sponsor of the
various series of the 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: Investors' Quality Tax-Exempt Trust; Investors'
Quality Tax-Exempt Trust, Multi-Series; Insured Municipals Income Trust;
Insured Municipals Income Trust, Insured Multi-Series; California Insured
Municipals Income Trust; New York Insured Municipals Income Trust;
Pennsylvania Insured Municipals Income Trust; Insured Tax Free Bond Trust;
Insured Tax Free Bond Trust, Insured Multi-Series; Investors' Quality
Municipals Trust, AMT Series; Van Kampen Merritt Blue Chip Opportunity Trust;
Van Kampen Merritt Blue Chip Opportunity and Treasury Trust; 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
Emerging Markets Income Trust; Van Kampen Merritt Global Telecommunications
Trust; and Van Kampen Merritt Global Energy Trust.
Van Kampen Merritt Inc. is the distributor of the following mutual funds: Van
Kampen Merritt U.S.Government Fund; Van Kampen Merritt California Insured Tax
Free Fund; Van Kampen Merritt Tax-Free High Income Fund; Van Kampen Merritt
Insured Tax-Free Income Fund; Van Kampen Merritt High Yield Fund; Van Kampen
Merritt Growth and Income Fund; Van Kampen Merritt Pennsylvania Tax-Free
Income Fund; Van Kampen Merritt Money Market Fund; Van Kampen Merritt Tax Free
Money Fund; Van Kampen Merritt Municipal Income Fund; Van Kampen Merritt
Adjustable Rate U.S. Government Fund; Van Kampen Merritt Short-Term Global
Income Fund; and Van Kampen Merritt Limited Term Municipal Income Fund.
Van Kampen Merritt is the distributor of the following closed-end funds: Van
Kampen Merritt Municipal Income Trust; Van Kampen Merritt California Municipal
Trust; Van Kampen Merritt Intermediate Term High Income Trust; Van Kampen
Merritt Limited Term High Income Trust; Van Kampen Merritt Prime Rate Income
Trust; Van Kampen Merritt Investment Grade Municipal Trust; Van Kampen Merritt
Municipal Trust; Van Kampen Merritt California Quality Municipal Trust; Van
Kampen Merritt Florida Quality Municipal Trust; Van Kampen Merritt New York
Quality Municipal Trust; Van Kampen Merritt Ohio Quality Municipal Trust; Van
Kampen Merritt Pennsylvania Quality Municipal Trust; Van Kampen Merritt Trust
for Investment Grade Municipals; Van Kampen Merritt Trust for Investment Grade
CA Municipals; Van Kampen Merritt Trust for Insured Municipals; Van Kampen
Merritt Trust for Investment Grade FL Municipals; Van Kampen Merritt Trust for
Investment Grade PA Municipals; Van Kampen Merritt Advantage Pennsylvania
Municipal Income Trust; Van Kampen Merritt Advantage Municipal Income Trust;
Van Kampen Merritt Municipal Opportunity Trust; Van Kampen Merritt Trust for
Investment Grade NY Municipals; Van Kampen Merritt Trust for Investment Grade
NJ Municipals; Van Kampen Merritt Strategic Sector Municipal Trust; Van Kampen
Merritt Value Municipal Income Trust; Van Kampen Merritt California Value
Municipal Income Trust; Van Kampen Merritt Massachusetts Value Municipal
Income Trust; Van Kampen Merritt New Jersey Value Municipal Income Trust; Van
Kampen Merritt New York Value Municipal Income Trust; Van Kampen Merritt Ohio
Value Municipal Income Trust; Van Kampen Merritt Pennsylvania Value Municipal
Income Trust; Van Kampen Merritt Municipal Opportunity Trust II; Van Kampen
Merritt Florida Municipal Opportunity Trust; Van Kampen Merritt Advantage
Municipal Income Trust II; and Van Kampen Merritt Select 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 substituted 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. If the Trustee exercises the right to obtain permanent
insurance, the premiums payable for such permanent insurance will be paid
solely from the proceeds of the sale of the related Bonds. The premiums for
such permanent insurance with respect to each Bond will decline over the life
of the Bond. A Trust does not incur any expense for Preinsured Bond insurance,
since the premium or premiums for such insurance have been paid by the issuers
or the Sponsor prior to the deposit of such Preinsured Bonds in a Trust.
Preinsured Bonds are not additionally insured by a Trust.
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. 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 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. Various counsel 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 is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. With the occasional
exception of oversupply in a few specific instances, the safety of obligations
of this class is so absolute that their market value is affected solely by
money market fluctuations.
Aa---Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A----Bonds which are rated A possess many favorable investment attributes and
are 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.
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 6
Distributions 7
Change of Distribution Option 7
Certificates 7
Estimated Current Returns and Estimated Long-
Term Returns 8
Public Offering 8
General 8
Accrued Interest (Accrued Interest to Carry) 8
Offering Price 9
Market for Units 10
Distributions of Interest and Principal 10
Reinvestment Option 11
Redemption of Units 11
Reports Provided 12
Insurance on the Bonds 13
Federal Tax Status of the Trusts 19
Description and State Tax
Status of the State Trust 22
New York Trust22
Trust Administration and Expenses 29
Sponsor 29
Compensation of Sponsor and Evaluator 31
Trustee 31
Trustee's Fee 32
Portfolio Administration 32
Sponsor Purchases of Units 32
Insurance Premiums 33
Miscellaneous Expenses 33
General 33
Amendment or Termination 33
Limitation on Liabilities 34
Unit Distribution 34
Sponsor and Dealer Compensation 35
Other Matters 35
Legal Opinions 35
Auditors 35
Description of Securities Ratings 35
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
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-Exempt 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 22nd day of February, 1995.
Insured Tax-Exempt Bond Trust, Series 6
(Registrant)
By Van Kampen American Capital Distributors,
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 22, 1995:
Signature Title
Don G. Powell 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 2, 1994 accompanying the
financial statements of Insured Tax-Exempt Bond Trust, Series 6 as of
October 31, 1994, and for the period then ended, contained in this Post-
Effective Amendment No. 8 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 LLP
Chicago, Illinois
February 22, 1995
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