File No. 33-42248
CIK #878270
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 4
to
Form S-6
For Registration under the Securities Act of 1933 of
Securities of Unit Investment Trusts Registered on
Form N-8B-2
Van Kampen Merritt Insured Income Trust, Series 18
(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 June 24, 1996 pursuant to paragraph (b) of Rule 485.
VAN KAMPEN MERRITT INSURED INCOME TRUST
Series 18
9,278 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.
THE TRUST
The above-named series of Van Kampen Merritt Insured Income Trust (the "
Trust" ) consists of an insured portfolio of interest-bearing intermediate
or long-term corporate, taxable municipal or government debt obligations (the
"Obligations" ). Each Unit represents a fractional undivided interest
in the principal and net income of the Trust (see "Summary of Essential
Financial Information" in the 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 during the secondary
market will include the aggregate bid price of the Securities in such Trust,
an applicable sales charge, cash, if any, in the Principal Account held or
owned by such Trust, and accrued interest, if any. See "Summary of
Essential Financial 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 Return and Estimated Long-Term Return are set
forth in Part Two of this Prosepectus.
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 June 19, 1996
Van Kampen American Capital
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 18
Summary of Essential Financial Information
As of April 16, 1996
Sponsor: Van Kampen American Capital Distributors Inc.
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
VIIT
<S> <C>
General Information
Principal Amount (Par Value) of Securities...................................... $ 5,053,000
Number of Units................................................................. 9,278
Fractional Undivided Interest in Trust per Unit................................. 1/9,278
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio................................. $4,783,225.49
Aggregate Bid Price of Securities per Unit..................................... $ 515.54
Sales charge 5.153% (4.9% of Public Offering Price excluding principal cash)... $ 26.29
Principal Cash per Unit........................................................ $ (5.25)
Public Offering Price per Unit <F1>............................................ $ 536.58
Redemption Price per Unit....................................................... $ 510.29
Excess of Public Offering Price per Unit over Redemption Price per Unit......... $ 26.29
Minimum Value of the Trust under which Trust Agreement may be terminated........ $2,170,000.00
Annual Premium on Portfolio Insurance........................................... $ 11,409.70
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution.......$1.00 per Unit
Date of Deposit......................June 30, 1992
Mandatory Termination Date...........December 31, 2041
Evaluator's Annual Supervisory Fee...Maximum of $0.25 per Unit
Evaluator's Annual Fee <F4>..........$1,903
</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......................... $ 41.79 $ 41.79
Less: Estimated Annual Expense excluding Insurance................ $ 1.31 $ 1.03
Less: Annual Premium on Portfolio Insurance....................... $ 1.23 $ 1.23
Estimated Net Annual Interest Income per Unit..................... $ 39.25 $ 39.53
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income.............................. $ 39.25 $ 39.53
Divided by 12 and 2, respectively................................. $ 3.27 $ 19.77
Estimated Daily Rate of Net Interest Accrual per Unit.............. $.10902 $.10979
Estimated Current Return Based on Public Offering Price <F2><F3>... 7.24 % 7.29 %
Estimated Long-Term Return <F2><F3>................................ 7.28 % 7.33 %
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Record and Computation Dates...TENTH day of the month as follows: monthly - each month; semi-annual - June and December.
Distribution Dates.............TWENTY-FIFTH day of the month as follows: monthly - each month; semi-annual - June and December.
Trustee's Annual Fee...........$0.91 and $0.51 per $1,000 principal amount of Bonds respectively, for those portions of the Trust
under the monthly and semi-annual distribution plans.
<FN>
<F1>Plus accrued interest to the date of settlement (three business days after
purchase) of $.98 and $15.09 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 Obligations for the Trust, the following facts, among others were
considered by the Sponsor: (a) the quality of the Obligations and whether such
obligations were rated "BBB-" by Standard & Poor's Ratings Group or "Baa" by
Moody's Investors Service, Inc., (b) the prices of the Obligations relative to
other obligations of comparable quality and maturity, (c) the diversification
of Obligations as to purpose of issue and location of issuer, (d) the
availability and cost of insurance for the prompt payment of principal and
interest on the Obligations and (e) whether the debt obligations were issued
after July 18, 1984. The Trust consists of 6 issues, 5 of which have been
issued by public utilities and 1 U.S. government obligation. See "Portfolio"
herein and "Description of Ratings" in Part Two.
PER UNIT INFORMATION
<TABLE>
<CAPTION>
1993<F1> 1994 1995 1996
<S> <C> <C> <C> <C>
Net asset value per Unit at beginning of period................................. $ 951.00 $ 1,012.19 $ 576.92 $ 509.93
Net asset value per Unit at end of period....................................... $ 1,012.19 $ 576.92 $ 509.93 $ 528.65
Distributions to Unitholders of investment income including accrued interest to
carry paid on Units redeemed (average Units outstanding for entire period) <F2>. $ 25.94 $ 66.39 $ 42.85 $ 42.41
Distributions to Unitholders from Obligation redemption proceeds (average Units
outstanding for entire period).................................................. $ 1.44 $ 426.99 $ 25.55 $ 14.30
Unrealized appreciation (depreciation) of Obligations (per Unit outstanding at
end of period).................................................................. $ 37.75 $ (5.46) $ (40.78) $ 37.81
Distributions of investment income by frequency of payment <F2>
Monthly........................................................................ $ 28.06 $ 65.22 $ 41.89 $ 41.18
Semiannual..................................................................... $ 15.16 $ 71.53 $ 42.61 $ 40.67
Units outstanding at end of period.............................................. 11,066 11,062 10,486 9,391
</TABLE>
For the period from June 30, 1992 (date of deposit) through February 28, 1993.
Unitholders may elect to receive distributions on a monthly or semi-annual
basis.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Van Kampen Merritt Insured Income Trust, Series 18:
We have audited the accompanying statements of condition (including the
analysis of net assets) and the related portfolio of Van Kampen Merritt
Insured Income Trust, Series 18 as of February 29, 1996, and the related
statements of operations and changes in net assets for the three years ended
February 28, 1994 and 1995 and February 29, 1996. 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 obligations owned at February 29, 1996 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 Van Kampen Merritt Insured Income
Trust, Series 18 as of February 29, 1996, and the results of operations and
changes in net assets for the three years ended February 28, 1994 and 1995 and
February 29, 1996, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Chicago, Illinois
April 26, 1996
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 18
Statements of Condition
February 29, 1996
<CAPTION>
VIIT
<S> <C>
Trust property
Cash................................................................................ $ 25,825
Obligations at market value, (cost $4,641,672) (note 1)............................. 4,926,390
Accrued interest.................................................................... 86,176
Receivable for securities sold...................................................... --
$ 5,038,391
Liabilities and interest to Unitholders
Cash overdraft...................................................................... $ --
Redemptions payable................................................................. 73,827
Interest to Unitholders............................................................. 4,964,564
$ 5,038,391
Analysis of Net Assets
Interest of Unitholders (9,391 Units of fractional undivided interest outstanding)
Cost to original investors of 11,071 Units (note 1)................................. $ 11,071,000
Less initial underwriting commission (note 3)....................................... 542,375
10,528,625
Less redemption of 1,680 Units...................................................... 865,975
9,662,650
Undistributed net investment income
Net investment income............................................................... 2,019,776
Less distributions to Unitholders................................................... 1,907,131
112,645
Realized gain (loss) on sale or redemption of Obligations........................... 63,234
Unrealized appreciation (depreciation) of Obligations (note 2)...................... 284,718
Distributions to Unitholders of sale or redemption proceeds of Obligations.......... (5,158,683)
Net asset value to Unitholders...................................................... $ 4,964,564
Net asset value per Unit (9,391 Units outstanding)................................... $ 528.65
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 18
Statements of Operations
Years ended
February 28, 1994 and 1995 and February 29, 1996
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Investment income
Interest income...................................................... $ 649,343 $ 469,493 $ 420,912
Expenses
Trustee fees and expenses............................................ 9,624 7,521 6,903
Evaluator fees....................................................... 3,567 1,852 1,903
Insurance expense.................................................... 18,666 13,802 12,323
Supervisory fees..................................................... 2,510 2,081 2,064
Total expenses....................................................... 34,367 25,256 23,193
Net investment income................................................ 614,976 444,237 397,719
Realized gain (loss) from sale or redemption of Obligations
Proceeds............................................................. 4,730,475 562,539 641,173
Cost................................................................. 4,642,061 585,351 643,041
Realized gain (loss)................................................. 88,414 (22,812) (1,868)
Net change in unrealized appreciation (depreciation) of Obligations... (60,424) (427,671) 355,065
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......$ 642,966 $ (6,246) $ 750,916
</TABLE>
<TABLE>
Statements of Changes in Net Assets
Years ended
February 28, 1994 and 1995 and February 29, 1996
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Increase (decrease) in net assets
Operations:
Net investment income.......................................................... $ 614,976 $ 444,237 $ 397,719
Realized gain (loss) on sale or redemption of Obligations...................... 88,414 (22,812) (1,868)
Net change in unrealized appreciation (depreciation) of Obligations............ (60,424) (427,671) 355,065
Net increase (decrease) in net assets resulting from operations................ 642,966 (6,246) 750,916
Distributions to Unitholders from:
Net investment income.......................................................... (734,652) (461,549) (423,842)
Bonds sale or redemption proceeds of Obligations............................... (4,724,644) (275,163) (142,934)
Redemption of Units (2,699) (291,829) (566,651)
Total increase (decrease)...................................................... (4,819,029) (1,034,787) (382,511)
Net asset value to Unitholders
Beginning of period............................................................ 11,200,891 6,381,862 5,347,075
End of period (including undistributed net investment income of $156,080,
$138,768 and $112,645, respectively)............................................ $ 6,381,862 $ 5,347,075 $ 4,964,564
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
PORTFOLIO as of February 29, 1996
<CAPTION>
February 29,
1996
Port- Redemption Market
folio Aggregate Name of Issuer, Title, Interest Rate and Rating Feature Value
Item Principal Maturity Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
A $ - 0 - Detroit Edison Company
9.375% Due 04/15/16........................... $ - 0 -
B - 0 - DuQuesne Light Company
9.000% Due 02/01/17........................... - 0 -
C - 0 - New York State Electric and Gas
9.000% Due 03/01/17........................... - 0 -
D 600,000 U.S. Treasury Strip
0.000% Due 02/15/19........................... NR 124,602
E 33,000 Georgia Power Company
0M- 9.230% Due 12/01/19 - 0 -
33M- 8.625% Due 06/01/22...................... A+ 1996 @ 106.43 33,722
F - 0 - Pacific Gas & Electric
8.650% Due 01/01/20.......................... - 0 -
G 793,000 Public Service Electric and Gas 1996 @ 107.18
8.750% Due 11/01/21........................... A- 1995 @ 100 S.F. 842,531
H 985,000 Commonwealth Edison
8.625% Due 02/01/22........................... BBB 2002 @ 103.84 1,027,542
I 1,500,000 Appalachian Power Company, Medium Term Notes 1998 @ 106.53
8.700% Due 05/22/22........................... A- 1997 @ 100 S.F. 1,602,825
J 1,225,000 Ohio Edison Company
8.750% Due 06/15/22........................... BB+ 1997 @ 106.25 1,295,168
$ 5,136,000 $ 4,926,390
</TABLE>
The accompanying notes are an integral part of this statement.
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 18
Notes to Financial Statements
February 28, 1994 and 1995 and February 29, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Obligations are stated at the value determined by the
Evaluator, American Portfolio Evaluation Services (a division of an affiliate
of the Sponsor). The Evaluator may determine the value of the Obligations (1)
on the basis of current bid prices of the Obligations obtained from dealers or
brokers who customarily deal in Obligations comparable to those held by the
Trust, (2) on the basis of bid prices for comparable Obligations, (3) by
determining the value of the Obligations 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 Obligations owned by
it. Except in cases in which Obligations 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 Obligation 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 Obligations
on the date of deposit (June 30, 1992). Since the valuation is based upon the
bid prices the Trust recognized a downward adjustment of $78,375 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
February 28, 1993.
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 Obligations 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, A Division of the McGraw-Hill Companies. Ratings marked *
are by Moody's Investors Service, Inc. as these Bonds are not rated by
Standard & Poor's, A Division of the McGraw-Hill Companies. N/R indicates that
the Bond is not rated by Standard & Poor's, A Division of the McGraw-Hill
Companies 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.
"P.R." indicates a bond has been prerefunded. 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 February 29, 1996 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 284,718
Unrealized Depreciation --
$ 284,718
</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 Obligations 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 Obligations
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 Obligations. The secondary market cost to investors is
based on the Evaluator's determination of the aggregate bid price of the
Obligations per Unit on the date of an investor's purchase plus a sales charge
based upon the years to average maturity of the Obligations in the portfolio.
The sales charge ranges from 1.0% of the public offering price (1.010% of the
aggregate bid price of the Bonds) for a Trust with a portfolio with less than
two years to average maturity to 5.40% of the public offering price (5.708% of
the aggregate bid price of the Bonds) for a Trust with a portfolio with
twenty-one 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 February 28, 1994 and 1995 and February 29, 1996, 4
Units, 576 Units and 1,095 Units, respectively, were presented for redemption.
VAN KAMPEN MERRITT
INSURED INCOME TRUST
and
VAN KAMPEN AMERICAN CAPITAL
INSURED INCOME TRUST
PROSPECTUS
Part Two
The Trust. The Trust consists of a series of unit investment trusts issued
under the name Van Kampen Merritt Insured Income Trust or Van Kampen American
Capital Insured Income Trust. Van Kampen American Capital Insured Income Trust
is the successor to Van Kampen Merritt Insured Income Trust. Each Trust
consists of a portfolio principally comprised of intermediate or long-term
corporate debt obligations (certain of the Trusts are also comprised of
intermediate or long-term taxable municipal debt or government obligations).
Attention Foreign Investors. If you are not a United States citizen or
resident, your interest income from this Trust may not be subject to Federal
withholding taxes if certain conditions are met. See "Federal Taxation".
Investment Objective of the Trust. The investment objective of the Trust is a
high level of current income consistent with preservation of capital through a
diversified investment in a fixed portfolio principally consisting of
corporate, taxable municipal or U.S. government debt obligations issued after
July 18, 1984 (the "Obligations"). See "Investment Objectives And
Portfolio Selection". There is no assurance that the Trust will achieve
its objective. The payment of interest and the preservation of principal is,
of course, dependent upon the continuing ability of the issuers and/or
obligors of the Obligations and of the insurer thereof to meet their
respective obligations. Units of the Trust are not insured by the FDIC, are
not deposits or other obligations of or guaranteed by any depository
institution or any government agency and are subject to investment risk,
including possible loss of the principal amount invested.
The Trust and "AAA" Rating. Insurance guaranteeing the payments of
principal and interest, when due, on the Obligations in the portfolio of the
Trust has been obtained from an insurance company either by the Trust or by
the issuer of the Obligations involved, by a prior owner of the Obligations or
by the Sponsor prior to the deposit of such Obligations in the Trust. See "
Insurance On The Obligations". Insurance obtained by the Trust applies
only while the Obligations involved are retained in the Trust while insurance
obtained on Preinsured Obligations is effective so long as such Obligations
are outstanding. The Trustee, upon the sale of an Obligation insured under an
insurance policy obtained by the Trust, has the right to obtain from the
insurer involved permanent insurance for such Obligation upon the payment of a
single predetermined insurance premium and any expenses related thereto from
the proceeds of the sale of such Obligation. IT SHOULD BE NOTED THAT THE
INSURANCE, IN EITHER CASE, RELATES ONLY TO THE OBLIGATIONS IN THE TRUST AND
NOT TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE THEREOF. As a result of
such insurance, the Units of the Trust received a rating of "AAA" by
Standard & Poor's, A Division of the McGraw-Hill Companies ("Standard &
Poor's") on the date the Trust was created. Standard & Poor's has
indicated that this rating is not a recommendation to buy, hold or sell Units
nor does it take into account the extent to which expenses of the Trust or
sales by the Trust of Obligations for less than the purchase price paid by the
Trust will reduce payment to Unitholders of the interest and principal
required to be paid on such Obligations. See "Insurance On The
Obligations". 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 include the aggregate bid price of the Securities in such Trust, an
applicable sales charge, cash, if any, in the Principal Account held or owned
by such Trust, and accrued interest and Purchased Interest, if any. If the
Obligations in the Trust were available for direct purchase by investors, the
purchase price of the Obligations would not include the sales charge included
in the Public Offering Price of the Units. See "Public Offering".
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE.
Both parts of this Prospectus should be retained for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSIONOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Prospectus is dated as of the date of the Prospectus Part I accompanying
this Prospectus Part II.
Van Kampen American Capital
Estimated Current Return And Estimated Long-term Return. The Estimated
Current Return Estimated Long-Term Return to Unitholders were as set forth
under "Summary of Essential Financial Information" in Part One of this
Prospectus. The methods of calculating Estimated Current Return and Estimated
Long-Term are set forth in the footnotes to the "Summary of Essential
Financial Information" in Part One of this Prospectus and under
"Estimated Current Return and Estimated Long-Term Return".
Distribution Options. Purchasers of Units of Trusts of than Series 35-43 who
desire to receive distributions on a monthly or semi-annual basis may elect to
do so at the time of settlement. See "Rights of Unitholders--Change of
Distribution Option". The plan of distribution selected by such purchasers
will remain in effect until changed. Those indicating no choice will be deemed
to have chosen the monthly distribution plan. Record dates for monthly
distributions will be the tenth day of each month and record dates for
semi-annual distributions will be the tenth day of the month. Unitholders or
Series 35-43 will receive distributions on a monthly basis only. Distributions
will be made on the twenty-fifth day of the month subsequent to the respective
record dates. Distributions of funds will be made on a semi-annual basis,
except under certain special circumstances (see "Rights of
Unitholders--Distributions of Interest and Principal").
Market for Units. Although not obligated to do so, the Sponsor, Van Kampen
American Capital Distributors, Inc., intends to maintain a secondary market
for the Units at prices based upon the aggregate bid price of the Obligations
plus interest accrued to the date of settlement plus Purchased Interest, if
any. If such a market is not maintained and no other over-the-counter market
is available, a Unitholder will be able to dispose of his Units only through
redemption at prices based upon the bid prices of the underlying Obligations
plus interest accrued to the date of settlement plus Purchased Interest, if
any (see "Rights of Unitholders--Redemption of Units"). Neither the
bid nor offering prices of the underlying Obligations or of the Units, absent
situations in which Obligations are in default in payment of principal or
interest or in significant risk of such default, include value, if any,
attributable to the insurance obtained by the Trust. See "Public
Offering--Public Market".
Reinvestment Option. Unitholders have the opportunity to have their
distributions reinvested into an open-end, management investment company as
described herein. Foreign investors should note, however, that any interest
distributions resulting from such a reinvestment program will be subject to
U.S. Federal income taxes, including withholding taxes. See "Rights of
Unitholders--Reinvestment Option".
Unitholders of any Van Kampen American Capital-sponsored unit investment trust
may utilize their redemption or termination proceeds to purchase units of any
other Van Kampen American Capital trust in the initial offering period
accepting rollover investments subject to a reduced sales charge to the extent
stated in the related prospectus (which may be deferred in certain cases).
Risk Factors. An investment in Units of the Trust should be made with an
understanding of the risks associated therewith, including, among other
factors, the inability of the issuer or an insurer to pay the principal of or
interest of a bond when due, volatile interest rates, early call provisions
and general economic conditions. See "Risk Factors".
THE TRUST
Each series of the Insured Income Trust (the "Trust") was created
under the laws of the State of New York pursuant to a Trust Agreement (the
"Trust Agreement"), dated the Initial Date of Deposit between Van
Kampen American Capital Distributors Inc., as Sponsor, American Portfolio
Evaluation Services, a division of Van Kampen American Capital Investment
Advisory Corp., as Evaluator, and The Bank of New York, as Trustee, or their
respective predecessors.
The Trust may be an appropriate medium for investors who desire to participate
in a portfolio of taxable fixed income securities issued after July 18, 1984
with greater diversification than they might be able to acquire individually.
Diversification of the Trust's assets will not eliminate the risk of loss
always inherent in the ownership of securities. For a breakdown of the
portfolio see Part One for each Trust. In addition, securities of the type
initially deposited in the portfolio of the Trust are often not available in
small amounts and may, in the case of privately placed securities, be
available only to institutional investors.
Unless otherwise terminated as provided therein, the Trust Agreement for all
series will terminate at the end of the calendar year prior to the fiftieth
anniversary of its execution, except that in the case of intermediate-term
series the Trust Agreement will terminate at the end of the calendar year
prior to the twentieth anniversary of its execution.
Each Unit represents a fractional undivided interest in the Trust. To the
extent that any Units are redeemed by the Trustee, the fractional undivided
interest in the Trust represented by each unredeemed Unit will increase,
although the actual interest in the Trust represented by such fraction will
remain unchanged. Units will remain outstanding until redeemed upon tender to
the Trustee by Unitholders, which may include the Sponsor, or until the
termination of the Trust Agreement.
INVESTMENT OBJECTIVES AND PORTFOLIO SELECTION
The investment objective of the Trust is to provide a high level of current
income consistent with safety of principal by investing in a professionally
selected portfolio principally consisting of corporate, taxable municipal or
U.S. government debt obligations issued after July 18, 1984.
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Obligations in the Trust has been obtained by the Trust from
either AMBAC Indemnity Corporation ("AMBAC Indemnity"), Capital
Markets Assurance Corporation ("CapMAC") or a combination thereof
(collectively, the "Portfolio Insurers"), or by the issuer of such
Obligations, by a prior owner of such Obligations, or by the Sponsor prior to
the deposit of such Obligations in the 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 Insurance Company ("Financial Guaranty"), (3) MBIA
Insurance 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) CapMAC and/or (8) Financial Security
Assurance Inc. ("Financial Security" or "FSA") (collectively,
the "Preinsured Obligation Insurers") (see "Insurance on the
Obligations"). The Portfolio Insurers and the Preinsured Obligation
Insurers are collectively referred to herein as the "Insurers".
Insurance obtained by the Trust is effective only while the Obligations thus
insured are held in the Trust. The Trustee has the right to acquire permanent
insurance from a Portfolio Insurer with respect to each Obligation insured by
the respective Portfolio Insurer under a Trust portfolio insurance policy.
Insurance relating to Obligations insured by the issuer, by a prior owner of
such Obligations or by the Sponsor is effective so long as such Obligations
are outstanding. Obligations 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 Obligation Insurers (the "Preinsured Obligations") are not
additionally insured by the 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 the Trust, if any, unless Obligations are in default in payment of
principal or interest or in significant risk of such default. See "Public
Offering-Offering Price".
In order for Obligations to be eligible for insurance they must have credit
characteristics which would qualify them for at least the Standard & Poor's
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 Obligation Ratings").
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefore. If
an issue is accepted for insurance, a non-cancellable policy for the prompt
payment of interest and principal on the Obligations, when due, is issued by
the insurer. A monthly premium is paid by the Trust for the insurance obtained
by it. The Trustee has the right to obtain permanent insurance from a
Portfolio Insurer in connection with the sale of an Obligation insured under
the insurance policy obtained from the respective Portfolio Insurer by the
Trust upon the payment of a single predetermined insurance premium from the
proceeds of the sale of such Obligation. Accordingly, any Obligation in the
Trust is eligible to be sold on an insured basis. All Obligations insured by a
Portfolio Insurer or by a Preinsured Obligation Insurer received a
"AAA" rating by Standard & Poor's on the date such obligations were
deposited in the Trust. Standard & Poor's describes securities it rates
"AAA" as having "the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong." See "Insurance on the Obligations".
In selecting Obligations for the Trust, the following facts, among others,
were considered by the Sponsor: (a) the prices of the Obligations relative to
other obligations of comparable quality and maturity, (b) the diversification
of Obligations as to purpose of issue and location of issuer, (c) the
availability and cost of insurance for the prompt payment of principal and
interest on the Obligations and (d) whether the debt obligations were issued
after July 18, 1984.
TRUST PORTFOLIO
Portfolio. Each Trust consists of debt obligations issued by public utility
companies, taxable debt obligations issued municipalities and/or zero-coupon
debt obligations issued U.S. government. The breakdown of the portfolio of
each Trust is more fully described in Part One.
Redemptions of Obligations. Certain of the Obligations in the Trust are
subject to redemption prior to their stated maturity date pursuant to sinking
fund provisions, call provisions or extraordinary optional or mandatory
redemption provisions 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 Obligations 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. The portfolio contains a
listing of the sinking fund and call provisions, if any, with respect to each
of the Obligations.Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events. Generally, events
that may permit the extraordinary optional redemption of Obligations or may
require the mandatory redemption of Obligations include, among others: the
substantial damage or destruction by fire or other casualty of the project for
which the proceeds of the Obligations 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 Obligations
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 Obligations 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
Obligations 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 Obligations are issued on the issuer of the
Obligations or the user of the proceeds of the Obligations; 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 Obligations; an
overestimate of the costs of the project to be financed with the proceeds of
the Obligations resulting in excess proceeds of the Obligations which may be
applied to redeem Obligations; or an underestimate of a source of funds
securing the Obligations resulting in excess funds which may be applied to
redeem Obligations. The Sponsor is unable to predict all of the circumstances
which may result in such redemption of an issue of Obligations. See
"Portfolio" and footnote (3) in "Notes to Portfolio".
RISK FACTORS
Public Utility Issues. Certain of the Obligations are obligations of public
utility issuers. In view of this an investment in 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 Obligations in
the portfolios to make payments of principal and/or interest on such
Obligations.
Utilities are generally subject to extensive regulation by state utility
commissions which, for example, establish the rates which may be charged and
the appropriate rate of return on an approved asset base, which must be
approved by the state commissions. Certain utilities have had difficulty from
time to time in persuading regulators, who are subject to political pressures,
to grant rate increases necessary to maintain an adequate return on investment
and voters in many states have the ability to impose limits on rate
adjustments (for example, by initiative or referendum). Any unexpected
limitations could negatively affect the profitability of utilities whose
budgets are planned far in advance. In addition, gas pipeline and distribution
companies have had difficulties in adjusting to short and surplus energy
supplies, enforcing or being required to comply with long-term contracts and
avoiding litigation from their customers, on the one hand, or suppliers, on
the other.
Certain of the issuers of the Obligations in a Trust may own or operate
nuclear generating facilities. Governmental authorities may from time to time
review existing, and impose additional, requirements governing the licensing,
construction and operation of nuclear power plants. Nuclear generating
projects in the electric utility industry have experienced substantial cost
increases, construction delays and licensing difficulties. These have been
caused by various factors, including inflation, high financing costs, required
design changes and rework, allegedly faulty construction, objections by groups
and governmental officials, limits on the ability to finance, reduced
forecasts of energy requirements and economic conditions. This experience
indicates that the risk of significant cost increases, delays and licensing
difficulties remains present through to completion and achievement of
commercial operation of any nuclear project. Also, nuclear generating units in
service have experienced unplanned outages or extensions of scheduled outages
due to equipment problems or new regulatory requirements sometimes followed by
a significant delay in obtaining regulatory approval to return to service. A
major accident at a nuclear plant anywhere, such as the accident at a plant in
Chernobyl, could cause the imposition of limits or prohibitions on the
operation, construction or licensing of nuclear units in the United States.
Other general problems of the gas, water, telephone and electric utility
industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to
transport fossil fuels, the uncertainty of transmission service costs for both
interstate and intrastate transactions, changes in tax laws which adversely
affect a utility's ability to operate profitably, increased competition in
service costs, recent reductions in estimates of future demand for electricity
and gas in certain areas of the country, restrictions on operations and
increased cost and delays attributable to environmental considerations,
uncertain availability and increased cost of capital, unavailability of fuel
for electric generation at reasonable prices, including the steady rise in
fuel costs and the costs associated with conversion to alternate fuel sources
such as coal, availability and cost of natural gas for resale, technical and
cost factors and other problems associated with construction, licensing,
regulation and operation of nuclear facilities for electric generation,
including among other considerations the problems associated with the use of
radioactive materials and the disposal of radioactive wastes, and the effects
of energy conservation. Each of the problems referred to could adversely
affect the ability of the issuers of any utility bonds in a Trust to make
payments due on these bonds.
In view of the pending investigations and the other uncertainties discussed
above, there can be no assurance that any company's share of the full cost of
nuclear units under construction ultimately will be recovered in rates or of
the extent to which a company could earn an adequate return on its investment
in such units. The likelihood of a significantly adverse event occurring in
any of the areas of concern described above varies, as does the potential
severity of any adverse impact. It should be recognized, however, that one or
more of such adverse events could occur and individually or collectively could
have a material adverse impact on the financial condition or the results of
operations of a company's ability to make interest and principal payments on
its outstanding debt.
Taxable Municipal Issues. Certain of the Obligations may be taxable
obligations of municipal issuers. In view of this an investment in the Trusts
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. Obligations of municipal
issuers can be either general obligations of a government entity that are
backed by the taxing power of such entity or 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. However,
the taxing power of any governmental entity may be limited by provisions of
state constitutions or laws and an entity's credit will depend on many
factors, including an erosion of the tax base due to population declines,
natural disasters, declines in the state's industrial base or inability to
attract new industries, economic limits on the ability to tax without eroding
the tax base and the extent to which the entity relies on Federal or state
aid, access to capital markets or other factors beyond the entity's control.
As a result of the current recession's adverse impact upon both their revenues
and expenditures, as well as other factors, many state and local governments
are confronting deficits and potential deficits which are the most severe in
recent years. Many issuers are facing highly difficult choices about
significant tax increases or spending reductions in order to restore budgetary
balance. Failure to implement these actions on a timely basis could force the
issuers to depend upon market access to finance deficits or cash flow needs.
In addition, certain of the Obligations in a Trust may be obligations of
issuers who rely in whole or in part on ad valorem real property taxes as a
source of revenue. Recently, certain proposals, in the form of state
legislative proposals or voter initiatives, to limit ad valorem real property
taxes have been introduced in various states.
Revenue bonds, on the other hand, are payable only from revenues derived from
a particular facility or class of facilities, or, in some cases, from the
proceeds of a special excise tax or other special revenue source. The ability
of an issuer of revenue bonds to make payments of principal and/or interest on
such bonds is primarily dependent upon the success or failure of the facility
or class of facilities involved or whether the revenues received from an
excise tax or other special revenue source are sufficient to meet obligations.
Typically, interest income received from municipal issues is exempt from
Federal income taxation under Section 103 of the Internal Revenue Code of
1986, as amended (the "Code") and therefore is not includible in the
gross income of the owners thereof. However, interest income received for
taxable municipal obligations is not exempt from Federal income taxation under
Section 103 of the Code. Thus, owners of taxable municipal obligations
generally must include interest on such obligations in gross income for
Federal income tax purposes and treat such interest as ordinary income.
Certain of the Obligations in a Trust may be obligations which are payable
from and secured by revenues derived from the ownership and operation of
facilities such as airports, bridges, turnpikes, port authorities, convention
centers and arenas. In view of this an investment in 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.
Certain of the Obligations in a Trust may be 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, competition with other health care
facilities, efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses, the cost and
possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party payor programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third
party payor programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing a
single nationwide schedule of rates. Prior to such legislation Medicare
reimbursements were based on the actual costs incurred by the health facility.
The current legislation may adversely affect reimbursements to hospitals and
other facilities for services provided under the Medicare program. Such
adverse changes also may adversely affect the ratings of Securities held in
the portfolios of the Trust; however, because of the insurance obtained by the
Trust, the "AAA" rating of the Units of each of the Trust would not be
affected.
Zero Coupon Bonds. Certain of the Obligations may be "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
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.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the opening of business on the date indicated therein, the Estimated
Current Returns and the Estimated Long-Term Returns each under the monthly and
semi-annual distribution plans were set forth under "Per Unit
Information" for the applicable Trust in Part One of this Prospectus. Only
monthly distributions are available for Series 35 and subsequent series. The
Estimated Current Returns are calculated by dividing the Estimated Net Annual
Interest Income per Unit by the Public Offering Price. The Estimated Net
Annual Interest Income per Unit will vary with changes in fees and expenses of
the Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Obligations while the Public Offering Price will
vary with changes in the offering price of the underlying Obligations and with
changes in Purchased Interest for those series which contain Purchased
Interest; therefore, there is no assurance that the present Estimated Current
Return will be realized in the future. Estimated Long-Term Returns are
calculated using a formula which (1) takes into consideration, and determines
and factors in the relative weightiness of, the market values, yields (which
takes into account the amortization of premiums and the accretion of
discounts) and estimated retirements of all the Obligations in the Trust and
(2) takes into account expenses and sales charge associated with each Trust
Unit. Since the market values and estimated retirements of the Obligations and
the expenses of the Trust will change, there is no assurance that the present
Estimated Long-Term Returns will be realized in the future. Estimated Current
Returns and Estimated Long-Term Returns are expected to differ because the
calculation of Estimated Long-Term Returns reflects the estimated date and
amount of principal returned while Estimated Current Returns calculations
include only Net Annual Interest Income and Public Offering Price. Neither
rate reflects the true return to Unitholders which is lower because neither
includes the effect of the delay in the first payment to Unitholders.
TRUST OPERATING EXPENSES
Compensation of Sponsor and Evaluator. The Sponsor will not receive any fees
in connection with its activities relating to the Trust. However, American
Portfolio Evaluation Services, a division of Van Kampen American Capital
Investment Advisory Corp., which is a wholly-owned subsidiary of the Sponsor
(the "Evaluator"), will receive an annual supervisory fee, which is
not to exceed the amount set forth under "Summary of Essential Financial
Information" in Part One of this Prospectus for providing portfolio
supervisory services for the Trust. 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 this Trust, but at no time will the
total amount received for portfolio supervisory services rendered to this
Series and other unit investment trusts sponsored by the Sponsor for which it
provides such 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 in the amount set forth
in "Summary of Essential Financial Information" in Part One of this
Prospectus (which is based on the outstanding principal amount of obligations
of January 1 of each year) for regularly evaluating the Trust's portfolio.
Both of the foregoing fees may be increased without approval of the
Unitholders by amounts not exceeding proportionate increases under the
category "All Services Less Rent of Shelter" in the Consumer Price
Index published by the United States Department of Labor or, if such category
is no longer published, in a comparable category. The Sponsor and the
Underwriters will receive sales commissions and may realize other profits (or
losses) in connection with the sale of Units and the deposit of the
Obligations as described under "Public Offering".
Trustee's Fee. For its services, the Trustee will receive an annual fee from
the Trust based on the largest aggregate amount of Obligations in the Trust at
any time during such period. Such fee will be computed at $.51 and $.91 per
$1,000 principal amount, respectively, for those portions of the Trust
representing semi-annual and monthly distribution plans. Only monthly
distributions are available for Series 35-43 of the Trust. The Trustee's fees
are payable monthly on or before the twenty-fifth day of each month from the
Interest Account to the extent funds are available and then from the Principal
Account. Such fees may be increased without approval of the Unitholders by
amounts not exceeding proportionate increases under the category "All
Services Less Rent of Shelter" in the Consumer Price Index published by
the United States Department of Labor or, if such category is no longer
published, in a comparable category. Since the Trustee has the use of the
funds being held in the Principal and Interest Accounts for future
distributions, payment of expenses and redemptions and since such Accounts are
non- interest bearing to Unitholders, the Trustee benefits thereby. Part of
the Trustee's compensation for its services to the Trust is expected to
result from the use of these funds. For a discussion of the services rendered
by the Trustee pursuant to its obligations under the Trust Agreement, see
"Rights of Unitholders-Reports Provided" and "Trust Administration".
Insurance Premiums. The cost of the portfolio insurance obtained by the Trust
is the amount shown in "Summary of Essential Financial Information" in
Part One of this Prospectus. Premiums, which are Trust obligations, are
payable monthly by the Trustee on behalf of the Trust. As Obligations in the
portfolio are redeemed by their respective issuers or are sold by the Trustee,
the amount of the premium will be reduced in respect of those Obligations no
longer owned by and held in the Trust. The Trust does not incur any expenses
for insurance which has been obtained for Preinsured Obligations since the
premium or premiums for such insurance have been paid by the respective
issuers, prior owners of the obligations involved or by the Sponsor. If the
Trustee exercises the right to obtain Permanent Insurance, the premium payable
for such Permanent Insurance will be paid solely from the proceeds of the sale
of the related Obligations. The premiums for such Permanent Insurance with
respect to each Obligation will decline over the life of the Obligation.
Miscellaneous Expenses. The following additional charges are or may be
incurred by the Trust: (a) fees of the Trustee for extraordinary services, (b)
expenses of the Trustee (including legal and auditing expenses) and of counsel
designated by the Sponsor, (c) various government charges, (d) expenses and
costs of any action taken by the Trustee to protect the Trust and the rights
and interests of Unitholders, (e) indemnification of the Trustee for any loss,
liability or expense incurred by it in the administration of the Trust without
negligence, bad faith or willful misconduct on its part and (f) expenditures
incurred in contacting Unitholders upon termination of the Trust.
The fees and expenses set forth herein are payable out of the Trust. When such
fees and expenses are paid by or owing to the Trustee, they are secured by a
lien on the portfolio of the Trust. If the balances in the Interest and
Principal Accounts are insufficient to provide for amounts payable by the
Trust, the Trustee has the power to sell Obligations to pay such amounts.
INSURANCE ON THE OBLIGATIONS
Insurance has been obtained by the Trust or by an Obligation issuer
guaranteeing prompt payment of interest and principal, when due (as more fully
described below), in respect of all the Obligations in the Trust. See
"Investment Objective and Portfolio Selection". Each insurance policy
obtained by the Trust is non-cancellable and will continue in force so long as
the Trust is in existence, the Portfolio Insurer involved is still in business
and the Obligations described in such policy continue to be held by the Trust
(see "Portfolio"). Non-payment of premiums on a policy obtained by the
Trust will not result in the cancellation of insurance but will force the
affected Portfolio Insurer to take action against the Trustee to recover
premium payments due it. The Trustee in turn will be entitled to recover such
payments from the Trust. Premium rates for each issue of Obligations protected
by a policy obtained by the Trust are fixed for the life of the Trust. The
premium for any insurance policy or policies obtained by an issuer of
Obligations has been paid in advance by such issuer and any such policy or
policies are non-cancellable and will continue in force so long as the
Obligations so insured are outstanding and Preinsured Obligation Insurer
remains in business. If the provider of an original issuance insurance policy
is unable to meet its obligations under such policy or if the rating assigned
to the claims-paying ability of any such insurer deteriorates, the Portfolio
Insurers have no obligation to insure any issue adversely affected by either
of the above described events.
The aforementioned Trust insurance guarantees the timely payment of principal
and interest on the Obligations as they fall due. For the purposes of the
portfolio insurance, "when due" generally means the stated maturity
date for the payment of principal and interest. However, in the event (a) an
issuer of an Obligation defaults in the payment of principal or interest on
such Obligation, (b) such issuer enters into a bankruptcy proceeding or (c)
the maturity of such Obligation is accelerated, the affected Portfolio Insurer
has the option, in its sole discretion, for a limited period of time after
receiving notice of the earliest to occur of such a default, bankruptcy
proceeding or acceleration to pay the outstanding principal amount of such
Obligation plus accrued interest to the date of such payment and thereby
retire the Obligation from the Trust prior to such Obligation's stated
maturity date.The insurance does not guarantee the market value of the
Obligations or the value of the Units. Insurance obtained by the Trust is only
effective as to Obligations owned by and held in the Trust. In the event of a
sale of any such Obligation by the Trustee, such insurance terminates as to
such Obligation on the date of sale.
Pursuant to an irrevocable commitment of the Portfolio Insurers, the Trustee,
upon the sale of an Obligation covered under the portfolio insurance policy
obtained by the Trust, has the right to obtain permanent insurance with
respect to such Obligation (i.e., insurance to maturity of the Obligations
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
Obligation. Accordingly, any Obligation in the Trust is eligible to be sold on
an insured basis. It is expected that the Trustee would exercise the right to
obtain Permanent Insurance only if upon such exercise the Trust would receive
net proceeds (sale of Obligation proceeds less the insurance premium and
related expenses attributable to the Permanent Insurance) from such sale in
excess of the sale proceeds if such Obligations were sold on a uninsured
basis. The insurance premium with respect to each Obligation eligible for
Permanent Insurance would be determined based upon the insurability of each
Obligation as of the original date of deposit and would not be increased or
decreased for any change in the creditworthiness of each Obligation.
The Sponsor believes that the Permanent Insurance option provides an
advantage to the Trust in that each Obligation insured by a Trust insurance
policy may be sold out of the Trust with the benefits of the insurance
attaching thereto. Thus, the value of the insurance, if any, at the time of
sale, can be realized in the market value of the Obligation so sold (which is
not the case in connection with any value attributable to the Trust's
portfolio insurance). See "Public OfferingOffering Price". Because any
such insurance value may be realized in the market value of the Obligation
upon the sale thereof upon exercise of the Permanent Insurance option, the
Sponsor anticipates that (a) in the event the Trust were to be comprised of a
substantial percentage of Obligations in default or significant risk of
default, it is much less likely that the Trust would need at some point in
time to seek a suspension of redemptions of Units than if the Trust were to
have no such option (see "Rights of UnitholdersRight of Redemption")
and (b) at the time of termination of the Trust, if the Trust were holding
defaulted Obligations or Obligations in significant risk of default the Trust
would not need to hold such Obligations until their respective maturities in
order to realize the benefits of the Trust's portfolio insurance (see "
Administration of the TrustAmendment or Termination").
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units. It is the present intention of the
Evaluator to attribute a value for such insurance (including the right to
obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units if the Obligations 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 equal to the difference between
(i) the market value of an Obligation which is in default in payment of
principal or interest or in significant risk of such default assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium and related expenses attributable to the purchase of Permanent
Insurance) and (ii) the market value of such bonds not covered by Permanent
Insurance. See "Public OfferingOffering Price" herein for a more
complete description of the Trust's method of valuing defaulted Obligations
which have a significant risk of default.
The portfolio insurance policies obtained by the Trust were issued by either
AMBAC Indemnity or CapMAC. The other policy (or commitment therefor) obtained
by an Obligation issuer was issued by AMBAC Indemnity. See "Investment
Objectives and Portfolio Selection".
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 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate, municipal and other financial obligations
in the U.S. and international capital markets. CapMAC also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal and
other financial 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
("Standard & Poor's"), "AAA" by Duff & Phelps Credit Rating Co.
("Duff & Phelps") and "AAA" by Nippon Investors Service Inc.
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. Neither Holdings nor any of its
stockholders is obligated to pay any claims under any policy 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. Such insurance
laws regulate, among other things, the amount of net exposure per risk that
CapMAC may retain, capital transfers, dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and acquisitions.
CapMAC is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC's obligations under the Policy(s) may be reinsured. Such reinsurance
does not relieve CapMAC of any of its obligations under the Policy(s).
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As at December 31, 1994 and 1993, CapMAC had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $170 million and $168 million, respectively, and had not
incurred any debt obligations. Article 69 of the New York State Insurance Law
requires CapMAC to establish and maintain the contingency reserve, which is
available to cover claims under policies issued by CapMAC.
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.
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin and licensed to do
business in 50 states, the District of Columbia and the Commonwealth of Puerto
Rico, with admitted assets of approximately $2,145,000,000 (unaudited) and
statutory capital of approximately $782,000,000 (unaudited) as of December 31,
1994. 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 have both assigned a triple-A
claims-paying ability rating to AMBAC Indemnity.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Indemnity. The address of AMBAC
Indemnity's administrative offices and its telephone number are One State
Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Indemnity has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Indemnity has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
MBIA Insurance Corporation ("MBIA") is the principal operating
subsidiary of MBIA Inc., a New York Stock Exchange listed company. MBIA Inc.
is not obligated to pay the debts of or claims against MBIA. MBIA is a limited
liability corporation rather than a several liability association. MBIA is
domiciled in the State of New York and licensed to do business in all fifty
states, the District of Columbia, the Commonwealth of the Northern Mariana
Islands, the Commonwealth of Puerto Rico, the Virgin Islands of the United
States and the Territory of Guam. As of September 30, 1995 MBIA had admitted
assets of $3.7 billion (unaudited), total liabilities of $2.5 billion
(unaudited), and total capital and surplus of $1.2 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. As of December 31, 1994, the
insurer had admitted assets of $3.4 billion (audited), total liabilities of
$2.3 billion (audited), and total capital and surplus of $1.1 billion
(audited) determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities. Copies of MBIA's
year end financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group, Inc. On
January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company (BIG),
now known as MBIA Insurance Corp. of Illinois. Through a reinsurance
agreement, BIG has ceded all of its net insured risks, as well as its unearned
premium and contingency reserves, to MBIA and MBIA has reinsured BIG's net
outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA
"Aaa" and short-term loans "MIG 1," both designated to be of the
highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA" Prime
Grade.
The Moody's Investors Service, Inc. rating of MBIA should be evaluated
independently of the Standard & Poor's rating of MBIA. No application has been
made to any other rating agency in order to obtain additional ratings on the
Obligations. 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 Obligations
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 Obligations.
Financial Guaranty Insurance Company ("Financial Guaranty" or
"FGIC") is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a
wholly-owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in the
State of New York and is subject to regulation by the State of New York
Insurance Department. As of September 30, 1995, the total capital and surplus
of Financial Guaranty was approximately $994,500,000. 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, telephone number: (212) 312-3000 or to the New York
State Insurance Department at 160 West Broadway, 18th Floor, New York, New
York 10013, Attention: Property Companies Bureau, telephone number: (212)
621-0389.
In addition, Financial Guaranty is currently licensed to write insurance in
all 50 states and the District of Columbia.
Financial Security Assurance Inc. ("Financial Security" or
"FSA") is a monoline insurance company incorporated on March 16, 1984 under
the laws of the State of New York. The operations of Financial Security
commenced on July 25, 1985, and Financial Security received its New York State
insurance license on September 23, 1985. Financial Security and its two wholly
owned subsidiaries are licensed to engage in the financial guaranty insurance
business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is 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 or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's, A Division of
the McGraw-Hill Companies, 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") is a
"Aaa/AAA" rated monoline stock insurance company incorporated in the State
of Maryland, and is a wholly owned subsidiary of Capital Guaranty Corporation,
a Maryland insurance holding company. Capital Guaranty Corporation is a
publicly owned company whose shares are traded on the New York Stock Exchange.
Capital Guaranty is authorized to provide insurance in all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, Guam and the U.S.
Virgin Islands. Capital Guaranty focuses on insuring municipal securities and
our policies guaranty the timely payment of principal and interest when due
for payment on new issue and secondary market issue municipal bond
transactions. Capital Guaranty's claims-paying ability is rated
"Triple-A" by both Moody's and Standard & Poor's.
As of September 30, 1995, Capital Guaranty had more than $19.0 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$204,642,000, and the total admitted assets were $326,802,226 as reported to
the Insurance Department of the State of Maryland as of September 30, 1995.
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.
Because the Obligations are insured as to the timely payment of principal and
interest, when due (as more fully described above), and on the basis of the
various reinsurance agreements in effect, Standard & Poor's has assigned to
the Units of the Trust its "AAA" investment rating. See
"Investment Objectives and Portfolio Selection". The obtaining of this
rating by the Trust should not be construed as an approval of the offering of
the Units by Standard & Poor's or as a guarantee of the market value of the
Trust or of the Units.
The Estimated Current Return and the Estimated Long-Term on an identical
portfolio without the insurance obtained by the Trust would have been higher
than the Estimated Current Return and the Estimated Long-Term Return on the
obligations in the Trust after payment of the insurance premium.
An objective of portfolio insurance obtained by the Trust is to obtain a
higher yield on the Trust portfolio than would be available if all the
Obligations in such portfolio had Standard & Poor's "AAA" rating and
yet at the same time to have the protection of insurance of prompt payment of
interest and principal, when due (as more fully described above), on the
Obligations. There is, of course, no certainty that this result will be
achieved.
In the event of nonpayment of interest or principal, when due (as more fully
described above), in respect of an Obligation, the appropriate Insurer shall
make such payment within 30 days after it has been notified that such
nonpayment has occurred. The appropriate Insurer, as regards any payment it
may make, will succeed to the rights of the Trustee in respect thereof.
The information relating to the Insurers has been furnished by the respective
Insurers. The financial information with respect to the Insurers appears in
reports filed with state insurance regulatory authorities and is subject to
audit and review by such authorities. No representation is made herein as to
the accuracy or adequacy of such information or as to the absence of material
adverse changes in such information subsequent to the dates thereof.
TAX STATUS
For purposes of the following discussions and opinions, it is assumed that
interest on each of the Obligations (including the taxable municipal bonds) is
included in gross income for Federal income tax purposes. At the time of
Closing of each Trust, Chapman and Cutler, special counsel for the Sponsor,
rendered an opinion under then existing law substantially to the effect that:
Each Trust is not an association taxable as a corporation for United States
Federal income tax purposes.
Each Unitholder will be considered the owner of a pro rata portion of each of
a Trust's assets for Federal income tax purposes under Subpart E, Subchapter J
of Chapter 1 of the Internal Revenue Code of 1986 (the "Code"). Each
Unitholder will be considered to have received his pro rata share of income
derived from each such asset when such income is considered to be received by
each Trust. Each Unitholder will also be required to include in taxable income
for Federal income tax purposes, original issue discount with respect to his
interest in any Obligations held by a Trust at the same time and in the same
manner as though the Unitholder were the direct owner of such interest.
Each Unitholder will have a taxable event when an Obligation of a Trust is
disposed of (whether by sale, exchange, liquidation, redemption, or payment at
maturity) or when the Unitholder redeems or sells his Units. A Unitholder's
tax basis in his Units will equal his tax basis in his pro rata portion of all
of the assets of the Trust. Such basis is determined (before the adjustments
described below) by apportioning the tax basis for the Units among each asset
of the Trust assets according to value as of the valuation date nearest the
date of acquisition of the Units. Unitholders must reduce the tax basis of
their Units for their share of accrued interest received, if any, on
Obligations delivered after the date the Unitholders pay for their Units to
the extent that such interest accrued on such Obligations during the period
from the Unitholder's settlement date to the date such Obligations are
delivered to the Trust and, consequently, such Unitholders may have an
increase in taxable gain or reduction in capital loss upon the disposition of
such Units (subject to various non-recognition provisions of the Code). 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 Obligations (whether by sale, exchange, 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
his basis for his fractional interest in the asset disposed of. The basis of
each Unit and of each Obligation which was issued with original issue discount
(including the Treasury Bonds) (or which has market discount) must be
increased by the amount of accrued original issue discount (and market
discount, if the Unitholder elects to include market discount in income as it
accrues) and the basis of each Unit and of each Obligation which was purchased
by a Trust at a premium must be reduced by the annual amortization of bond
premium which the Unitholder has properly elected to amortize under Section
171 of the Code. The tax basis 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 or less than his original cost. The Treasury Bonds held by a
Trust are treated as bonds that were originally issued at an original issue
discount provided, pursuant to a Treasury Regulation (the "Regulation")
issued on December 28, 1992, that the amount of original issue discount
determined under Section 1286 of the Code is not less than a "de
minimis" amount as determined thereunder (as discussed below under
"Original Issue Discount"). Because the Treasury Bonds represent interests
in "stripped" bonds, a Unitholder's initial cost for his pro rata
portion of each Treasury Bond held by a Trust (determined at the time he
acquires his Units, in the manner described above) shall be treated as its
"purchase price" by the Unitholder. Original issue discount is
effectively treated as interest for Federal income tax purposes, and the
amount of original issue discount in this case is generally the difference
between the bond's purchase price and its stated redemption price at maturity.
A Unitholder will be required to include in gross income for each taxable year
the sum of his daily portions of original issue discount attributable to the
Treasury Bonds held by a Trust as such original issue discount accrues and
will, in general, be subject to Federal income tax with respect to the total
amount of such original issue discount that accrues for such year even though
the income is not distributed to the Unitholders during such year to the
extent it is not less than a "de minimis" amount as determined under
the Regulation. To the extent the amount of such discount is less than the
respective "de minimis" amount, such discount shall be treated as
zero. In general, original issue discount accrues daily under a constant
interest rate method which takes into account the semi-annual compounding of
accrued interest. In the case of the Treasury Bonds, this method will
generally result in an increasing amount of income to the Unitholders each
year. Unitholders should consult their tax advisers regarding the Federal
income tax consequences and accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by a Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by him. It should be noted that as a result of the Tax Reform Act of 1986,
certain miscellaneous itemized deductions, such as investment expenses, tax
return preparation fees and employee business expenses will be deductible by
an individual only to the extent they exceed 2% of such individual's adjusted
gross income. Unitholders may be required to treat some or all of the expenses
paid by the Trusts as miscellaneous itemized deductions subject to this
limitation.
Premium. If a Unitholder's tax basis of his pro rata portion in any
Obligations held by a Trust exceeds the amount payable by the issuer of the
Obligation with respect to such pro rata interest upon the maturity of the
Obligation, such excess would be considered premium which may be amortized by
the Unitholder at the Unitholder's election as provided in Section 171 of the
Code. Unitholders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
Original Issue Discount. Certain of the Obligations of the Trusts may have
been acquired with "original issue discount." In the case of any
Obligations of a Trust acquired with "original issue discount" that
exceeds a "de minimis" amount as specified in the Code or in the case
of the Treasury Bonds as specified in the Regulation, such discount is
includable in taxable income of the Unitholders on an accrual basis computed
daily, without regard to when payments of interest on such Obligations are
received. The Code provides a complex set of rules regarding the accrual of
original issue discount. These rules provide that original issue discount
generally accrues on the basis of a constant compound interest rate over the
term of the Obligations. Unitholders should consult their tax advisers as to
the amount of original issue discount which accrues.
Special original issue discount rules apply if the purchase price of the
Obligation by a Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon its
issue price (its "adjusted issue price"). Similarly these special
rules would apply to a Unitholder if the tax basis of his pro rata portion of
an Obligation issued with original issue discount exceeds his pro rata portion
of its adjusted issue price. Unitholders should also consult their tax
advisers regarding these special rules.
It is possible that a Corporate Bond that has been issued at an original issue
discount may be characterized as a "high-yield discount obligation"
within the meaning of Section 163(e)(5) of the Code. To the extent that such
an obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g., dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
Market Discount. If a Unitholder's tax basis in his pro rata portion of
Obligations is less than the allocable portion of such Obligation's stated
redemption price at maturity (or, if issued with original issue discount, the
allocable portion of its "revised issue price"), such difference will
constitute market discount unless the amount of market discount is "de
minimis" as specified in the Code. Market discount accrues daily computed
on a straight line basis, unless the Unitholder elects to calculate accrued
market discount under a constant yield method. The market discount rules do
not apply to Treasury Bonds because they are stripped debt instruments subject
to special original issue discount rules as discussed above. Unitholders
should consult their tax advisors regarding whether such election should be
made and as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Obligations, on the sale, maturity or
disposition of such Obligations by a Trust, and on the sale by a Unitholder of
Units, unless a Unitholder elects to include the accrued market discount in
taxable income as such discount accrues. If a Unitholder does not elect to
annually include accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unitholder which is
incurred to purchase or carry his Units will be reduced by such accrued market
discount. In general, the portion of any interest expense which was not
currently deductible would ultimately be deductible when the accrued market
discount is included in income. Unitholders should consult their tax advisers
regarding whether an election should be made to include market discount in
income as it accrues and as to the amount of interest expense which may not be
currently deductible.
Computation of the Unitholder's Tax Basis. The tax basis of a Unitholder with
respect to his interest in an Obligation is increased by the amount of
original issue discount (and market discount, if the Unitholder elects to
include market discount, if any, on the Obligations held by the Trust in
income as it accrues) thereon properly included in the Unitholder's gross
income as determined for Federal income tax purposes and reduced by the amount
of any amortized premium which the Unitholder has properly elected to amortize
under Section 171 of the Code. A Unitholder's tax basis in his Units will
equal his tax basis in his pro rata portion of all of the assets of the Trust.
Recognition of Taxable Gain or Loss Upon Disposition of Obligations by the
Trusts or Disposition of Units. A Unitholder will recognize taxable capital
gain (or loss) when all or part of his pro rata interest in an Obligation is
disposed of in a taxable transaction for an amount greater (or less) than his
tax basis therefor. As previously discussed, gain realized on the disposition
of the interest of a Unitholder in any Obligation deemed to have been acquired
with market discount will be treated as ordinary income to the extent the gain
does not exceed the amount of accrued market discount not previously taken
into income. Any capital gain or loss arising from the disposition of an
Obligation by a Trust or the disposition of Units by a Unitholder will be
short-term capital gain or loss unless the Unitholder has held his Units for
more than one year in which case such capital gain or loss generally will be
long-term. 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. The tax basis reduction requirements of
the Code relating to amortization of bond premium may under some
circumstances, result in the Unitholder realizing taxable gain when his Units
are sold or redeemed for an amount equal to or less than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed of
his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Obligations represented by the Unit. This may result in
a portion of the gain, if any, on such sale being taxable as ordinary income
under the market discount rules (assuming no election was made by the
Unitholder to include market discount in income as it accrues) as previously
discussed.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
raised tax rates on ordinary income while capital gains remain subject to a
28% maximum stated rate for taxpayers other than corporations. Because some or
all capital gains are taxed at a comparatively lower rate under the Tax Act,
the Tax Act includes a provision that characterizes capital gains as ordinary
income in the case of certain financial transactions that are "conversion
transactions" effective for transactions entered into after April 30,
1993. Unitholders and prospective investors should consult with their tax
advisers regarding the potential effect of this provision on their investment
in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership,
estate or trust) will not be subject to United States Federal income taxes,
including withholding taxes, on interest income (including any original issue
discount) on, or any gain from the sale or other disposition of, his pro rata
interest in any Obligation or the sale of his Units provided that all of the
following conditions are met: (i) the interest income or gain is not
effectively connected with the conduct by the foreign investor of a trade or
business within the United States, (ii) if the interest is United States
source income (which is the case for most securities issued by United States
issuers), the Obligation is issued after July 18, 1984 (which is the case for
each Obligation held by the Trust), then the foreign investor does not own,
directly or indirectly, 10% or more of the total combined voting power of all
classes of voting stock of the issuer of the Obligation and the foreign
investor is not a controlled foreign corporation related (within the meaning
of Section 864(d)(4) of the Code) to the issuer of the Obligation, or (iii)
with respect to any gain, the foreign investor (if an individual) is not
present in the United States for 183 days or more during his or her taxable
year and (iv) the foreign investor provides all certification which may be
required of his status (foreign investors may contact the Sponsor to obtain a
Form W-8 which must be filed with the Trustee and refiled every three calendar
years thereafter). Foreign investors should consult their tax advisers with
respect to United States tax consequences of ownership of Units. On December
7, 1995, the U.S. Treasury Department released proposed legislation that, if
adopted, could affect the United States federal income taxation of such
non-United States Unitholders and the portion of the Trusts' income allocable
to non-United States Unitholders.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest
received after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are
subject to back-up withholding. If the proper taxpayer identification number
and appropriate certification are not provided when requested, distributions
by a Trust to such Unitholder including amounts received upon the redemption
of the Units will be subject to back-up withholding.
In the opinion of special counsel to the Trusts for New York tax matters, each
Trust is not an association taxable as a corporation and the income of such
Trust will be treated as the income of the Unitholders under the existing
income tax laws of the State and City of New York.
The foregoing discussion relates only to United States Federal and New York
State and City income taxes; Unitholders may be subject to state and local
taxation in other jurisdictions (including a foreign investor's country of
residence). Unitholders should consult their tax advisers regarding potential
state, local, or foreign taxation with respect to the Units.
PUBLIC OFFERING
General. The secondary market public offering price is based on the bid
prices of the Obligations in each Trust, an applicable sales charge as
determined in accordance with the table set forth below, which is based upon
the estimated long-term return life of each Trust, cash, if any, in the
Principal Account held or owned by such Trust, and accrued interest and
Purchased Interest, if any. For purposes of computation, Obligations will be
deemed to mature on their expressed maturity dates unless: (a) the Obligations
have been called for redemption or are subject to redemption 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 Obligations 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 charges rates will be applied to each Trust based
upon the estimated long-term return life of such Trust's Portfolio, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years To Maturity Sales Charge Years To Maturity Sales Charge
<S> <C> <C> <C>
1 1.010% 12 4.712%
2 1.523 13 4.822
3 2.041 14 4.932
4 2.302 15 5.042
5 2.564 16 5.152
6 2.828 17 5.263
7 3.093 18 5.374
8 3.627 19 5.485
9 4.167 20 5.597
10 4.384 21 to 30 5.708
11 4.603
</TABLE>
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Obligations in the Trust. Expressed as a percent
of the Public Offering Price (excluding Purchased Interest for those Trusts
which contain Purchased Interest), the sales charge on a Trust consisting
entirely of a portfolio of Obligations with 15 years to maturity would be
4.80%.
Employees of Van Kampen American Capital Distributors Inc. and its
subsidiaries may purchase Units of the Trust at the current Public Offering
Price less the underwriting commission or less the dealer's concession in the
absence of an underwriting commission. Registered representatives of selling
Underwriters may purchase Units of the Trusts at the current Public Offering
Price less the underwriting commission or less the dealer's concession in the
absence of an underwriting commission. Registered representatives of selling
brokers, dealers, or agents may purchase Units of the Trusts at the current
Public Offering Price less the dealer's concession during the initial
offering period and for secondary market transactions.
Units may be purchased in the primary or secondary market at the Public
Offering Price (for purchases which do not qualify for a sales charge
reduction for quantity purchases) less the concession the Sponsor typically
allows to brokers and dealers for purchases (see "Unit Distribution"
below) by (1) investors who purchase Units through registered investment
advisers, certified financial planners and registered broker-dealers who in
each case either charge periodic fees for financial planning, investment
advisory or asset management services, or provide such services in connection
with the establishment of an investment account for which a comprehensive
"wrap fee" charge is imposed, (2) bank trust departments investing funds
over which they exercise exclusive discretionary investment authority and that
are held in a fiduciary, agency, custodial or similar capacity, (3) any person
who for at least 00 days, has been an officer, director or bona fide employee
of any firm offering Units for sale to investors or their immediate family
members (as described above) and (4) officers and directors of bank holding
companies that make Units available directly or through subsidiaries or bank
affiliates. Notwithstanding anything to the contrary in this Prospectus, such
investors, bank trust departments, firm employees and bank holding company
officers and directors who purchase Units through this program will not
receive sales charge reductions for quantity purchases.
Accrued Interest (Accrued Interest To Carry). Included in the Public Offering
Price of Units for Series 34 and prior Series is 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
Obligations in the Trust is actually paid either monthly or semi-annually to
the Trust. However, interest on the Obligations in the Trust is accounted for
daily on an accrual basis. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee because of coupons that
are not yet due. For this reason, the Public Offering Price of Units will have
added to it the proportionate share of accrued and undistributed interest to
the date of settlement.
The second element of accrued interest to carry arises because of the
structure of the Interest Account. The Trustee has no cash for distribution to
Unitholders until it receives interest payments on the Obligations in the
Trust. The Trustee is obligated to provide its own funds, at times, in order
to advance interest distributions. The Trustee will recover these advancements
when such interest is received. Interest Account balances are established so
that it will not be necessary on a regular basis for the Trustee to advance
its own funds in connection with such interest distributions. The Interest
Account balances are also structured so that there will generally be positive
cash balances and since the funds held by the Trustee will be used by it to
earn interest thereon, it benefits thereby. If the Unitholder sells or redeems
all or a portion of his Units or if the Obligations in the Trust are sold or
otherwise removed or if the Trust is liquidated, he will receive at that time
his proportionate share of the accrued interest to carry computed to the
settlement date in the case of sale or liquidation and to the date of tender
in the case of redemption.
Purchased And Accrued Interest. Included in the Public Offering Price of
Units for Series 35-43 is Purchased Interest and accrued interest as described
below.
Purchased Interest. Purchased Interest is a portion of the unpaid interest
that has accrued on the Obligations from the later of the last payment date on
the Obligations or the date of issuance thereof through the First Settlement
Date and is included in the calculation of the Public Offering Price.
Purchased Interest will be distributed to Unitholders as Units are redeemed or
Obligations mature or are called. See "Summary Of Essential Financial
Information" in Part One of this Prospectus for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of the
price Unitholders will receive in connection with the sale or redemption of
Units prior to the termination of the Trust.
Accrued Interest. Accrued Interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although a Trust accrues
such interest daily. Because of this, a Trust always has an amount of interest
earned but not yet collected by the Trustee. For this reason, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of a Trust the amount, if any, of accrued interest paid
on their Units.
As indicated in "Purchased Interest", accrued interest as of the First
Settlement Date includes Purchased Interest. In an effort to reduce the amount
of Purchased Interest which would otherwise have to be paid by Unitholders,
the Trustee may advance a portion of such accrued interest to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement (other than the Purchased Interest already included therein),
less any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unitholders--Distributions of Interest and
Principal."
Because of the varying interest payment dates of the Obligations, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the Purchased Interest and accrued interest from
the purchaser of his Units. Since the Trustee has the use of the funds
(including Purchased Interest) held in the Interest Account for distributions
to Unitholders and since such Account is non-interest-bearing to Unitholders,
the Trustee benefits thereby.
Accrued Interest. Included in the Public Offering Price of Units for Series 44
and subsequent Series is accrued interest. Accrued interest is an accumulation
of unpaid interest on securities which generally is paid semi-annually,
although the Trusts accrue such interest daily. Because of this, each Trust
always has an amount of interest earned but not yet collected by the Trustee.
For this reason, with respect to sales settling subsequent to the First
Settlement Date, the Public Offering Price of Units will have added to it the
proportionate share of accrued interest to the date of settlement. Unitholders
will receive on the next distribution date of the applicable Trust the amount,
if any, of accrued interest paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee will advance the amount of accrued
interest to the Sponsor as the Unitholder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only subsequent to the First Settlement
Date. See "Rights of Unitholders--Distributions of Interest and
Principal".
Because of the varying interest payment dates of the Obligations, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest Account
for distributions to Unitholders and since such Account in
non-interest-bearing to Unitholders, the Trustee benefits thereby.
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 Obligations in the Trust. The price of the Units as of the
opening of business on the date of Part One of this Prospectus was determined
by adding to the determination of the aggregate bid price of the Obligations
in the Trust the amount equal to the applicable sales charge expressed as a
percentage of the aggregate bid price of such value plus Purchased Interest
for those Trusts which include Purchased Interest and dividing the sum so
attained by the number of Units then outstanding. This computation produces a
gross profit equal to such sales charge expressed as a percentage of the
Public Offering Price (excluding Purchased Interest for those Trusts which
contain Purchased Interest). For secondary market purposes such appraisal and
adjustment will be made by the Evaluator as of 4:00 P.M. Eastern time on days
on which the New York Stock Exchange is open for each day on which any Unit of
the Trust is tendered for redemption, and it shall determine the aggregate
value of the Trust as of 4:00 P.M. Eastern time on such other days as may be
necessary.
The aggregate price of the Obligations in the Trust has been and will be
determined on the basis of bid prices (a) on the basis of current market
prices for the Obligations 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 Obligations, on the basis of current market
prices for comparable bonds; (c) by causing the value of the Obligations to be
determined by others engaged in the practice of evaluation, quoting or
appraising comparable bonds; or (d) by any combination of the above. Unless
the Obligations 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.
The Evaluator will consider in its evaluation of Obligations which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of such default (the "Defaulted Obligations") the
value of the insurance guaranteeing interest and principal payments. The value
of the insurance obtained by the Trust will be equal to the difference between
(i) the market value of Defaulted Obligations assuming the exercise of the
right to obtain Permanent Insurance (less the insurance premiums and related
expenses attributable to the purchase of Permanent Insurance) and (ii) the
market value of such Defaulted Obligations not covered by Permanent Insurance.
In addition, the Evaluator will consider the ability of the affected Portfolio
Insurer to meet its commitments under any Trust insurance policy, including
the commitments to issue Permanent Insurance. It is the position of the
Sponsor that this is a fair method of valuing the Obligations and the
insurance obtained by the Trust and reflects a proper valuation method in
accordance with the provisions of the Investment Company Act of 1940.
Although payment is normally made three business days following the order for
purchase, payment may be made prior thereto. However, delivery of certificates
representing Units so ordered will be made three business days following such
order or shortly thereafter. A person will become the owner of Units on the
date of settlement provided payment has been received. Cash, if any, made
available to the Sponsor prior 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.
Unit Distribution. Units repurchased in the secondary market, if any, may be
offered by this prospectus at the secondary market Public Offering Price in
the manner described.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge (equal to the
agency commission) is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting Trust Units;
however, the Glass-Steagall Act does permit certain agency transactions and
the banking regulators have not indicated that these particular agency
transactions are not permitted under such Act. In addition, state securities
laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law. For secondary market transactions,
such concession or agency commission will amount to 70% of the applicable
sales charge. The minimum purchase in the secondary market will be one Unit.
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. See "Underwriting".
Sponsor and Dealer Profits. Dealers will receive the gross sales commission as
described under "Public OfferingGeneral" above.
As stated under "Public Market" below, the Sponsor intends to, and
certain of the dealers may maintain a secondary market for the Units of the
Trust. In so maintaining a market, the Sponsor or any such dealers 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 Obligations in the Trust and
includes a sales charge). In addition, the Sponsor or any such dealer will
also realize profits or sustain losses resulting from a redemption of such
repurchased Units at a price above or below the purchase price for such Units,
respectively.
Public Market. Although they are not obligated to do so, the Sponsor intends
to, and/or certain of the other 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 price of the
Obligations in the portfolio plus Purchased Interest for those Trusts which
contain Purchased Interest plus interest accrued to the date of settlement
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. If the supply of Units exceeds demand or if some other business
reason warrants it, the Sponsor and/or the other dealers may either
discontinue all purchases of Units or discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units and the
Unitholder cannot find another purchaser, a Unitholder desiring to dispose of
his 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 Obligations in the portfolio plus Purchased
Interest for those Trusts which contain Purchased Interest and any accrued
interest. The aggregate bid prices of the underlying Obligations in the Trust
are expected to be less than the related aggregate offering prices. See
"Rights of UnitholdersRedemption of Units". A Unitholder who wishes to
dispose of his Units should inquire of his broker as to current market prices
in order to determine whether there is in existence any price in excess of the
Redemption Price and, if so, the amount thereof.
RIGHTS OF UNITHOLDERS
Certificates. The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the Trustee.
Ownership of Units of the Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor unless a Unitholder or
the Unitholder's registered broker-dealer makes a written request to the
Trustee that ownership be in book entry from. Units are transferable by making
a written request to the Trustee and, in the case of Units evidenced as a
certificate, by presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer. A Unitholder
must sign such written request exactly as his name appears on the records of
the Trustee and on the face of any certificate with the signature guaranteed
by an officer of a participant in the Securities Transfer Agents Medallion
Program ("STAMP"), or in such other manner in addition to, or in
substitution for STAMP, as may be acceptable to the Trustee. In certain
instances the Trustee may require additional documents such as, but not
limited to, Trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority. Certificates will be
issued in denominations of one Unit or any multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require a
Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. Destroyed, stolen,
mutilated or lost certificates will be replaced upon delivery to the Trustee
of satisfactory indemnity, evidence of ownership and payment of expenses
incurred. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distributions of Interest and Principal. Interest received by the Trust,
including that part of the proceeds of any disposition of Obligations which
represents Purchased Interest, if any, and/or accrued interest and including
any insurance proceeds representing interest due on defaulted Obligations, is
credited by the Trustee to the Interest Account. Other receipts are credited
to the Principal Account. All distributions will be net of applicable
expenses. The pro rata share of cash in the Principal Account will be computed
as of the semi-annual record date and distributions to the Unitholders as of
such record date will be made on or shortly after the twenty-fifth day of such
month. For Series 35-43, such computation and distribution will occur monthly.
Proceeds received from the disposition of any of the Obligations after such
record date and prior to the following distribution date will be held in the
Principal Account and not distributed until the next distribution date. The
Trustee is not required to pay interest on funds held in the Principal or
Interest Accounts (but may itself earn interest thereon and therefore benefits
from the use of such funds) nor to make a distribution from the Principal
Account unless the amount available for distribution shall equal at least
$1.00 per Unit.
The distribution to the Unitholders as of each record date will be made on the
following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the Unitholders' pro rata share
of the estimated net annual unit income in the Interest Account after
deducting estimated expenses attributable as is consistent with the
distribution plan chosen. Only monthly distributions will be available for
Series 35-43 of the Trust. Because interest payments are not received by the
Trust at a constant rate throughout the year, such interest distribution may
be more or less than the amount credited to the Interest Account as of the
record date. For the purpose of minimizing fluctuation in the distributions
from the Interest Account, the Trustee is authorized to advance such amounts
as may be necessary to provide interest distributions of approximately equal
amounts. The Trustee shall be reimbursed, without interest, for any such
advances from funds in the Interest Account on the ensuing record date.
Persons who purchase Units will commence receiving distributions only after
such person becomes a record owner. Notification to the Trustee of the
transfer of Units is the responsibility of the purchaser, but in the normal
course of business such notice is provided by the selling broker-dealer. Only
monthly distributions will be available for Series 35-43 of the Trust.
On or before the twenty-fifth 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 forth under "Trust Operating 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 appropriate accounts. In addition, the Trustee may
withdraw from the Interest and Principal Accounts such amounts as may be
necessary to cover purchases of Replacement Obligations and redemption of
Units by the Trustee.
Distribution Options. Distributions of interest received by the Trust,
prorated on an annual basis, will be made monthly unless the Unitholder has
elected to receive them semi-annually. Distributions of funds from the
Principal Account will be made on a semi-annual basis, except under the
special circumstances outlined in "Rights of UnitholdersDistributions of
Interest and Principal" above. Record dates for monthly distributions will
be the first day of each month and record dates for semi-annual distributions
will be the first day of June and December. Distributions will be made on the
fifteenth day of the month subsequent to the respective record dates.
Unitholders of Series 35 through Series 43 of the Trust will receive
distributions of interest and principal only on a monthly basis.
The plan of distribution selected by a Unitholder will remain in effect until
changed. Unitholders purchasing Units in the secondary market will initially
receive distributions in accordance with the election of the prior owner.
Unitholders may change the plan of distribution in which they are
participating. For the convenience of Unitholders, the Trustee will furnish a
card for this purpose; cards may also be obtained upon request from the
Trustee. Unitholders desiring to change their plan of distribution may so
indicate on the card and return it, together with their certificate and such
other documentation that the Trustee may then require, to the Trustee.
Certificates should only be sent by registered or certified mail to minimize
the possibility of their being lost or stolen. If the card and certificate are
properly presented to the Trustee, the change will become effective for all
subsequent distributions.
Reinvestment Option. Unitholders of all unit investment trusts sponsored by
Van Kampen American Capital Distributors, Inc., may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of any Van Kampen American Capital mutual
funds (except for B shares) which are registered in the Unitholder's state of
residence. Such mutual funds are hereinafter collectively referred to as the
"Reinvestment Funds".
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trusts. 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
American Capital Distributors, 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. Unitholders with an existing Guaranteed Reinvestment
Option (GRO) Program account (whereby a sales charge is imposed on
distribution reinvestments) may transfer their existing account into a new GRO
account which allows purchases of Reinvestment Fund shares at net asset value
as described above.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund. A participant may
at any time prior to five days preceding the next succeeding distribution
date, by so notifying the Trustee in writing, elect to terminate his or her
reinvestment plan and receive future distributions of his or her Units in
cash. There will be no charge or other penalty for such termination. Each
Reinvestment Fund, its sponsor and investment adviser shall have the right to
terminate at any time the reinvestment plan relating to such fund.
Reports Provided. The Trustee shall furnish Unitholders in connection with
each distribution a statement of the amount of interest and, if any, the
amount of other receipts (received since the preceding distribution) being
distributed expressed in each case as a dollar amount representing the pro
rata share of each Unit outstanding. For as long as the Trustee deems it to be
in the best interests of the Unitholders, the accounts of the Trust shall be
audited, not less frequently than annually, by independent certified public
accountants and the report of such 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 a statement (i)
as to the Interest Account: interest received (including amounts representing
interest received upon any disposition of the Obligations), deductions for
applicable taxes and for fees and expenses of the Trust (including insurance
costs), for purchases of Replacement Obligations and 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 Obligations and the net proceeds received therefrom
(excluding any portion representing accrued interest and the premium and any
expenses related thereto attributable to the exercise of the right to obtain
Permanent Insurance), the amount paid for purchases of Replacement Obligations
and for redemptions of Units, if any, deductions for payment of applicable
taxes, fees and expenses of the Trust 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 Obligations 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.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Obligations in the 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. Only monthly distributions are
available for Series 35 and subsequent series of the Trust.
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee at its Unit Investment Trust Division, 101 Barclay
Street, New York, New York 10286, of the certificates representing the Units
to be redeemed, duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates) and by payment of
applicable governmental charges, if any. Thus, redemption of Units cannot be
effected until certificates representing such Units have been delivered by the
person seeking redemption or satisfactory indemnity provided. No redemption
fee will be charged. On the third business day following such tender 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.
Purchased Interest, if any, and 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
Obligations 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 Obligations in the 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 the Trust
determined on the basis of (i) the cash on hand in the Trust or monies in the
process of being collected, (ii) the value of the Obligations in the Trust
based on the bid prices of the Obligations, except for those cases in which
the value of insurance has been included, (iii) Purchased Interest, if any,
and (iv) interest accrued thereon, less (a) amounts representing taxes or
other governmental charges payable out of the Trust and (b) the accrued
expenses of the Trust. The Evaluator may determine the value of the
Obligations in the Trust by employing any of the methods set forth in
"Public Offering--Offering Price". In determining the Redemption Price per
Unit no value will be assigned to the portfolio insurance maintained by the
Trust on the Obligations in the Trust unless such Obligations 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 Obligations to cover
redemptions. When Obligations are sold, the size and diversity of the Trust
will be reduced. Such sales may be required at a time when Obligations would
not otherwise be sold and might result in lower prices than might otherwise be
realized. Pursuant to an irrevocable commitment of the Portfolio Insurers, the
Trustee upon the sale of an Obligation has the right to obtain permanent
insurance for such Obligation upon the payment of a single predetermined
insurance premium and any expenses related thereto from the proceeds of the
sale of such Obligation. Accordingly, any Obligation may be sold on an insured
basis.
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
Obligations in the Trust is not reasonably practicable, or for such other
periods as the Securities and Exchange Commission may by order permit. Under
certain extreme circumstances the Sponsor may apply to the Securities and
Exchange Commission for an order permitting a full or partial suspension of
the right of Unitholders to redeem their Units.
TRUST ADMINISTRATION
Sponsor Purchases of Units. The Trustee shall notify the Sponsor of any tender
of Units for redemption. If the Sponsor's bid in the secondary market at that
time equals or exceeds the Redemption Price per Unit, it may purchase such
Units by notifying the Trustee before the close of business on the second
succeeding business day and by making payment therefor to the Unitholder not
later than the day on which the Units would otherwise have been redeemed by
the Trustee. Units held by the Sponsor may 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.
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 Obligations designated by
the Evaluator as the Trustee in its sole discretion may deem necessary. The
Evaluator, in designating such Obligations, will consider a variety of
factors, including (a) interest rates, (b) market value and (c) marketability.
To the extent that Obligations are sold which are current in payment of
principal and interest in order to meet redemption requests and defaulted
Obligations are retained in the portfolio in order to preserve the related
insurance protection applicable to said Obligations, the overall quality of
the Obligations remaining in the Trust's portfolio will tend to diminish. The
Sponsor is empowered, but not obligated, to direct the Trustee to dispose of
Obligations 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 Obligations to issue new obligations in exchange or
substitution for any Obligation 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 Obligation or (2)
in the written opinion of the Sponsor the issuer will probably default with
respect to such Obligation 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 Obligations originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Obligations,
the Trustee is required to give notice thereof to each Unitholder, identifying
the Obligations eliminated and the Obligations substituted therefor. Except as
stated herein and under "Trust Portfolio--Replacement Obligations"
regarding the substitution of Replacement Obligations for Failed Obligations,
the acquisition by the Trust of any obligations other than the Obligations
initially deposited is not permitted.
If any default in the payment of principal or interest on any Obligation
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance, or otherwise, within 30 days, the Trustee is required to
notify the Sponsor thereof. If the Sponsor fails to instruct the Trustee to
sell or to hold such Obligation within 30 days after notification by the
Trustee to the Sponsor of such default, the Trustee may in its discretion sell
the defaulted Obligation and not be liable for any depreciation or loss
thereby incurred.
Amendment or Termination. The Sponsor and the Trustee have the power to amend
the Trust Agreement without the consent of any of the Unitholders when such an
amendment is (a) to cure an ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein or (b) to make such other provisions as
shall not adversely affect the interest of the Unitholders (as determined in
good faith by the Sponsor and the Trustee), provided that the Trust Agreement,
may not be amended to increase the number of Units issuable thereunder or to
permit the deposit or acquisition of obligations either in addition to or in
substitution for any of the Obligations initially deposited in the Trust,
except for the substitution of certain refunding obligations for such
Obligations. In the event of any amendment, the Trustee is obligated to notify
promptly all Unitholders of the substance of such amendment.
The Trust may be terminated at any time by consent of Unitholders representing
51% of the Units of the Trust then outstanding or by the Trustee when the
value of the Trust, as shown by any semi-annual evaluation, is less than that
indicated under "Summary of Essential Financial Information".
The Trust Agreement provides that the Trust shall terminate upon the
redemption, sale or other disposition of the last Obligation held in the
Trust, but in no event shall it continue beyond the end of the year preceding
the fiftieth anniversary of the Trust Agreement. In the event of termination
of the Trust, written notice thereof will be sent by the Trustee to each
Unitholder thereof at his address appearing on the registration books of the
Trust maintained by the Trustee, such notice specifying the time or times at
which the Unitholder may surrender his certificate or certificates for
cancellation. Within a reasonable time thereafter the Trustee shall liquidate
any Obligations then held in the Trust and shall deduct from the funds of the
Trust any accrued costs, expenses or indemnities provided by the Trust
Agreement, including estimated 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 Obligations 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 Obligations 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
Unitholders 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.
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 negligence (gross negligence in the case of the
Sponsor) in the performance of their duties or by reason of their reckless
disregard of their obligations and duties hereunder. The Trustee shall not be
liable for depreciation or loss incurred by reason of the sale by the Trustee
of any of the Obligations. 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 Obligations or upon the interest thereon or
upon it as Trustee under the Trust Agreement or upon or in respect of the
Trust which the Trustee may be required to pay under any present or future law
of the Untied 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.
Sponsor. Van Kampen American Capital Distributors, Inc., a Delaware
corporation, is the Sponsor of the Trust. Van Kampen American Capital
Distributors, Inc. is primarily owned by Clayton, Dubilier & Rice, Inc., a New
York-based private investment firm. Van Kampen American Capital Distributors,
Inc. management owns a significant minority equity position. Van Kampen
American Capital Distributors, 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 offices
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181, (708) 684-6000 and
2800 Post Oak Boulevard, Houston, Texas, 77056, (713) 993-0500. It maintains a
branch office in Philadelphia and has regional representatives in Atlanta,
Dallas, Los Angeles, New York, San Francisco, Seattle and Tampa. As of
December 31, 1995 the total stockholders' equity of Van Kampen American
Capital Distributors, Inc. was $123,165,000 (unaudited). (This paragraph
relates only to the Sponsor and not to the Trust or any series thereof. The
information is included herein only for the purpose of informing investors as
to the financial responsibility of the Sponsor and its ability to carry out
its contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
As of December 31, 1995, the Sponsor and its affiliates managed or supervised
approximately $56.0 billion of investment products, of which over $24.8
billion is invested in municipal securities. The Sponsor and its affiliates
managed $44.0 billion of assets, consisting of $22.2 billion for 63 open end
mutual funds (of which 47 are distributed by Van Kampen American Capital
Distributors, Inc.), $11.4 billion for 38 closed-end funds and $5.6 billion
for 84 institutional accounts. The Sponsor has also deposited approximately
$26 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 Municipals
Income Trust(R)or the IM-IT(R)trust. The Sponsor also provides
surveillance and evaluation services at cost for approximately $13 billion of
unit investment trust assets outstanding. Since 1976, the Sponsor has serviced
over two million investor accounts, opened through retail distribution firms.
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.
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 Obligations for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the certificates issued by
the Trust to, every Unitholder of the Trust. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during usual
business hours. The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Rights of UnitholdersReports 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 Obligations held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign and
be discharged of the Trust created by the Trust Agreement by executing an
instrument in writing and filing the same with the Sponsor. The Trustee or
successor trustee must mail a copy of the notice of resignation to all
Unitholders then of record, not less than 60 days before the date specified in
such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor
trustee promptly. If, upon such resignation, no successor trustee has been
appointed and has accepted the appointment within 30 days after notification,
the retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The Sponsor may remove the Trustee and appoint a
successor trustee as provided in the Trust Agreement at any time with or
without cause. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original trustee shall invest in the successor. The
resignation or removal of a Trustee becomes effective only when the successor
trustee accepts its appointment as such or when a court of competent
jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it may be
consolidated, or any corporation resulting from any merger or consolidation to
which a Trustee shall be a party, shall be the successor trustee. The Trustee
must be a banking corporation organized under the laws of the United States or
any State and having at all times an aggregate capital, surplus and undivided
profits of not less than $5,000,000.
OTHER MATTERS
Legal Opinions. The legality of the Units offered hereby has been passed upon
by Chapman and Cutler, 111 West Monroe Street, Chicago, Illinois 60603, as
counsel for the Sponsor. Various counsel have acted as counsel for the Trustee.
Independent Certified Public Accountants. The statement of condition and the
related portfolio included in Part One of this Prospectus have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their report in this Prospectus, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
DESCRIPTION OF OBLIGATION RATINGS
Standard & Poor's. A brief description of the applicable Standard & Poor's
rating symbols and their meanings follows:
A 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 may take into consideration obligors such as
guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
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 - Bonds rated AAA have the highest rating assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal
although the are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated categories.
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 bonds in this category than for bonds in higher rated categories.
Plus (+) or Minus (-): 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: The symbol "(p)" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by 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 of the project, makes no comment on
the likelihood of, or the risk of default upon failure of, such completion.
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 compromise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuations
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities. These Aa bonds are high grade, their market value virtually
immune to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
credit circumstances during a sustained period of depressed business
conditions. During periods of normalcy, bonds of this quality frequently move
in parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
Baa - Bonds which are rated Baa are considered as lower 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. The market value of Baa-rated bonds is more sensitive to changes in
economic circumstances, and aside from occasional speculative factors applying
to some bonds of this class, Baa market valuations move in parallel with Aaa,
Aa and A obligations during periods of economic normalcy, except in instances
of oversupply.
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.
*As published by the rating companies.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers.This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, securities in any state to any
person to whom it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers.This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, securities in any state to any
person to whom it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any representation
not contained in the Prospectus and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Title Page
<S> <C>
The Trust................................................. 2
Investment Objectives and Portfolio Selection............. 2
Trust Portfolio........................................... 3
Risk Factors.............................................. 3
Estimated Current Return and Estimated Long-Term Return... 5
Trust Operating Expenses.................................. 5
Insurance on the Obligations.............................. 5
Tax Status................................................ 8
Public Offering........................................... 10
Rights of Unitholders..................................... 12
Trust Administration...................................... 14
Other Matters............................................. 17
Description of Obligation Ratings ........................ 17
</TABLE>
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 Trust has filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, and to which reference is
herby made.
VAN KAMPEN MERRITT
INSURED INCOME TRUST
and
VAN KAMPEN AMERICAN CAPITAL
INSURED INCOME TRUST
PROSPECTUS
PART TWO
Note: This Prospectus May Be Used Only
When Accompanied by Part One. Both
Parts of this Prospectus should be retained
for future reference.
Dated as of the date
of the Prospectus
Part I accompanying
the Prospectus
Part II.
Sponsor:
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
A Wealth of Knowledge A Knowledge of Wealth(sm)
VAN KAMPEN AMERICAN CAPITAL
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, Van Kampen Merritt Insured Income Trust, Series 18, 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 24th
day of June, 1996.
Van Kampen Merritt Insured Income Trust, Series
18
(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 June 24, 1996:
Signature Title
Don G. Powell Chairman and Chief )
Executive Officer )
)
William R. Molinari President and Chief )
Operating Officer )
)
Ronald A. Nyberg Executive Vice President )
and General Counsel )
)
William R. Rybak Executive Vice President and )
Chief Financial Officer )
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 and Investors' Quality Tax-Exempt Trust, Multi-Series 203
(File No. 33-65744) and with the Registration Statement on Form S-6
of Insured Municipals Income Trust, 170th Insured Multi-Series (File
No. 33-55891) and the same are hereby incorporated herein by this
reference.
Consent of Independent Certified Public Accountants
We have issued our report dated April 26, 1996 accompanying the
financial statements of Van Kampen Merritt Insured Income Trust, Series
18 as of February 29, 1996, and for the period then ended, contained in
this Post-Effective Amendment No. 4 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
June 24, 1996
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