File No. 33-50618
CIK#890488
Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 6
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 20 and 21(Intermediate)
(Exact Name of Trust)
Van Kampen Funds Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
Van Kampen Funds 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 August 25, 1998 pursuant to paragraph (b) of Rule 485.
Series 20
9,275 Units
VAN KAMPEN MERRITT
INSURED INCOME TRUST
- --------------------------------------------------------------------------------
PROSPECTUS PART ONE
NOTE: Part I of this Prospectus may not be distributed unless accompanied
by Part II.
Please retain both parts of this Prospectus for future reference.
- --------------------------------------------------------------------------------
THE TRUST
This 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").
PUBLIC OFFERING PRICE
The Public Offering Price of the Units of each Trust includes 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".
ESTIMATED CURRENT AND LONG-TERM RETURNS
Estimated Current and Long-Term Returns to Unitholders are indicated
under "Summary of Essential Financial Information". The methods of calculating
Estimated Current Returns and Estimated Long-Term Return are set forth in Part
II of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE 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 August 25, 1998
Van Kampen
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 20
Summary of Essential Financial Information
As of June 9, 1998
Sponsor: Van Kampen Funds Inc.
(On July 13, 1998 Van Kampen American Capital
Distributors, Inc. changed its name to
Van Kampen Funds Inc.)
Evaluator: American Portfolio Evaluation Service
(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 $ 5,611,000
Number of Units 9,275
Fractional Undivided Interest in Trust per Unit 1/9,275
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio $ 5,384,869.31
Aggregate Bid Price of Securities per Unit $ 580.58
Sales charge 3.092% (3.00% of Public Offering Price excluding principal cash) $ 17.80
Principal Cash per Unit $ (4.78)
Public Offering Price per Unit (1) $ 593.60
Redemption Price per Unit $ 575.80
Excess of Public Offering Price per Unit over Redemption Price per Unit $ 17.80
Minimum Value of the Trust under which Trust Agreement may be terminated $ 2,360,000.00
Annual Premium on Portfolio Insurance $ 14,460.65
</TABLE>
Minimum Principal Distribution $1.00 per Unit
Date of Deposit August 20, 1992
Evaluator's Annual Supervisory Fee Maximum of $.25 per Unit
Evaluator's Annual Evaluators Fee (4) $3,092
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 receipts 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 $ 44.50 $ 44.50
Less: Estimated Annual Expense excluding Insurance $ 1.45 $ 1.13
Less: Annual Premium on Portfolio Insurance $ 1.56 $ 1.56
Estimated Net Annual Interest Income per Unit $ 41.49 $ 41.81
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income $ 41.49 $ 41.81
Divided by 12 and 2, respectively $ 3.46 $ 20.91
Estimated Daily Rate of Net Interest Accrual per Unit $ .11525 $ .11614
Estimated Current Return Based on Public Offering Price (2)(3) 6.93% 6.99%
Estimated Long-Term Return (2)(3) 6.17% 6.22%
</TABLE>
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 $.91 and $51 per $1,000 principal amount of
Obligations respectively, for those portions of
the Trust under the monthly and semi-annual
distribution plans.
- --------------------------------------------------------------------------------
(1)Plus accrued interest to the date of settlement (three business days after
purchase) of $9.02 and $8.91 for those portions of the Trust under the
monthly and semi-annual distribution plans.
(2)The Estimated Current Returns and Estimated Long-Term Returns are described
under "Estimated Current and Long-Term Returns" in Part II.
(3)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.
(4)Notwithstanding information to the Contrary in Part II 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
Obligations 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.
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 a Division of The
McGraw-Hill Companies or "Baa" by Moody's Investors Service, Inc., or, if not
rated the Obligations had, in the opinion of the Sponsor, credit characteristics
sufficiently similar to credit characteristics of interest-bearing tax-exempt
Obligations that were so rated as to be acceptable acquisition by the Fund (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 those
issues listed under "Portfolio" herein, all of which are insured corporate,
taxable municipal or government debt Obligations.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
1993 (1) 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value per Unit at
beginning of period $ 951.00 $ 998.68 $ 872.64 $ 862.26 $ 854.49
============ ============ ============ ============ ============
Net asset value per Unit at
end of period $ 998.68 $ 872.64 $ 862.26 $ 854.49 $ 823.39
============ ============ ============ ============ ============
Distributions to Unitholders of investment
income including accrued interest paid
on Units redeemed (average Units
outstanding for entire period) (2) $ 24.27 $ 73.20 $ 67.87 $ 68.27 $ 66.23
============ ============ ============ ============ ============
Distributions to Unitholders from Obligation
redemption proceeds (average Units
outstanding for entire period) $ -- $ 87.16 $ -- $ 23.39 $ 25.50
============ ============ ============ ============ ============
Unrealized appreciation (depreciation) of
Obligations (per Unit outstanding at
end of period) $ 21.76 $ (37.46) $ (9.94) $ 20.19 $ (2.31)
============ ============ ============ ============ ============
Distributions of investment income by
frequency of payment (2)
Monthly $ 28.30 $ 72.28 $ 66.84 $ 67.56 $ 64.86
Semiannual $ 3.70 $ 75.06 $ 67.36 $ 67.08 $ 67.49
Units outstanding at end of period 12,042 11,936 11,480 11,134 10,719
</TABLE>
- --------------------------------------------------------------------------------
(1)For the period from August 20, 1992 (date of deposit) through April 30,
1993.
(2)Unitholders may elect to receive distributions on a monthly or
semi-annual basis.
<TABLE>
<CAPTION>
PER UNIT INFORMATION (continued)
1998
-------------
<S> <C>
Net asset value per Unit at
beginning of period $ 823.39
=============
Net asset value per Unit at
end of period $ 586.88
=============
Distributions to Unitholders of investment
income including accrued interest paid
on Units redeemed (average Units
outstanding for entire period) (2) $ 57.53
=============
Distributions to Unitholders from Obligation
redemption proceeds (average Units
outstanding for entire period) $ 280.79
=============
Unrealized appreciation (depreciation) of
Obligations (per Unit outstanding at
end of period) $ 40.14
=============
Distributions of investment income by
frequency of payment (2)
Monthly $ 54.61
Semiannual $ 62.26
Units outstanding at end of period 9,645
</TABLE>
- --------------------------------------------------------------------------------
(1)For the period from August 20, 1992 (date of deposit) through April 30,
1993
(2)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 Funds Inc. (on July 13, 1998 Van
Kampen American Capital Distributors, Inc. changed its name to Van Kampen Funds
Inc.) and the Unitholders of Van Kampen Merritt Insured Income Trust Series 20:
We have audited the accompanying statements of condition (including the
analyses of net assets) and the related portfolio of Van Kampen Merritt Insured
Income Trust Series 20 as of April 30, 1998, and the related statements of
operations and changes in net assets for the three years ended April 30, 1998.
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 securities owned at April 30, 1998 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 financial statements referred to above present fairly, in
all material respects, the financial position of Van Kampen Merritt Insured
Income Trust Series 20 as of April 30, 1998, and the results of operations and
changes in net assets for the three years ended April 30, 1998, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
June 26, 1998
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 20
Statements of Condition
April 30, 1998
<CAPTION>
VIIT
---------------
<S> <C>
Trust property
Cash $ --
Obligations at market value, (cost $5,327,118) (note 1) 5,615,163
Accrued interest 128,835
Receivable for securities sold --
---------------
$ 5,743,998
===============
Liabilities and interest to Unitholders
Cash overdraft $ 36,980
Redemptions payable 46,593
Interest to Unitholders 5,415,655
---------------
$ 5,743,998
===============
Analyses of Net Assets
Interest of Unitholders (9,645 Units of fractional undivided interest outstanding)
Cost to original investors of 12,056 Units (note 1) $ 12,056,000
Less initial underwriting commission (note 3) 590,636
---------------
11,465,364
Less redemption of Units (2,411 Units) 1,786,370
---------------
9,678,994
Undistributed net investment income
Net investment income 4,189,767
Less distributions to Unitholders 4,056,227
---------------
133,540
Realized gain (loss) on sale or redemption of Obligations 43,275
Unrealized appreciation (depreciation) of Obligations (note 2) 43,275
Distributions to Unitholders of Obligations sale or redemption proceeds (4,483,429)
---------------
Net asset value to Unitholders $ 5,415,655
===============
Net asset value per Unit (Units outstanding of 9,645) $ 561.50
===============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 20
Statements of Operations
Years ended April 30,
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Investment income
Interest income $ 782,675 $ 738,689 $ 539,564
Expenses
Trustee fees and expenses 11,381 10,690 10,528
Evaluator fees 3,412 3,408 3,092
Insurance expense 24,233 22,987 17,370
Supervisory fees 1,947 3,379 2,788
---------- ---------- ----------
Total expenses 40,973 40,464 33,778
---------- ---------- ----------
Net investment income 741,702 698,225 505,786
Realized gain (loss) from sale or redemption of Obligations
Proceeds 569,976 623,775 3,481,011
Cost 584,892 644,841 3,386,517
---------- ---------- ----------
Realized gain (loss) (14,916) (21,066) 94,494
Net change in unrealized appreciation (depreciation) of Obligations 224,845 (24,805) 387,183
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 951,631 $ 652,354 $ 987,463
========== ========== ==========
Statements of Changes in Net Assets
Years ended April 30,
1996 1997 1998
---------- ---------- ----------
Increase (decrease) in net assets Operations:
Net investment income $ 741,702 $ 698,225 $ 505,786
Realized gain (loss) on sale or redemption of Obligation (14,916) (21,066) 94,494
Net change in unrealized appreciation (depreciation) of Obligations 224,845 (24,805) 387,183
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations 951,631 652,354 987,463
Distributions to Unitholders from:
Net investment income (772,656) (719,973) (592,665)
Sale or redemption proceeds of Obligations (264,766) (277,180) (2,892,745)
Redemption of Units (299,005) (343,245) (667,511)
---------- ---------- ----------
Total increase (decrease) (384,796) (688,044) (3,165,458)
Net asset value to Unitholders
Beginning of period 9,898,723 9,513,927 8,825,883
---------- ---------- ----------
End of period (including undistributed net investment income of
$242,166, $220,418 and $133,540, respectively) $9,513,927 $8,825,883 $5,660,425
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT INSURED INCOME TRUST PORTFOLIO as of April 30, 1998
- ------------------------------------------------------------------------------------------------------------------------
Port- Redemption Market
folio Aggregate Rating Feature Value
Item Principal Name of Issuer, Title, Interest Rate and Maturity Date (Note 2) (Note 2) (Note 1)
- ------ ------------- --------------------------------------------------------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
A $ 840,000 Greater Orlando Aviation Authority, Airport Facilities Taxable
Subordinated Revenue Bonds, Series 1992 (MBIA Insured) 2002 @ 102
8.200% Due 10/01/12 AAA 2008 @ 100 S.F. $ 897,196
- ------------------------------------------------------------------------------------------------------------------------
B - 0 - Southern California Edison
8.625% Due 03/15/18 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
C 700,000 U.S. Treasury Strip
0.000% Due 02/15/19 NR 197,722
- ------------------------------------------------------------------------------------------------------------------------
D - 0 - Georgia Power Company
8.625% Due 06/01/22 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
E - 0 - Public Service Electric and Gas
8.500% Due 06/01/22 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
F 731,000 Alabama Power Company
8.300% Due 07/01/22 A+ 1998 @ 104.99 760,781
- ------------------------------------------------------------------------------------------------------------------------
G - 0 - Florida Power and Light
8.500% Due 07/01/22 - 0 -
- ------------------------------------------------------------------------------------------------------------------------
H 1,000,000 Niagara Mohawk Power
8.500% Due 07/01/23 BB+ 2002 @ 103.89 1,036,070
- ------------------------------------------------------------------------------------------------------------------------
I 1,135,000 DuQuesne Light Company
8.375% Due 05/15/24 BBB+ 1998 @ 105.08 1,181,637
- ------------------------------------------------------------------------------------------------------------------------
J 1,445,000 Texas Utilities Electric
8.500% Due 08/01/24 BBB+ 2002 @ 104.05 1,541,757
------------- -------------
$ 5,851,000 $ 5,615,163
============= =============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
VAN KAMPEN MERRITT INSURED INCOME TRUST
Notes to Financial Statements
April 30, 1996, 1997 and 1998
- --------------------------------------------------------------------------------
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 each of
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, the 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.
Obligation Cost - The original cost to the Trust was based on the
determination by Interactive Data Corporation of the offering prices of the
Obligations on the date of deposit (August 20, 1992). Since the valuation is
based upon the bid prices, such Trust recognized a downward adjustment of
$85,875 on the date of deposit resulting from the difference between the bid and
offering prices. This downward adjustment was included in the aggregate amount
of unrealized depreciation reported in the financial statements for the period
ended April 30, 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 a taxable entity for Federal income
tax purposes. Each Unitholder is considered to be the owner of a pro rata
portion of such 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 Obligations are not rated by
Standard & Poor's, A Division of the McGraw-Hill Companies. N/R indicates that
the Obligation 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 Obligations. For a brief description of rating
symbols and their related meanings, see "Description of Obligations Ratings" in
the Information Supplement.
Redemption Feature - There is shown under this heading the year in which each
issue of Obligations is initially or currently callable and the call price for
that year. Each issue of Obligations continues to be callable at declining
prices thereafter (but not below par value) except for original issue discount
Obligations 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
Obligations "P.R." indicates an Obligation has been prerefunded. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed Obligations have an
offering side evaluation which represents a premium over par. To the extent that
the Obligations 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 Obligations 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 Obligations 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 "Federal Tax Status in Part II.
NOTE 2 - PORTFOLIO (continued)
Insurance - Insurance coverage providing for the timely payment when due of
all principal and interest on the Obligations in the Trust has been obtained by
the Trust or by one of the Preinsured Obligation Insurers (as indicated in the
Obligation name). Such insurance does not guarantee the market value of the
Obligations or the value of the Units. For Obligations covered under the Trust's
insurance policy the insurance is effective only while Obligations 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 Obligation involved is payable
by the issuer. Insurance expense for the period reflects adjustments for
redeemed or sold Obligations
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 Obligations or
indication of the probability of such default. In the opinion of the Evaluator,
there is no indication of a probable default of Obligations in the portfolio as
of the date of these financial statements.
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at April 30, 1998 is as follows:
Unrealized Appreciation $ 288,045
Unrealized Depreciation --
-----------
$ 288,045
===========
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 each 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
Obligations) 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 Obligations) 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 each of the Trusts ($.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 each of 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 three years ended April 30, 1996, 1997 and 1998, 346 Units, 415
Units and 1,074 Units, respectively, were presented for redemption.
INTERMEDIATE Series 21
2,694 Units
VAN KAMPEN MERRITT
INSURED INCOME TRUST
- --------------------------------------------------------------------------------
PROSPECTUS PART ONE
NOTE: Part I of this Prospectus may not be distributed unless accompanied
by Part II.
Please retain both parts of this Prospectus for future reference.
- --------------------------------------------------------------------------------
THE TRUST
This 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").
PUBLIC OFFERING PRICE
The Public Offering Price of the Units of each Trust includes 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".
ESTIMATED CURRENT AND LONG-TERM RETURNS
Estimated Current and Long-Term Returns to Unitholders are indicated
under "Summary of Essential Financial Information". The methods of calculating
Estimated Current Returns and Estimated Long-Term Return are set forth in Part
II of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE 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 August 25, 1998
Van Kampen
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATE SERIES 21
Summary of Essential Financial Information
As of June 9, 1998
Sponsor: Van Kampen Funds Inc.
(On July 13, 1998 Van Kampen American Capital
Distributors, Inc. changed its name to
Van Kampen Funds Inc.)
Evaluator: American Portfolio Evaluation Service
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
VIIN
-----------------
<S> <C>
General Information
Principal Amount (Par Value) of Securities $ 1,070,000
Number of Units 2,694
Fractional Undivided Interest in Trust per Unit 1/2,694
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio $ 1,029,873.30
Aggregate Bid Price of Securities per Unit $ 382.28
Sales charge 2.040% (2.00% of Public Offering Price excluding principal cash) $ 7.78
Principal Cash per Unit $ (.64)
Public Offering Price per Unit (1) $ 389.42
Redemption Price per Unit $ 381.64
Excess of Public Offering Price per Unit over Redemption Price per Unit $ 7.78
Minimum Value of the Trust under which Trust Agreement may be terminated $ 1,010,000.00
Annual Premium on Portfolio Insurance $ 1,031.25
</TABLE>
Minimum Principal Distribution $1.00 per Unit
Date of Deposit August 20, 1992
Evaluator's Annual Supervisory Fee Maximum of $.25 per Unit
Evaluator's Annual Evaluators Fee (4) $440
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 receipts 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 $ 20.94 $ 20.94
Less: Estimated Annual Expense excluding Insurance $ 1.34 $ 1.14
Less: Annual Premium on Portfolio Insurance $ .38 $ .38
Estimated Net Annual Interest Income per Unit $ 19.22 $ 19.42
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income $ 19.22 $ 19.42
Divided by 12 and 2, respectively $ 1.60 $ 9.71
Estimated Daily Rate of Net Interest Accrual per Unit $ .05340 $ .05394
Estimated Current Return Based on Public Offering Price (2)(3) 4.93% 4.98%
Estimated Long-Term Return (2)(3) 5.21% 5.26%
</TABLE>
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 $.91 and $.51 per $1,000 principal amount of
Obligations respectively, for those portions of
the Trust under the monthly and semi-annual
distribution plans.
- --------------------------------------------------------------------------------
(1)Plus accrued interest to the date of settlement (three business days after
purchase) of $.70 and $.31 for those portions of the Trust under the
monthly and semi-annual distribution plans.
(2)The Estimated Current Returns and Estimated Long-Term Returns are described
under "Estimated Current and Long-Term Returns" in Part II.
(3)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.
(4)Notwithstanding information to the Contrary in Part II 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
Obligations 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.
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, A Division of the
McGraw-Hill Companies 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 those issues
listed under "Portfolio" herein, all of which are insured corporate, taxable
municipal or government debt Obligations.
<TABLE>
<CAPTION>
PER UNIT INFORMATION
1993 (1) 1994 1995 1996 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value per Unit at
beginning of period $ 991.89 $ 1,019.86 $ 343.31 $ 347.41 $ 362.02
============ ============ ============ ============ ============
Net asset value per Unit at
end of period $ 1,019.86 $ 343.31 $ 347.41 $ 362.02 $ 365.97
============ ============ ============ ============ ============
Distributions to Unitholders of investment
income including accrued interest paid
on Units redeemed (average Units
outstanding for entire period) (2) $ 20.02 $ 69.48 $ 22.37 $ 22.23 $ 20.82
============ ============ ============ ============ ============
Distributions to Unitholders from Obligations
redemption proceeds (average Units
outstanding for entire period) $ -- $ 643.78 $ -- $ -- $ --
============ ============ ============ ============ ============
Unrealized appreciation (depreciation) of
Obligations (per Unit outstanding at
end of period) $ 2.26 $ (14.09) $ 5.75 $ 17.28 $ 4.14
============ ============ ============ ============ ============
Distributions of investment income by
frequency of payment (2)
Monthly $ 25.02 $ 64.52 $ 21.49 $ 21.64 $ 20.46
Semiannual $ 2.70 $ 79.12 $ 22.94 $ 21.61 $ 21.46
Units outstanding at end of period 5,050 4,638 3,953 3,479 3,173
</TABLE>
- --------------------------------------------------------------------------------
(1)For the period from August 20, 1992 (date of deposit) through April 30,
1993.
(2)Unitholders may elect to receive distributions on a monthly or
semi-annual basis.
<TABLE>
<CAPTION>
PER UNIT INFORMATION (continued)
1998
-------------
<S> <C>
Net asset value per Unit at
beginning of period $ 365.97
=============
Net asset value per Unit at
end of period $ 385.05
=============
Distributions to Unitholders of investment
income including accrued interest paid
on Units redeemed (average Units
outstanding for entire period) (2) $ 20.27
=============
Distributions to Unitholders from Obligation
redemption proceeds (average Units
outstanding for entire period) $ --
=============
Unrealized appreciation (depreciation) of
Obligations (per Unit outstanding at
end of period) $ 20.14
=============
Distributions of investment income by
frequency of payment (2)
Monthly $ 19.71
Semiannual $ 20.36
Units outstanding at end of period 2,699
</TABLE>
- --------------------------------------------------------------------------------
(1)For the period from August 20, 1992 (date of deposit) through April 30,
1993.
(2)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 Funds Inc. (on July 13, 1998
Van Kampen American Capital Distributors, Inc. changed its name to Van Kampen
Funds Inc.) and the Unitholders of Van Kampen Merritt Insured Income Trust,
Intermediate Series 21:
We have audited the accompanying statements of condition (including the
analyses of net assets) and the related portfolio of Van Kampen Merritt Insured
Income Trust, Intermediate Series 21 as of April 30, 1998, and the related
statements of operations and changes in net assets for the three years ended
April 30, 1998. 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 securities owned at April 30, 1998 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 financial statements referred to above present fairly, in
all material respects, the financial position of Van Kampen Merritt Insured
Income Trust, Intermediate Series 21 as of April 30, 1998, and the results of
operations and changes in net assets for the three years ended April 30, 1998,
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
June 26, 1998
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATESERIES 21
Statements of Condition
April 30, 1998
<CAPTION>
VIIN
---------------
<S> <C>
Trust property
Cash $ --
Obligations at market value, (cost $967,463) (note 1) 1,063,910
Accrued interest 10,108
Receivable for securities sold --
---------------
$ 1,074,018
===============
Liabilities and interest to Unitholders
Cash overdraft $ 34,772
Redemptions payable --
Interest to Unitholders 1,039,246
---------------
$ 1,074,018
===============
Analyses of Net Assets
Interest of Unitholders (2,699 Units of fractional undivided interest outstanding)
Cost to original investors of 5,050 Units (note 1) $ 5,163,928
Less initial underwriting commission (note 3) 154,865
---------------
5,009,063
Less redemption of Units (2,351 Units) 916,606
---------------
4,092,457
Undistributed net investment income
Net investment income 759,049
Less distributions to Unitholders 748,272
---------------
10,777
Realized gain (loss) on sale or redemption of Obligations (10,403)
Unrealized appreciation (depreciation) of Obligations (note 2) 96,447
Distributions to Unitholders of Obligations sale or redemption proceeds (3,150,032)
---------------
Net asset value to Unitholders $ 1,039,246
===============
Net asset value per Unit (Units outstanding of 2,699) $ 385.05
===============
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATE SERIES 21
Statements of Operations
Years ended April 30,
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Investment income
Interest income $ 85,817 $ 73,654 $ 62,007
Expenses
Trustee fees and expenses 2,546 2,390 2,745
Evaluator fees 470 486 440
Insurance expense 2,004 1,695 1,176
Supervisory fees 678 1,072 809
---------- ---------- ----------
Total expenses 5,698 5,643 5,170
---------- ---------- ----------
Net investment income 80,119 68,011 56,837
Realized gain (loss) from sale or redemption of Obligations
Proceeds 230,386 112,446 142,110
Cost 227,475 112,987 140,737
---------- ---------- ----------
Realized gain (loss) 2,911 (541) 1,373
Net change in unrealized appreciation (depreciation) of Obligations 60,131 13,132 54,357
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 143,161 $ 80,602 $ 112,567
========== ========== ==========
Statements of Changes in Net Assets
Years ended April 30,
1996 1997 1998
---------- ---------- ----------
Increase (decrease) in net assets Operations:
Net investment income $ 80,119 $ 68,011 $ 56,837
Realized gain (loss) on sale or redemption of Obligation 2,911 (541) 1,373
Net change in unrealized appreciation (depreciation) of Obligations 60,131 13,132 54,357
---------- ---------- ----------
Net increase (decrease) in net assets resulting from operations 143,161 80,602 112,567
Distributions to Unitholders from:
Net investment income (83,069) (68,741) (58,391)
Sale or redemption proceeds of Obligations -- -- --
Redemption of Units (173,946) (110,089) (176,164)
---------- ---------- ----------
Total increase (decrease) (113,854) (98,228) (121,988)
Net asset value to Unitholders
Beginning of period 1,373,316 1,259,462 1,161,234
---------- ---------- ----------
End of period (including undistributed net investment income of
$242,166, $220,418 and $10,777, respectively) $1,259,462 $1,161,234 $1,039,246
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
<CAPTION>
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATE SERIES PORTFOLIO as of April 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
Port- Redemption Market
folio Aggregate Rating Feature Value
Item Principal Name of Issuer, Title, Interest Rate and Maturity Date (Note 2) (Note 2) (Note 1)
- ------ ------------- ------------------------------------------------------ ------- ---------- -----------------
<S> <C> <C> <C> <C>
A $ 610,000 Greater Orlando Aviation Authority, Airport Facilities
Taxable Subordinated Revenue Bonds, Series 1992
(MBIA Insured)
7.100% Due 10/01/01 AAA $ 622,572
- -----------------------------------------------------------------------------------------------------------------------
B - 0 - Detroit Edison Company
7.375% Due 11/15/01 - 0 -
- -----------------------------------------------------------------------------------------------------------------------
C - 0 - Public Service Electric and Gas
7.625% Due 11/15/01 - 0 -
- -----------------------------------------------------------------------------------------------------------------------
D - 0 - Niagara Mohawk Power
7.625% Due 02/01/02 - 0 -
- -----------------------------------------------------------------------------------------------------------------------
E 195,000 Texas Utilities Electric
8.000% Due 06/01/02 BBB+ 205,043
- -----------------------------------------------------------------------------------------------------------------------
F - 0 - Connecticut Light and Power
7.625% Due 08/01/02 - 0 -
- -----------------------------------------------------------------------------------------------------------------------
G 300,000 U. S. Treasury Strip
0.000% Due 08/15/02 NR 236,295
- -----------------------------------------------------------------------------------------------------------------------
H - 0 - Pacific Gas and Electric
7.500% Due 06/01/04 - 0 -
------------- -------------
$ 1,105,000 $ 1,063,910
============= =============
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATE SERIES 21
Notes to Financial Statements
April 30, 1996, 1997 and 1998
- --------------------------------------------------------------------------------
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 each of
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, the 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.
Obligation Cost - The original cost to the Trust was based on the
determination by Interactive Data Corporation of the offering prices of the
Obligations on the date of deposit (August 20, 1992). Since the valuation is
based upon the bid prices, such Trust recognized a downward adjustment of
$24,875 on the date of deposit resulting from the difference between the bid and
offering prices. This downward adjustment was included in the aggregate amount
of unrealized depreciation reported in the financial statements for the period
ended April 30, 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 a taxable entity for Federal income
tax purposes. Each Unitholder is considered to be the owner of a pro rata
portion of such 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 Obligations are not rated by
Standard & Poor's, A Division of the McGraw-Hill Companies. N/R indicates that
the Obligation 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 Obligations. For a brief description of rating
symbols and their related meanings, see "Description of Obligations Ratings" in
the Information Supplement.
Redemption Feature - There is shown under this heading the year in which each
issue of Obligations is initially or currently callable and the call price for
that year. Each issue of Obligations continues to be callable at declining
prices thereafter (but not below par value) except for original issue discount
Obligations 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
Obligations "P.R." indicates a an Obligation has been prerefunded. Redemption
pursuant to call provisions generally will, and redemption pursuant to sinking
fund provisions may, occur at times when the redeemed Obligations have an
offering side evaluation which represents a premium over par. To the extent that
the Obligations 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 Obligations 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 Obligations 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 "Federal Tax Status in Part II.
NOTE 2 - PORTFOLIO (continued)
Insurance - Insurance coverage providing for the timely payment when due of
all principal and interest on the Obligations in the Trust has been obtained by
the Trust or by one of the Preinsured Obligation Insurers (as indicated in the
Obligation name). Such insurance does not guarantee the market value of the
Obligations or the value of the Units. For Obligations covered under the Trust's
insurance policy the insurance is effective only while Obligations 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 Obligation involved is payable
by the issuer. Insurance expense for the period reflects adjustments for
redeemed or sold Obligations
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 Obligations or
indication of the probability of such default. In the opinion of the Evaluator,
there is no indication of a probable default of Obligations in the portfolio as
of the date of these financial statements.
Unrealized Appreciation and Depreciation - An analysis of net unrealized
appreciation (depreciation) at April 30, 1998 is as follows:
Unrealized Appreciation $ 96,447
Unrealized Depreciation --
-----------
$ 96,447
===========
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 each 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 3.0% of the
public offering price which is equivalent to 3.093% 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
Obligations) 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 Obligations) 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 each of the Trusts ($.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 each of 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 three years ended April 30, 1996, 1997 and 1998, 474 Units, 306
Units and 474 Units, respectively, were presented for redemption.
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 or
taxable municipal debt obligations (certain of the Trusts are also comprised of
intermediate or long-term U.S. 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 "Tax Status".
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.
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".
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.
NOTE: THIS PROSPECTUS MAY BE USED ONLY WHEN ACCOMPANIED BY PART ONE. Both
parts of this Prospectus should be retained for future reference. This
Prospectus is dated as of the date of the Prospectus Part I accompanying this
Prospectus Part II.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Van Kampen
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 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-sponsored unit investment trust may utilize
their redemption or termination proceeds to purchase units of any other Van
Kampen 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 on
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 Funds Inc., as
Sponsor, American Portfolio Evaluation Services, a division of Van Kampen
Investment Advisory Corp., as Evaluator, and The Bank of New York, as Trustee,
or their respective predecessors.
The 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 Assurance Corporation ("AMBAC"), 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 (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 the notes thereto in Part One of this Prospectus.
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 includable 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" U.S.
Treasury 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 - 43. 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 Investment Advisory
Corp., which is an affiliate 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 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 as set forth under
"Summary of Essential Financial Information" in Part One of this Prospectus. 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 Offering--Offering 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 Unitholders--Right 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 Trust--Amendment 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 Offering--Offering
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".
Capital Markets Assurance Corporation ("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, "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.
Pursuant to a merger of a subsidiary of MBIA Inc. with and into CapMAC
Holdings Inc., CapMAC became an indirect wholly-owned subsidiary of MBIA Inc. on
February 17, 1998. MBIA Inc., through its wholly-owned subsidiary, MBIA
Insurance Corporation, is a financial guaranty insurer of municipal bonds and
structured finance transactions. MBIA Insurance Corporation has a claims paying
rating of triple-A from Moody's Investor Service, Inc., Standard & Poor's
Ratings Services and Fitch IBCA, Inc. (formerly Fitch Investors Service, L.P.).
Pursuant to a reinsurance agreement, it is anticipated that CapMAC will cede all
of its net insured risks, as well as its unearned premiums and contingency
reserves, to MBIA Insurance Corporation and that MBIA Insurance Corporation will
reinsure CapMAC's net outstanding exposure. Neither MBIA Ins. 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 to CapMAC.
CapMAC is regulated by the Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to regulation by the insurance laws and
regulations of 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 of December 31, 1995 and 1996, CapMAC had qualified statutory capital
(which consists of policyholders' surplus, statutory capital, and contingency
reserve) of approximately $260 million and $240 million, respectively, and had
not incurred any debt obligations. As of September 30, 1997, CapMAC had
qualified statutory capital of $278.6 million 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.
Effective July 14, 1997, AMBAC Indemnity Corporation changed its name to
AMBAC Assurance Corporation ("AMBAC Assurance") AMBAC Assurance 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 $2,967,246,831 (unaudited) and statutory
capital of approximately $1,715,481,691 (unaudited) as of March 31, 1998.
Statutory capital consists of AMBAC Assurance's policyholders' surplus and
statutory contingency reserve. AMBAC Assurance is a wholly owned subsidiary of
AMBAC Financial Group, 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 Assurance.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Assurance. The address of AMBAC
Assurance's administrative offices and its telephone number are One State Street
Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Assurance has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Assurance 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 domiciled in the
State of New York and licensed to do business in and subject to regulation under
the laws of 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. MBIA has two European branches, one
in the Republic of France and the other in the Kingdom of Spain. New York has
laws prescribing minimum capital requirements, limiting classes and
concentrations of investments and requiring the approval of policy rates and
forms. State laws also regulate the amount of both the aggregate and individual
risks that may be insured, the payment of dividends by the insurer, changes in
control and transactions among affiliates. Additionally, the Insurer is required
to maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
Effective February 17, 1998, MBIA, Inc. acquired all of the outstanding stock
of CapMAC, through a merger with its parent, CapMAC Holdings, Inc. Pursuant to a
reinsurance agreement, CapMAC has ceded all of its net insured risks (including
any amounts due but unpaid from third party reinsurers), as well as its unearned
premiums and contingency reserves to MBIA. MBIA, Inc. is not obligated to pay
debts of or claims against CapMAC.
As of December 31, 1997, the insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1998, MBIA had admitted assets of $5.4 billion
(unaudited), total liabilities of $3.6 billion (unaudited), and total capital
and surplus of $1.8 billion (unaudited), determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's year end financial statements prepared in
accordance with statutory accounting practices are available from MBIA. The
address of MBIA is 113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA, Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company (BIG), now
known as MBIA Insurance Corp. of Illinois. Through a reinsurance agreement, BIG
has ceded all of its net insured risks, as well as its unearned premium and
contingency reserves, to MBIA and MBIA has reinsured BIG's net outstanding
exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG-1," both designated to be of the highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA" Prime Grade.
Moody's, Standard & Poor's and Fitch IBCA, Inc. (formerly Fitch Investors
Service, L.P.), all rate the claims paying ability of MBIA as "Triple A."
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 a monoline financial guaranty insurer domiciled in the
State of New York and subject to regulation by the State of New York Insurance
Department. As of December 31, 1997, the total capital and surplus of Financial
Guaranty was $1,255,590,411. 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 25 Beaver Street, New York, New York 10004-2319, Attention: Financial
Condition Property/Casualty Bureau, telephone number: (212) 480-5187.
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 in 1984 under the laws of the State of
New York. Financial Security is licensed to engage in the financial guaranty
insurance business in all 50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. 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 and
its subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments.
Financial Security insures both newly issued securities sold in the primary
market and outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
its subsidiaries or any claim under any insurance policy issued by Financial
Security or its subsidiaries or to make any additional contribution to the
capital of Financial Security or its subsidiaries. As of March 31, 1998 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 statutory accounting principles,
approximately $808,603,000 (unaudited) and $503,683,000 (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 $923,047,000 (unaudited)
and $428,158,000 (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 inter company agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries (including FSA
Maryland) 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 and FSA Maryland reinsure a portion of their liabilities under certain
of their financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis. Such
reinsurance is utilized as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit the
obligations of Financial Security under any financial guaranty insurance policy.
The claims-paying ability of Financial Security and FSA Maryland is rated
"Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard & Poor's Ratings
Services, Nippon Investors Service Inc. and Standard & Poor's (Australia) 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 was involved in a merger in 1995. On
December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a subsidiary
of Financial Security Assurance Holdings Ltd. and Capital Guaranty Insurance
Company, CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly owned
subsidiary of Financial Security Assurance Inc. For further description, see
"Financial Security Assurance Inc." herein.
The address of FSA Maryland and its telephone number are Steuart Tower, One
Market Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
Because the Obligations are insured by CapMAC, MBIA or AMBAC Assurance 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 each Trust its "AAA" investment
rating. Such rating will be in effect for a period of thirteen months from the
Date of Deposit and will, unless renewed, terminate at the end of such period.
See "Investment Objectives and Portfolio Selection". The obtaining of this
rating by each 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
Trusts 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
the Obligations are debt and that interest on each of the Obligations (including
the taxable municipal bonds, if any) is included in gross income for Federal
income tax purposes. In the opinion of Chapman and Cutler, special counsel for
the Sponsor, under existing law:
The 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
the 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 the 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 the 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 the Trust is
disposed of (whether by sale, exchange, liquidation, redemption, payment at
maturity or otherwise) 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 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 before the date the Trust acquired
ownership of the Obligations (and the amount of this reduction may exceed the
amount of accrued interest paid to the sellers) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in capital loss
upon the disposition of such Units. Unitholders should consult their own tax
advisers with regard to calculation of basis. 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 (subject to various
non-recognition provisions of the Code). 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 the 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 the 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 the 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 the 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 of 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 the 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 (similar limitations also apply to estates and trusts). Unitholders may
be required to treat some or all of the expenses paid by the Trust 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 the 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 Trust may have
been acquired with "original issue discount." In the case of any Obligations of
the 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 the 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 the 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
Trust 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, subject to various non-recognition provisions of the Code. 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 the Trust or the
disposition of Units by a Unitholder will generally be determined by the period
of time the Unitholder held his Unit and the period of time the Trust held the
Obligation. The Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10% in the
case of certain taxpayers in the lowest tax bracket). Capital gain or loss is
long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. The date on
which a Unit is acquired (i.e., the "trade date") is excluded for purposes for
determining the holding period of the Unit. The legislation is generally
effective retroactively for amounts properly taken into account on or after
January 1, 1998. Capital gains realized from assets held for one year or less
are taxed at the same rates as ordinary income. 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 Taxpayer Relief Act of 1997 (the "1997 Act") includes provisions that
treat certain transactions designed to reduce or eliminate risk of loss and
opportunities for gain (e.g., short sales, off-setting notional principal
contracts, futures or forward contracts, or similar transactions) as
constructive sales for purposes of recognition of gain (but not loss) and for
purposes of determining the holding period. Unitholders should consult their own
tax advisors with regard to any such constructive sale rules.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "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.
It should be noted that the Revenue Reconciliation Act of 1993 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 the
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 Trust for New York tax matters, the
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 foreign, 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:
Years to Maturity Sales Charge Years to Maturity Sales Charge
- ---------------- ------------- ---------------- ------------
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
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 Funds 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 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 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 the close of the New York Stock Exchange 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.
Sponsor and Dealer Profits. Dealers will receive the gross sales commission
as described under "Public Offering--General" above.
As stated under "Public Market" below, the Sponsor intends to, and certain of
the dealers may maintain a secondary market for the Units of the Trust. In so
maintaining a market, the Sponsor or any such 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 Unitholders--Redemption of
Units". A Unitholder who wishes to dispose of his Units should inquire of his
broker as to current market prices in order to determine whether there is in
existence any price in excess of the Redemption Price and, if so, the amount
thereof.
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.
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 Unitholders--Distributions of Interest and
Principal" above. 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 June and December. Distributions will be made on the twenty-fifth 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 Funds Inc., may elect to have each distribution of interest income,
capital gains and/or principal on their Units automatically reinvested in shares
of certain Van Kampen mutual funds 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 Funds 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.
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 the close of the New York Stock
Exchange 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" in Part
One of this Prospectus.
The Trust Agreement provides that the Trust shall terminate upon the
redemption, sale or other disposition of the last 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 gross negligence (negligence in the case of the Trustee) 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 Funds Inc., a Delaware corporation, is the Sponsor of
the Trust. The Sponsor is an indirect subsidiary of Van Kampen Investments Inc.
Van Kampen Investments Inc. is a wholly owned subsidiary of MSAM Holdings II,
Inc., which in turn is a wholly owned subsidiary of Morgan Stanley Dean Witter &
Co. ("MSDW").
MSDW, together with various of its directly and indirectly owned
subsidiaries, is engaged in a wide range of financial services through three
primary businesses: securities, asset management and credit services. These
principal businesses include securities underwriting, distribution and trading;
merger, acquisition, restructuring and other corporate finance advisory
activities; merchant banking; stock brokerage and research services; asset
management; trading of futures, options, foreign exchange commodities and swaps
(involving foreign exchange, commodities, indices and interest rates); real
estate advice, financing and investing; global custody, securities clearance
services and securities lending; and credit card services.
Van Kampen Funds Inc. specializes in the underwriting and distribution of
unit investment trusts and mutual funds with roots in money management dating
back to 1926. The Sponsor is a member of the National Association of Securities
Dealers, Inc. and has offices at One Parkview Plaza, Oakbrook Terrace, Illinois
60181, (630) 684-6000 and 2800 Post Oak Boulevard, Houston, Texas 77056, (713)
993-0500. As of November 30, 1997, the total stockholders' equity of Van Kampen
Funds Inc. was $132,381,000 (audited). (This paragraph relates only to the
Sponsor and not to the Trust or to any other 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 September 30, 1997, the Sponsor and its Van Kampen affiliates managed
or supervised approximately $65.3 billion of investment products, of which over
$10.85 billion is invested in municipal securities. The Sponsor and its Van
Kampen affiliates managed $54 billion of assets, consisting of $34.3 billion for
55 open-end mutual funds (of which 45 are distributed by Van Kampen Funds Inc.)
$14.2 billion for 37 closed-end funds and $5.5 billion for 106 institutional
accounts. The Sponsor has also deposited approximately $26 billion of unit
investment trusts. All of Van Kampen's open-end funds, closed-ended funds and
unit investment trusts are professionally distributed by leading financial firms
nationwide. 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 shall 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 Trusts as
provided therein or (iii) continue to act as Trustee without terminating the
Trust Agreement.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its unit investment trust
division 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 Unitholders--Reports Provided"). The Trustee is
required to keep a certified copy or duplicate original of the Trust Agreement
on file in its office available for inspection at all reasonable times during
the usual business hours by any Unitholder, together with a current list of the
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.
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.
- ---------------
*As published by the rating companies.
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.
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.
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 20 and
21(Intermediate), certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto
affixed and attested, all in the City of Chicago and State of Illinois on
the 25th day of August, 1998.
Van Kampen Merritt Insured Income Trust, Series
20 and 21 (Intermediate)
(Registrant)
By Van Kampen Funds Inc.
(Depositor)
By: Gina Costello
Assistant Secretary
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below on August
25, 1998 by the following persons who constitute a majority of the Board
of Directors of Van Kampen Funds Inc.:
Signature Title
Don G. Powell Chairman and Chief )
Executive Officer )
John H. Zimmerman President and Chief Operating )
Officer )
Ronald A. Nyberg Executive Vice President and )
General Counsel )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Gina Costello
(Attorney in Fact)*
* An executed copy of each of the related powers of attorney is filed
herewith or was filed with the Securities and Exchange Commission in connection
with the Registration Statement on Form S-6 of Van Kampen American Capital
Equity Opportunity Trust, Series 64 (File No. 333-33087) and Van Kampen American
Capital Equity Opportunity Trust, Series 87 (File No. 333-44581) and the same
are hereby incorporated herein by this reference.
Consent of Independent Certified Public Accountants
We have issued our report dated June 26, 1998 accompanying the financial
statements of Van Kampen Merritt Insured Income Trust, Series 20 and 21
(Intermediate) as of April 30, 1998, and for the period then ended, contained in
this Post-Effective Amendment No. 6 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
August 25, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 20
<NAME> VIIT
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 5327118
<INVESTMENTS-AT-VALUE> 5615163
<RECEIVABLES> 0
<ASSETS-OTHER> 128835
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5743998
<PAYABLE-FOR-SECURITIES> 46593
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36980
<TOTAL-LIABILITIES> 83573
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5660425
<SHARES-COMMON-STOCK> 9645
<SHARES-COMMON-PRIOR> 10719
<ACCUMULATED-NII-CURRENT> 133539
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 288045
<NET-ASSETS> 5660425
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 539564
<OTHER-INCOME> 0
<EXPENSES-NET> 33778
<NET-INVESTMENT-INCOME> 505786
<REALIZED-GAINS-CURRENT> 94494
<APPREC-INCREASE-CURRENT> 387183
<NET-CHANGE-FROM-OPS> 987463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (592665)
<DISTRIBUTIONS-OF-GAINS> (2892745)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1074
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (3165458)
<ACCUMULATED-NII-PRIOR> 220418
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2788
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33778
<AVERAGE-NET-ASSETS> 7243154
<PER-SHARE-NAV-BEGIN> 823.39
<PER-SHARE-NII> 52.44
<PER-SHARE-GAIN-APPREC> 49.941
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 299.922
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 586.877
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 21
<NAME> VIIN
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<INVESTMENTS-AT-COST> 967463
<INVESTMENTS-AT-VALUE> 1063910
<RECEIVABLES> 0
<ASSETS-OTHER> 10108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1074018
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 34772
<TOTAL-LIABILITIES> 34772
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1039246
<SHARES-COMMON-STOCK> 2699
<SHARES-COMMON-PRIOR> 3173
<ACCUMULATED-NII-CURRENT> 10777
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 96447
<NET-ASSETS> 1039246
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 62007
<OTHER-INCOME> 0
<EXPENSES-NET> 5170
<NET-INVESTMENT-INCOME> 56837
<REALIZED-GAINS-CURRENT> 1373
<APPREC-INCREASE-CURRENT> 54357
<NET-CHANGE-FROM-OPS> 112567
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (58391)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 474
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (121988)
<ACCUMULATED-NII-PRIOR> 12331
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 809
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5170
<AVERAGE-NET-ASSETS> 1100240
<PER-SHARE-NAV-BEGIN> 365.97
<PER-SHARE-NII> 21.059
<PER-SHARE-GAIN-APPREC> 20.648
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 385.049
<EXPENSE-RATIO> 0.005
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
