Securities and Exchange Commission
Washington, D. C. 20549-1004
Post-Effective
Amendment No. 1
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 26
(Exact Name of Trust)
Van Kampen Merritt Inc.
(Exact Name of Depositor)
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
(Complete address of Depositor's principal executive offices)
Van Kampen Merritt Inc. Chapman and Cutler
Attention: John C. Merritt Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
(Name and complete address of agents for service)
( X ) Check if it is proposed that this filing will become effective
on January 24, 1994 pursuant to paragraph (b) of Rule 485.
SERIES 26
10,181 Units
VAN KAMPEN MERRITT
INSURED INCOME TRUST
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.
Please retain both parts of this Prospectus for future reference.
THE TRUST
The above-named series of Van Kampen Merritt Insured Income Trust (the
"Trust") consists of an insured portfolio of interest-bearing long-term debt
obligations (the "Obligations") issued by public utilities. Each Unit
represents a fractional undivided interest in the principal and net income of
the Trust (see "Summary of Essential Information" in this Part One and "The
Trust" in Part Two).
The Units being offered by this Prospectus are issued and outstanding
Units which have been purchased by the Sponsor in the secondary market or from
the Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Trust.
PUBLIC OFFERING PRICE
The Public Offering Price of the Units of each Trust is equal to the
aggregate bid price of the Obligations in the portfolio of such Trust divided
by the number of Units of such Trust outstanding, plus a sales charge. The
sales charge is based upon the years to average maturity of the Obligations in
the portfolio. The sales charge ranges from 1.5% of the Public Offering Price
(1.523% of the aggregate bid price of the Obligations) for a Trust with a
portfolio with less than two years to average maturity to 5.7% of the Public
Offering Price (6.045% of the aggregate bid price of the Obligations) for a
Trust with a portfolio with sixteen or more years to average maturity. See
"Summary of Essential Information" in this Part One.
ESTIMATED CURRENT AND LONG-TERM RETURNS
Estimated Current and Long-Term Returns to Unitholders are indicated
under "Summary of Essential information" in this Part One. The methods of
calculating Estimated Current Return and Estimated Long-Term Return are set
forth in Part Two of this Prosepectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Date of this Prospectus is January 19, 1994
Van Kampen Merritt
Page 1
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 26
Summary of Essential Financial Information
As of October 22, 1993
Sponsor: Van Kampen Merritt Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the
Sponsor)
Trustee: The Bank of New York
<CAPTION>
VIIT
<S> <C>
-------------------
General Information
Principal Amount (Par Value) of Obligations ............................................................. $ 9,895,000
Number of Units ......................................................................................... 10,181
Fractional Undivided Interest in Trust per Unit ......................................................... 1/ 10,181
Public Offering Price:
Aggregate Bid Price of Obligations in Portfolio ..................................................... $ 10,224,693.60
Aggregate Bid Price of Obligations per Unit ......................................................... $ 1,004.29
Sales charge 6.045% (5.7% of Aggregate Offering Price excluding principal cash) ..................... $ 60.70
Principal Cash per Unit ............................................................................. $ .49
Public Offering Price per Unit <F1>.................................................................. $ 1,065.48
Redemption Price per Unit ............................................................................... $ 1,004.78
Excess of Public Offering Price per Unit over Redemption Price per Unit ................................. $ 60.70
Minimum Value of the Trust under which Trust Agreement may be terminated ................................ $ 1,980,000
Annual Premium on Portfolio Insurance ................................................................... $ 13,798.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution ......$1.00 per Unit
Date of Deposit .....................January 26, 1993
Mandatory Termination Date ..........December 31, 2042
Evaluator's Annual Supervisory Fee ..Maximum of $0.25 per Unit
Evaluator's Annual Fee (4) ..........$1,791
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are
made as of 4:00 P.M. Eastern time on days of trading on the New York
Stock Exchange next following receipt of an order for a sale or purchase
of Units or receipt by The Bank of New York of Units tendered for
redemption.
<TABLE>
Special Information Based on Various Distribution Plans
<CAPTION>
Semi-
Monthly Annual
<S> <C> <C>
------------- -------------
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit ................................................... $ 75.79 $ 75.79
Less: Estimated Annual Expense excluding Insurance .......................................... $ 1.70 $ 1.25
Less: Annual Premium on Portfolio Insurance ................................................. $ 1.36 $ 1.36
Estimated Net Annual Interest Income per Unit ............................................... $ 72.73 $ 73.18
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income ........................................................ $ 72.73 $ 73.18
Divided by 12 and 2, respectively ........................................................... $ 6.06 $ 36.59
Estimated Daily Rate of Net Interest Accrual per Unit ........................................... $ .20203 $ .20327
Estimated Current Return Based on Public Offering Price <F2><F3>................................. 6.83% 6.87%
Estimated Long-Term Return <F2><F3>.............................................................. 6.19% 6.23%
Record and Computation Dates .FIRST day of the month as follows: monthly -
each month; semi-annual - June and December.
Distribution Dates ...........FIFTEENTH day of the month as follows: monthly -
each month; semi-annual - June and December.
Trustee's Annual Fee .........$0.91 and $0.51 per $1,000 principal amount of
Bonds respectively, for those portions of the
Trust under the monthly and semi-annual
distribution plans.
<FN>
<F1>Plus accrued interest to the date of settlement (five business days
after purchase) of $20.80 and $45.34 respectively, for those portions of the
Trust under the monthly and semi-annual distribution plans.
<F2>The Estimated Current Return and Estimated Long-Term Return are
increased for transactions entitled to a reduced sales charge.
<F3>The Estimated Current Return on an identical portfolio without the
insurance obtained by the Trust would have been 7.00% based on such
semi-annual distribution plan on such date, while the Estimated Long-Term
Return on an identical portfolio without the insurance obtained by the Trust
would have been 6.36%.
<F4>Notwithstanding information to the Contrary in Part Two of this
Prospectus, the Trust Indenture provides that as compensation for its
services, the Evaluator shall receive a fee of $.30 per $1,000 principal
amount of Bonds per Trust annually. This fee may be adjusted for increases in
consumer prices for services under the category "All Services Less Rent of
Shelter" in the Consumer Price Index.
</TABLE>
Page 2
<PAGE>
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 Corporation or "Baa"
by Moody's Investors Service, Inc., or, if not rated, the Bonds had, in the
opinion of the Sponsor, credit characteristics sufficiently similar to the
credit characteristics of interest-bearing tax-exempt obligations that were so
rated as to be acceptable for acquisition by the Fund (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 10 issues, all of which
have been issued by public utilities. See "Portfolio" herein and "Description
of Ratings" in Part Two.
In view of this an investment in the Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. General problems 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 portfolio 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. Also, changes in certain accounting
standards currently under consideration by the Financial Accounting Standards
Board could cause significant write-downs of assets and reductions in earnings
for many investor-owned utilities. 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 the 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 officals, 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, U.S.S.R., could cause the imposition of limits or prohibitions on
the operation, construction or licensing of nuclear units in the United
States.
Page 3
<PAGE>
PORTFOLIO (continued)
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 the 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
of the results of operations of a company's ability to make interest and
principal payments on its outstanding debt.
<TABLE>
PER UNIT INFORMATION
<CAPTION>
1993<F1>
<S> <C>
---------------
Net asset value per Unit at beginning of period .............................................................. $ 951.00
===============
Net asset value per Unit at end of period .................................................................... $ 1,024.73
===============
Distributions to Unitholders of investment income including accrued interest to carry paid on Units redeemed
(average Units outstanding for entire period) <F2>.......................................................... $ 22.36
===============
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) ................ $ 47.54
===============
Distributions of investment income by frequency of payment <F2>
Monthly ................................................................................................. $ 27.04
Semiannual .............................................................................................. $ 8.89
Units outstanding at end of period ........................................................................... 10,181
<FN>
<F1>For the period from January 26, 1993 (date of deposit) through September
30, 1993.
<F2>Unitholders may elect to receive distributions on a monthly or semi-annual
basis.
</TABLE>
Page 4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders of
Van Kampen Merritt Insured Income Trust, Series 26:
We have audited the accompanying statement of condition (including the
analysis of net assets) and the related portfolio of Van Kampen Merritt
Insured Income Trust, Series 26 as of September 30, 1993, and the related
statements of operations and changes in net assets for the period from January
26, 1993 (date of deposit) through September 30, 1993. These statements are
the responsibility of the Trustee and the Sponsor. Our responsibility is to
express an opinion on such statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of obligations owned at September 30, 1993 by
correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee and
the Sponsor, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our
opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of Van Kampen Merritt Insured Income
Trust, Series 26 as of September 30, 1993, and the results of operations and
changes in net assets for the period from January 26, 1993 (date of deposit)
through September 30, 1993, in conformity with generally accepted accounting
principles.
GRANT THORNTON
Chicago, Illinois
October 29, 1993
Page 5
<PAGE>
<TABLE>
VAN KAMPEN MERRITT
INSURED INCOME TRUST
SERIES 26
Statement of Condition
September 30, 1993
<CAPTION>
VIIT
<S> <C>
------------------
Trust property
Cash .................................................................................................. $ 55,359
Obligations at market value, (cost $9,676,915) (note 1) ............................................... 10,160,917
Accrued interest ...................................................................................... 216,458
------------------
$ 10,432,734
==================
Liabilities and interest of Unitholders
Interest to Unitholders ............................................................................... $ 10,432,734
------------------
$ 10,432,734
==================
</TABLE>
<TABLE>
<CAPTION>
Analysis of Net Assets
<S> <C>
Interest of Unitholders (10,181 Units of fractional undivided interest outstanding)
Cost to original investors of 10,181 Units (note 1) ................................................... $ 10,181,000
Less initial underwriting commission (note 3) ................................................... 498,785
------------------
9,682,215
Less redemption of Units ........................................................................ --
------------------
9,682,215
Undistributed net investment income
Net investment income ........................................................................... 494,415
Less distributions to Unitholders ............................................................... 227,598
------------------
266,817
Realized gain (loss) on sale or redemption of Obligations ............................................. (300)
Unrealized appreciation (depreciation) of Obligations (note 2) ........................................ 484,002
Distributions to Unitholders of sale or redemption proceeds of Obligations ............................ --
------------------
Net asset value to Unitholders ............................................................... $ 10,432,734
==================
Net asset value per Unit (10,181 Units outstanding) ....................................................... $ 1,024.73
==================
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 26
Statement of Operations--Period from January 26, 1993 (date of deposit)
through September 30, 1993
<CAPTION>
<S> <C>
Investment income
Interest income ....................................................................................... $ 512,381
Expenses
Trustee fees and expenses .......................................................................... 6,045
Evaluator fees ..................................................................................... 1,791
Insurance expense .................................................................................. 8,688
Supervisory fees ................................................................................... 1,442
------------------
Total expenses ............................................................................... 17,966
------------------
Net Investment Income .............................................................................. 494,415
Realized gain (loss) from sale or redemption of Obligations
Proceeds .............................................................................................. 5,000
Cost .................................................................................................. 5,300
------------------
Realized gain (loss) ............................................................................... (300)
Net change in unrealized appreciation (depreciation) of Obligations ....................................... 484,002
------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS ............................................................................. $ 978,117
==================
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets--Period from January 26, 1993 (date of
deposit)
through September 30, 1993
<S> <C>
Increase (decrease) in net assets
Operations:
Net investment income .............................................................................. $ 494,415
Realized gain (loss) on sale or redemption of Obligations .......................................... (300)
Net change in unrealized appreciation (depreciation) of Obligations ................................ 484,002
------------------
Net increase (decrease) in net assets resulting from operations ................................. 978,117
Distributions to Unitholders from:
Net investment income .............................................................................. (227,598)
Sale or redemption proceeds of Obligations.......................................................... --
Redemption of Units ....................................................................................... --
------------------
Total increase (decrease) ....................................................................... 750,519
Net asset value to Unitholders
Beginning of period ................................................................................ 9,682,215
------------------
End of period (including undistributed net investment income of $266,817) .......................... $ 10,432,734
==================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
PORTFOLIO as of September 30,1993 SERIES 26
_________________________________________________________________________________________________________________________________
<CAPTION>
September
30, 1993
Port-folio Redemption Market
Item Aggregate Name of Issuer, Title, Interest Rate and Rating Feature Value
Principal Maturity Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
---------- ---------------- --------------------------------------------- ---------- -------------------------- ----------------
A $ 1,500,000 The Community Redevelopment Agency of The AAA 2001 @ 102 $ 1,660,215
City of Los Angeles, California (Bunker 2005 @ 100 S.F.
Hill Project) Tax Allocation Revenue
Bonds, Series D (FSA Insured)
8.600% Due 12/01/08
- ---------------------------------------------------------------------------------------------------------------------------------
B 1,000,000 North Carolina State University at Raleigh, AAA 2002 @ 102 1,086,620
Taxable Revenue Bonds, Series 1993 2008 @ 100 S.F.
(Centenial Campus Projects) MBIA Insured
8.200% Due 12/15/13
- ---------------------------------------------------------------------------------------------------------------------------------
C 700,000 U.S. Treasury Strip NR 109,914
0.000% Due 08/15/21
- ---------------------------------------------------------------------------------------------------------------------------------
D 995,000 Public Service Electric and Gas A 1997 @ 105.970 1,076,202
8.500% Due 06/01/22
- ---------------------------------------------------------------------------------------------------------------------------------
E 1,000,000 Penn Power Company BBB 2002 @ 104.150 1,137,040
8.500% Due 07/15/22
- ---------------------------------------------------------------------------------------------------------------------------------
F 1,000,000 The Detroit Edison Company, Secured Medium BBB+ 2002 @ 104.150 1,085,130
Term Notes, Series 1992D
8.300% Due 08/01/22
- ---------------------------------------------------------------------------------------------------------------------------------
G 700,000 Pacific Gas & Electric Company A3* 2002 @ 103.140 759,556
8.250% Due 11/01/22
- ---------------------------------------------------------------------------------------------------------------------------------
H 1,000,000 Niagara Mohawk Power BBB 2002 @ 103.890 1,096,170
8.500% Due 07/01/23
- ---------------------------------------------------------------------------------------------------------------------------------
I 1,000,000 Duquesne Light BBB+ 1997 @ 105.400 1,066,200
8.375% Due 05/15/24
- ---------------------------------------------------------------------------------------------------------------------------------
J 1,000,000 Dayton Power Light Company A 2003 @ 104.080 1,083,870
8.150% Due 01/15/26
---------------- ----------------
$ 9,895,000 $ 10,160,917
================ ================
_________________________________________________________________________________________________________________________________
</TABLE>
The accompanying notes are an integral part of this statement.
Page 8
<PAGE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 26
Notes to Financial Statements
September 30, 1993
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 a subsidiary
of the Sponsor). The Evaluator may determine the value of the Obligations (1)
on the basis of current bid prices of the Obligations obtained from dealers or
brokers who customarily deal in Obligations comparable to those held by the
Trust, (2) on the basis of bid prices for comparable Obligations, (3) by
determining the value of the Obligations by appraisal or (4) by any
combination of the above. The Trust maintains insurance which provides for the
timely payment when due, of all principal and interest on Obligations owned by
it. Except in cases in which Obligations are in default, or significant risk
of default, this valuation does not include any value attributable to this
insurance feature since the insurance terminates as to any Obligation at the
time of its disposition.
Security Cost--The original cost to the Trust was based on the
determination by Interactive Data Services, Inc. of the offering prices of the
Obligations on the date of deposit (January 26, 1993). Since the valuation is
based upon the bid prices the Trust recognized a downward adjustment of
$71,625 on the date of deposit resulting from the difference between the bid
and offering prices. This downward adjustment was included in the aggregate
amount of unrealized appreciation reported in the financial statements for the
period ended September 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 taxable for Federal income tax
purposes. Each Unitholder is considered to be the owner of a pro rata portion
of the Trust and, accordingly, no provision has been made for Federal income
taxes.
Other--The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2--PORTFOLIO
Ratings--The source of all ratings, exclusive of those designated N/R, *
or # is Standard & Poor's Corporation. Ratings marked * are by Moody's
Investors Service, Inc. and ratings marked # are by Fitch Investors Service,
Inc. The ratings shown represent the latest published ratings of the
Obligations. For a brief description of rating symbols and their related
meanings, see `Description of Securities Ratings' in Part Two.
Redemption Feature--There is shown under this heading the year in which
each issue of 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. 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 paragraph (3) under `Federal Tax Status of the
Trusts' and `Annual Unit Income and Estimated Current Returns' in Part
Two.
Page 9
<PAGE>
NOTE 2--PORTFOLIO (continued)
Insurance--Insurance coverage providing for the timely payment when due
of all principal and interest on the Bonds in the Trust has been obtained by
the Trust or by one of the Preinsured Bond Insurers (as indicated in the Bond
name). Such insurance does not guarantee the market value of the Bonds or the
value of the Units. For Bonds covered under the Trust's insurance policy the
insurance is effective only while Bonds thus insured are held in the Trust and
the insurance premium, which is a Trust obligation, is paid on a monthly
basis. The premium for insurance which has been obtained from various
insurance companies by the issuer of the Bond involved is payable by the
issuer. Insurance expense for the period reflects adjustments for redeemed or
sold Bonds.
An Accounting and Auditing Guide issued by the American Institute of
Certified Public Accountants states that, for financial reporting purposes,
insurance coverage of the type acquired by the Trust does not have any
measurable value in the absence of default of the underlying Bonds or
indication of the probability of such default. In the opinion of the
Evaluator, there is no indication of a probable default of Bonds in the
portfolio as of the date of these financial statements.
Unrealized Appreciation and Depreciation--An analysis of net unrealized
appreciation (depreciation) at September 30, 1993 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ 484,002
Unrealized Depreciation --
-----------------
$ 484,002
=================
</TABLE>
NOTE 3--OTHER
Marketability--Although it is not obligated to do so, the Sponsor intends
to maintain a market for Units and to continuously offer to purchase Units at
prices, subject to change at any time, based upon the aggregate bid price of
the Obligations in the portfolio of the Trust, plus interest accrued to the
date of settlement. If the supply of Units exceeds demand, or for other
business reasons, the Sponsor may discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units, a
Unitholder desiring to dispose of his Units may be able to do so only by
tendering such Units to the Trustee for redemption at the redemption
price.
Cost to Investors--The cost to original investors was based on the
Evaluator's determination of the aggregate offering price of the Obligations
per Unit on the date of an investor's purchase, plus a sales charge of 4.9% of
the public offering price which is equivalent to 5.152% of the aggregate
offering price of the Obligations. The secondary market cost to investors is
based on the Evaluator's determination of the aggregate bid price of the
Obligations per Unit on the date of an investor's purchase plus a sales charge
based upon the years to average maturity of the Obligations in the portfolio.
The sales charge ranges from 1.5% of the public offering price (1.523% of the
aggregate bid price of the Obligations) for a Trust with a portfolio with less
than two years to average maturity to 5.7% of the public offering price
(6.045% of the aggregate bid price of the Obligations) for a Trust with a
portfolio with sixteen or more years to average maturity.
Compensation of Evaluator--The Evaluator receives a fee for providing
portfolio supervisory services for the Trust ($.25 per Unit, not to exceed the
aggregate cost of the Evaluator for providing such services to all applicable
Trusts). In addition, the Evaluator receives an annual fee for regularly
evaluating the Trust's portfolio. Both fees may be adjusted for increases
under the category "All Services Less Rent of Shelter" in the Consumer Price
Index.
Page 10
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Prospectus
Part Two
Van Kampen Merritt
Insured Income Trust
The Trust. The Trust consists of a series of unit investment trusts
issued under the name Van Kampen Merritt Insured Income Trust. Each
Trust consists of a portfolio principally comprised of long-term
corporate debt obligations (certain of the Trusts are also comprised of
long-term taxable municipal debt obligations). Summary of Essential
Financial Information
Attention Foreign Investors. If you are not a United States citizen
or resident, your interest income from this Trust may not be subject to
Federal withholding taxes if certain conditions are met. See "Federal
Taxation".
Investment Objective of the Trust. The investment objective of the
Trust is a high level of current income consistent with preservation of
capital through a diversified investment in a fixed portfolio principally
consisting of long-term corporate debt securities (certain of the Trusts
are also comprised of long-term taxable municipal debt obligations)
issued after July 18, 1984 (the "Obligations"). See "Investment
Objective 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. All issues of the Trust are insured under one or more
insurance policies obtained by the Trust except for certain issues of
certain Trusts for which insurance has been obtained by the issuer of the
Obligations involved. 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
Corporation ("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
will be equal to the aggregate bid price of the Obligations in the Trust
plus the sales charge referred to under "Public Offering-General". 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".
These Securities have not been approved or disapproved
by the Securities and Exchange Commission or any
State Securities Commission nor has the Securities and
Exchange Commission or any State Securities Commission
passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
Note: This Prospectus may be used only when accompanied by Part One.
Both parts of this Prospectus should be retained for future reference.
This Prospectus is dated as of the date of the Prospectus Part I
accompanying this Prospectus Part II
Van Kampen Merritt
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"), between Van Kampen Merritt Inc., as Sponsor,
American Portfolio Evaluation Services, a division of Van Kampen Merritt
Investment Advisory Corp., as Evaluator, and The Bank of New York, as
Trustee, or their respective predecessors.
The Trust may be an appropriate medium for investors who desire to
participate in a portfolio of long-term 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. 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.
Each Unit initially offered represents a fractional undivided
interest in the Trust. To the extent that any Units are redeemed by the
Trustee, the fractional undivided interest in the Trust represented by
each unredeemed Unit will increase, although the actual interest in the
Trust represented by such fraction will remain unchanged. Units will
remain outstanding until redeemed upon tender to the Trustee by
Unitholders, which may include the Sponsor, or until the termination of
the Trust Agreement.
Investment Objective 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 long-term
corporate debt obligations issued after July 18, 1984.
Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Obligations in the Trust has been obtained
by the Trust from either AMBAC Indemnity Corporation ("AMBAC Indemnity"),
Capital Markets Assurance Corporation ("CapMAC") or a combination thereof
(collectively, the "Portfolio Insurers"), or by the issuer of such
Obligations, by a prior owner of such Obligations, or by the Sponsor
prior to the deposit of such Obligations in the Trust from (1) AMBAC
Indemnity or one of its subsidiaries, American Municipal Bond Assurance
Corporation ("AMBAC") or MGIC Indemnity Corporation ("MGIC Indemnity"),
(2) Financial Guaranty Insurance Company ("Financial Guaranty"), (3)
Municipal Bond Investors Assurance Corporation ("MBIA"), (4) Bond
Investors Guaranty Insurance Company ("BIG"), (5) National Union Fire
Insurance Company of Pittsburgh, PA ("National Union"), (6) Capital
Guaranty Insurance Company ("Capital Guaranty") (7) Cap MAC and/or (8)
Financial Security Assurance Inc. ("Financial Security" or "FSA")
(collectively, the "Preinsured Obligation Insurers") (see "Insurance on
the Obligations"). The Portfolio Insurers and the Preinsured Obligation
Insurers are collectively referred to herein as the "Insurers".
Insurance obtained by the Trust is effective only while the Obligations
thus insured are held in the Trust. The Trustee has the right to acquire
permanent insurance from a Portfolio Insurer with respect to each
Obligation insured by the respective Portfolio Insurer under a Trust
portfolio insurance policy. Insurance relating to Obligations insured by
the issuer, by a prior owner of such Obligations or by the Sponsor is
effective so long as such Obligations are outstanding. Obligations
insured under a policy of insurance obtained by the issuer, by a prior
owner of such Bonds or by the Sponsor from one of the Preinsured
Obligation Insurers (the "Preinsured Obligations") are not additionally
insured by the Trust. The Trustee has the right to acquire permanent
insurance from a Portfolio Insurer with respect to each Obligation
insured under the Trust's portfolio insurance policy. 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 Corporation rating of "BBB-" or at least the Moody's Investors
Service, Inc. rating of "Baa", which in brief represent the lowest
ratings for securities of investment grade (see "Description of
Obligation Ratings"). Insurance is not a substitute for the basic credit
of an issuer, but supplements the existing credit and provides additional
security therefor. If an issue is accepted for insurance, a non-
cancellable policy for the prompt payment of interest and principal on
the 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 Corporation on the date such obligations were
deposited in the Trust. Standard & Poor's Corporation 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
Public Utility Issues. Certain of the Obligations in the Trust are
obligations of public utility issuers. In view of this an investment in
the Trust should be made with an understanding of the characteristics of
such issuers and the risks which such an investment may entail. General
problems 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 portfolio 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. Also, changes in certain accounting standards currently under
consideration by the Financial Accounting Standards Board could cause
significant write-downs of assets and reductions in earnings for many
investor-owned utilities. 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 the 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 the 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 in the Trust
may be taxable obligations of municipal issuers. In view of this an
investment in the Trust should be made with an understanding of the
characteristics of such issuers and the risk of 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 others 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 the Trust may be
obligations of issuers who rely in whole or in part on ad valorem real
property taxes as a source of revenue. Recently, certain proposals, in
the form of state legislative proposals or voter initiatives, to limit ad
valorem real property taxes have been introduced in various states.
Revenue bonds, on the other hand, are payable only from revenues
derived from a particular facility or class of facilities, or, in some
cases, from the proceeds of a special excise tax or other special revenue
source. The ability of an issuer of revenue bonds to make payments of
principal and/or interest on such bonds is primarily dependent upon the
success or failure of the facility or class of facilities involved or
whether the revenues received from an excise tax or other special revenue
source are sufficient to meet obligations.
Typically, interest income received from municipal issues is exempt
from Federal income taxation under Section 103 of the Internal Revenue
Code of 1986, as amended (the "Code") and therefore is not includible in
the gross income of the owners thereof. However, interest income
received for taxable municipal obligations is not exempt from Federal
income taxation under Section 103 of the Code. Thus, owners of taxable
municipal obligations generally must include interest on such obligations
in gross income for Federal income tax purposes and treat such interest
as ordinary income.
Certain of the Obligations in the Trust may be obligations which are
payable from and secured by revenues derived from the ownership and
operation of facilities such as airports, bridges, turnpikes, port
authorities, convention centers and arenas. In view of this an
investment in the Trust should be made with an understanding of the
characteristics of such issuers and the risks which such an investment
may entail. The major portion of an airport's gross operating income is
generally derived from fees received from signatory airlines pursuant to
use agreements which consist of annual payments for leases, occupancy of
certain terminal space and service fees. Airport operating income may
therefore be affected by the ability of the airlines to meet their
obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to
increased competition, excess capacity, increased costs, deregulation,
traffic constraints and other factors, and several airlines are
experiencing severe 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 the Trust may be health care revenue
bonds. In view of this an investment in the Trust should be made with an
understanding of the characteristics of such issuers and the risks which
such an investment may entail. Ratings of bonds issued for health care
facilities are often based on feasibility studies that contain
projections of occupancy levels, revenues and expenses. A facility's
gross receipts and net income available for debt service 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 portfolio of
the Trust; however, because of the insurance obtained by the Trust, the
"AAA" rating of the Units of the Trust would not be affected.
Certain of the Obligations in the Trust are "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 obligations, 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.
Replacement Obligations. Because certain of the Obligations in the
Trust may from time to time under certain circumstances be sold or
redeemed or will mature in accordance with their terms and because the
proceeds from such events will be distributed to Unitholders and will not
be reinvested, no assurance can be given that the Trust will retain for
any length of time its present size and composition. Neither the Sponsor
nor the Trustee shall be liable in any way for any default, failure or
defect in any Obligation.
Redemptions of Obligations. Certain of the Obligations in the Trust
are subject to redemption prior to their stated maturity date pursuant to
sinking fund provisions, call provisions or extraordinary optional or
mandatory redemption provisions or otherwise. A sinking fund is a
reserve fund accumulated over a period of time for retirement of debt. A
callable debt obligation is one which is subject to redemption or
refunding prior to maturity at the option of the issuer. A refunding is
a method by which a debt obligation is redeemed, at or before maturity,
by the proceeds of a new debt obligation. In general, call provisions
are more likely to be exercised when the offering side valuation is at a
premium over par than when it is at a discount from par. The exercise of
redemption or call provisions will (except to the extent the proceeds of
the called Obligations are used to pay for Unit redemptions) result in
the distribution of principal and may result in a reduction in the amount
of subsequent interest distributions and it may also offset the current
return on Units of the Trust. The portfolio contains a listing of the
sinking fund and call provisions, if any, with respect to each of the
Obligations. Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events. Generally,
events that may permit the extraordinary optional redemption of
Obligations or may require the mandatory redemption of Obligations
include, among others: the substantial damage or destruction by fire or
other casualty of the project for which the proceeds of the Obligations
were used; an exercise by a local, state or Federal governmental unit of
its power of eminent domain to take all or substantially all of the
project for which the proceeds of the Obligations were used; changes in
the economic availability of raw materials, operating supplies or
facilities or technological or other changes which render the operation
of the project for which the proceeds of the Obligations were used
uneconomic; changes in law or an administrative or judicial decree which
renders the performance of the agreement under which the proceeds of the
Obligations were made available to finance the project impossible or
which creates unreasonable burdens or which imposes excessive
liabilities, such as taxes, not imposed on the date the Obligations are
issued on the issuer of the Obligations or the user of the proceeds of
the Obligations; an administrative or judicial decree which requires the
cessation of a substantial part of the operations of the project financed
with the proceeds of the Obligations; an overestimate of the costs of the
project to be financed with the proceeds of the Obligations resulting in
excess proceeds of the Obligations which may be applied to redeem
Obligations; or an underestimate of a source of funds securing the
Obligations resulting in excess funds which may be applied to redeem
Obligations. The Sponsor is unable to predict all of the circumstances
which may result in such redemption of an issue of Obligations. See
"Portfolio" and footnote (3) in "Notes to Portfolio".
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. 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; 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 weightings 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
Merritt Investment Advisory Corp., which is a wholly-owned subsidiary of
the Sponsor (the "Evaluator"), will receive an annual supervisory fee,
which is not to exceed the amount set forth under "Summary of Essential
Financial Information" in Part One of this Prospectus for providing
portfolio supervisory services for the Trust. Such fee (which is based
on the number of Units outstanding on January 1 of each year) may exceed
the actual costs of providing such supervisory services for this Trust,
but at no time will the total amount received for portfolio supervisory
services rendered to this Series and other unit investment trusts
sponsored by the Sponsor for which it provides such supervisory services
in any calendar year exceed the aggregate cost to the Evaluator of
supplying such services in such year. In addition, the Evaluator shall
receive an annual evaluation fee in the amount set forth in "Summary of
Essential Financial Information" in Part One of this Prospectus (which is
based on the outstanding principal amount of obligations of January 1 of
each year) for regularly evaluating the Trust's portfolio. Both of the
foregoing fees may be increased without approval of the Unitholders by
amounts not exceeding proportionate increases under the category "All
Services Less Rent of Shelter" in the Consumer Price Index published by
the United States Department of Labor or, if such category is no longer
published, in a comparable category. The Sponsor and the Underwriters
will receive sales commissions and may realize other profits (or losses)
in connection with the sale of Units and the deposit of the Obligations
as described under "Public Offering".
Trustee's Fee. For its services, the Trustee will receive an annual
fee from the Trust based on the largest aggregate amount of Obligations
in the Trust at any time during such period. Such fee will be computed
at $.51 and $.91 per $1,000 principal amount, respectively, for those
portions of the Trust representing semi-annual and monthly distribution
plans. The Trustee's fees are payable monthly on or before the fifteenth
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.
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in all 50 states and the District
of Columbia, with admitted assets of approximately $1,503,000,000
(unaudited) and statutory capital of approximately $862,000,000
(unaudited) as of September 30, 1992. Statutory capital consists of
AMBAC Indemnity's policyholders' surplus and statutory contingency
reserve. AMBAC Indemnity is a wholly owned subsidiary of AMBAC Inc., a
100% publicly-held company. Moody's Investors Service, Inc. and Standard
& Poor's Corporation have both assigned a triple-A claims-paying ability
rating to AMBAC Indemnity.
Copies of its financial statements prepared in accordance with
statutory accounting standards are available from AMBAC Indemnity. The
address of AMBAC Indemnity's administrative offices and its telephone
number are One State Street Plaza, 17th Floor, New York, New York 10004
and (212) 668-0340.
AMBAC Indemnity has entered into quota share reinsurance agreements
under which a percentage of the insurance underwritten pursuant to
certain municipal bond insurance programs of AMBAC Indemnity has been and
will be assumed by a number of foreign and domestic unaffiliated
reinsurers.
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 49 states in addition to the District
of Columbia, the Commonwealth of Puerto Rico and the territory of Guam.
CapMAC insures structured asset-backed, corporate and other financial
obligations in the domestic and foreign capital markets. CapMAC may also
provide financial guarantee reinsurance for structured asset-backed,
corporate and municipal obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation
("Standard & Poor's"), and "AAA" by Duff & Phelps Inc. ("Duff & Phelps").
Such ratings reflect only the views of the respective rating agencies,
are not recommendations to buy, sell or hold securities and are subject
to revision or withdrawal at any time by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a
company that is owned by a group of institutional and other investors,
including CapMAC's management and employees. CapMAC commenced operations
on December 24, 1987 as an indirect, wholly-owned subsidiary of Citibank
(New York State), a wholly-owned subsidiary of Citicorp. On June 25,
1992, Citibank (New York State) sold CapMAC to Holdings (the "Sale").
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or
to make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State
of New York. In addition, CapMAC is subject to regulation by the
insurance departments of the other jurisdictions in which it is licensed.
CapMAC is subject to periodic regulatory examinations by the same
regulatory authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and
acquisitions. The amount of exposure per risk that CapMAC may retain,
after giving effect to reinsurance, collateral or other security, is also
regulated. Statutory and regulatory accounting practices may prescribe
appropriate rates at which premiums are earned and the levels of reserves
required. In addition, various insurance laws restrict the incurrence of
debt, regulate permissible investments of reserves, capital and surplus,
and govern the form of surety bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured.
Such reinsurance does not relieve CapMAC of any of its obligations under
the Surety Bonds.
The [Surety Bond(s)] [is] [are] not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance
Law.
In connection with the Sale, Holdings and CapMAC entered into an
Ownership Policy Agreement (the "Ownership Policy Agreement"), which sets
forth Holdings' intent with respect to its ownership and control of
CapMAC and provides for certain policies and agreements with respect to
Holdings' exercise of its control of CapMAC. In the Ownership Policy
Agreement, Holdings has agreed that, during the term of the Ownership
Policy Agreement, it will not, and will not permit any stockholder of
Holdings to enter into any transaction the result of which would be a
change of control (as defined in the Ownership Policy Agreement) of
CapMAC, unless the long term debt obligations or claims-paying ability of
the person which would control CapMAC after such transaction or its
direct or indirect parent are rated in a high investment grade category,
unless Holdings or CapMAC has confirmed that CapMAC's claims-paying
ability rating by Moody's (the "Rating") in effect immediately prior to
any such change of control will not be downgraded by Moody's upon such
change of control or unless such change of control occurs as a result of
a public offering of Holdings' capital stock.
In addition, the Ownership Policy Agreement includes agreements (i)
not to change the "zero-loss" underwriting standards or policies and
procedures of CapMAC in a manner that would materially and adversely
affect the risk profile of CapMAC's book of business, (ii) that CapMAC
will adhere to the aggregate leverage limitations and maintain
capitalization levels considered by Moody's from time as consistent with
maintaining CapMAC's Rating and (iii) that until CapMAC's statutory
capital surplus and contingency reserve ("qualified statutory capital")
equal $250 million, CapMAC will maintain a specified amount of qualified
statutory capital in excess of the amount of qualified statutory capital
that CapMAC is required at such time to maintain under the aggregate
leverage limitations set forth in Article 69 of the New York Insurance
Law.
The Ownership Policy Agreement will terminate on the earlier of the
date on which a change of control of CapMAC occurs and the date on which
CapMAC and Holdings agree in writing to terminate the Ownership Policy
Agreement; provided that, CapMAC or Holdings has confirmed that CapMAC's
Rating in effect immediately prior to any such termination will not be
downgraded upon such termination.
As at December 31, 1992 and 1991, CapMAC had a statutory capital
surplus of approximately $148 million and $232 million, respectively, and
had not incurred any debt obligations.
On June 26, 1992, CapMAC made a special distribution (the
"Distribution") to Holdings in connection with the Sale in an aggregate
amount that caused the total of CapMAC's statutory capital and surplus to
decline to approximately $150 million. Holdings applied substantially
all of the proceeds of the Distribution to repay debt owned to Citicorp
that was incurred in connection with the capitalization of CapMAC. As of
June 30, 1992, CapMAC had statutory capital and surplus of approximately
$150 million and had not incurred any debt obligations. In addition, at
December 31, 1992 CapMAC had a statutory contingency reserve of
approximately $15 million, which is also available to cover claims under
surety bonds issued by CapMAC.
In addition to its capital (including contingency reserve) and other
reinsurance available to pay claims under its surety bonds, on June 25,
1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop
Loss Agreement") with Winterthur Swiss Insurance Company (the
"Reinsurer"), which is rated AAA by Standard & Poor's and Aaa by Moody's,
pursuant to which the Reinsurer will be required to pay any losses
incurred by CapMAC during the term of the Stop Loss Agreement on the
surety bonds covered under the Stop Loss Agreement in excess of specified
amount of losses incurred by CapMAC under such surety bonds (such
specified amount initially being $100 million and increasing annually by
an amount equal to 66-2/3% of the increase in CapMAC's statutory capital
and surplus) up to an aggregate limit payable under the Stop Loss
Agreement of $50 million. The Stop Loss Agreement has an initial term of
seven years, is extendable for one-year periods and is subject to early
termination upon the occurrence of certain events.
CapMAC also has available of $100,000,000 standby corporate
liquidity facility (the "Liquidity Facility") provided by a syndicate of
banks rated A1 +/P1 by Standard & Poor's and Moody's, respectively,
having a term of 360 days. Under the Liquidity Facility CapMAC will be
able, subject to satisfying certain conditions, to borrow funds from time
to time in order to enable it to fund any claim payments or payments made
in settlement or mitigation of claims payments under its surety bonds,
including the Surety Bond(s).
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the
State of New York are available upon request. CapMAC is located at 885
Third Avenue, New York, New York 10022, and its telephone number is (212)
755-1155.
Municipal Bond Investors Assurance Corporation ("MBIA") is the
principal operating subsidiary of MBIA Inc., a New York Exchange listed
company. MBIA Inc. is not obligated to pay the debts of or claims
against MBIA. MBIA is a limited liability corporation rather than a
several liability association. MBIA is domiciled in the State of New
York and licensed to do business in all fifty states, the District of
Columbia and the Commonwealth of Puerto Rico. As of December 31, 1991
MBIA had admitted assets of $2.0 billion (audited), total liabilities of
$1.4 billion (audited), and total capital and surplus of $647 million
(audited) determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities. As of
June 30, 1992, MBIA had admitted assets to $2.3 billion (unaudited),
total liabilities of $1.6 billion (unaduited), and total capital and
surplus of $746 million (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. Copies of MBIA's year end financial statements
prepared in accordance with statutory accounting practices are available
from MBIA. The address of MBIA is 113 King Street, Armonk, New York
10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors
Group, Inc. On January 5, 1990, MBIA acquired all of the outstanding
stock of Bond Investors Group, Inc., the parent of Bond Investors
Guaranty Insurance Company (BIG), now known as MBIA Insurance Corp. of
Illinois. Through a reinsurance agreement, BIG has ceded all of its net
insured risks, as well as its unearned premium and contingency reserves,
to MBIA and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by
MBIA "Aaa" and short-term loans "MIG 1," both designated to be of the
highest quality.
Standard & Poor's Corporation rates all new issues insured by MBIA
"AAA" Prime Grade.
The Moody's Investors Service, Inc. rating of MBIA should be
evaluated independently of the Standard & Poor's Corporation 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 wholly-
owned subsidiary of General Electric Capital Corporation ("GECC").
Neither the Corporation nor GECC is obligated to pay the debts of or the
claims against Financial Guaranty. Financial Guaranty is domiciled in
the State of New York and is subject to regulation by the State of New
York Insurance Department. As of December 31, 1992, the total capital
and surplus of Financial Guaranty was approximately $621,000,000. Copies
of Financial Guaranty's financial statements, prepared on the basis of
statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting
principles, may be obtained by writing to Financial Guaranty at 115
Broadway, New York, New York 10006, Attention: Communications
Department, telephone number (212) 312-3000 or to the New York State
Insurance Department at 160 West Broadway, 18th Floor, New York, New York
10013, Attention: Property Companies Bureau, telephone number: (212)
602-0389.
In addition, Financial Guaranty Insurance Company is currently
licensed to write insurance in 49 states and the District of Columbia.
Financial Security Assurance ("Financial Security" or "FSA") is a
monoline insurance company incorporated on March 16, 1984 under the laws
of the State of New York. The operations of Financial Security commenced
on July 25, 1985, and Financial Security received its New York State
insurance license on September 23, 1985. Financial Security and its two
wholly owned subsidiaries are licensed to engage in financial guaranty
insurance business in 49 states, the District of Columbia and Puerto
Rico.
Financial Security and its subsidiaries are engaged exclusively in
the business of writing financial guaranty insurance, principally in
respect of asset-backed and other collateralized securities offered in
domestic and foreign markets. Financial Security and its subsidiaries
also write financial guaranty insurance in respect of municipal and other
obligations and reinsure financial guaranty insurance policies written by
other leading insurance companies. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of
an issuer's securities, thereby enhancing the credit rating of those
securities, in consideration for payment of a premium to the insurer.
Financial Security is approximately 91.6% owned by US WEST, Inc. and
8.4% owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio
Marine"). US WEST, Inc. operates businesses involved in communications,
data solutions, marketing services and capital assets, including the
provision of telephone services in 14 states in the western and mid-
western United States. Tokio Marine is the largest property and casualty
insurance company in Japan. Neither US WEST, Inc. nor Tokio Marine is
obligated to pay any debt of Financial Security or any claim under any
insurance policy issued by Financial Security or to make any additional
contribution to the capital of Financial Security. Financial Security is
domiciled in the State of New York and is subject to regulation by the
State of New York Insurance Department. As of September 30, 1992, the
total policyholders' surplus and contingency reserves and the total
unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $456,840,000 (unaudited) and
$231,686,000 (unaudited), and the total shareholders' equity and the
total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $615,376,000 (unaudited) and
$213,838,000 (unaudited). Copies of Financial Security's financial
statements may be obtained by writing to Financial Security at 350 Park
Avenue, New York, New York 10022, Attention: Communications Department,
its telephone number is (212) 826-0100.
Capital Guaranty Insurance Company ("Capital Guaranty") was
incorporated in Maryland on June 25, 1986, and is a wholly-owned
subsidiary of Capital Guaranty Corporation, a Maryland insurance holding
company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc. an affiliate of Baltimore Gas and
Electric; Fleet/Norstar Financial Group, Inc., Safeco Corporation; Sibag
Finance Corporation, an affiliate of Siemens A.G.; and United States
Fidelity and Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline
financial guaranty insurer engaged in the underwriting and development of
financial guaranty insurance. Capital Guaranty insures general
obligation, tax supported and revenue bonds structured as tax-exempt and
taxable securities as well as selectively insures taxable corporate/asset
backed securities. Standard & Poor's Corporation rates the claims paying
ability of Capital Guaranty "AAA".
Capital Guaranty's insured portfolio currently includes over $9
billion in total principal and interest insured. As of December 31,
1990, the total policyholders' surplus of Capital Guaranty was
$103,802,396 (audited), and the total admitted assets were $180,118,227
(audited) as reported to the Insurance Department of the State of
Maryland. Financial statements for Capital Guaranty Insurance Company,
that have been prepared in accordance with statutory insurance accounting
standards, are available upon request. The address of Capital Guaranty's
headquarters and its telephone number are Steuart Tower, 22nd Floor, One
Market Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written by Financial Security or either of its
subsidiaries are reinsured among such companies on an agreed-upon
percentage substantially proportional to their respective capital,
surplus and reserves, subject to applicable statutory risk limitations.
In addition, Financial Security reinsures a portion of its liabilities
under certain of its financial guaranty insurance policies with
unaffiliated reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by
Financial Security as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation,
Nippon Investors Service Inc., Duff & Phelps Inc. and Australian Ratings
Pty. Ltd. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
In order to be in the Trust, the Obligations must be insured by an
issuer obtained policy from FSA or be eligible for the insurance being
obtained by the Trust. In determining eligibility for insurance, CapMAC
and FSA have applied their own standards which correspond generally to
the standards they normally use in establishing the insurability of new
issues of bonds and which are not necessarily the criteria used in the
selection of the Obligations by the Sponsor. To the extent the standards
of CapMAC and FSA are more restrictive than those of the Sponsor, the
previously stated Trust investment criteria have been limited with
respect to the Obligations. This decision was made prior to the original
date of deposit, as debt obligations not eligible for insurance are not
deposited in the Trust. Thus, all Obligations in the Trust are insured
by insurance obtained by the Trust or insurance obtained by the issuer of
the Obligations.
Because the Obligations are insured by an Insurer 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 Corporation has assigned to the Units of the Trust its
'AAA' investment rating. See "Investment Objective and Portfolio
Selection". The obtaining of this rating by the Trust should not be
construed as an approval of the offering of the Units by Standard and
Poor's Corporation or as a guarantee of the market value of the Trust or
of the Units.
The Estimated Current Return and the Estimated Long-Term Return on
an identical portfolio without the insurance obtained by the Trust would
have been higher than the Estimated Current Return and the Estimated Long-
Term Return on the 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 Corporation
'AAA' rating and yet at the same time to have the protection of insurance
of prompt payment of interest and principal, when due (as more fully
described above), on the Obligations. There is, of course, no certainty
that this result will be achieved.
In the event of nonpayment of interest or principal, when due (as
more fully described above), in respect of an Obligation, the appropriate
Insurer shall make such payment within 30 days after it has been notified
that such nonpayment has occurred. The appropriate Insurer, as regards
any payment it may make, will succeed to the rights of the Trustee in
respect thereof.
The information relating to the Insurers has been furnished by the
respective Insurers. The financial information with respect to the
Insurers appears in reports filed with state insurance regulatory
authorities and is subject to audit and review by such authorities. No
representation is made herein as to the accuracy or adequacy of such
information or as to the absence of material adverse changes in such
information subsequent to the dates thereof.
Tax Status
For purposes of the following discussions and opinions, it is
assumed that interest on each of the Obligations (including the taxable
municipal bonds) is included in gross income for Federal income tax
purposes. At the time of Closing of each Trust, Chapman and Cutler,
special counsel for the Sponsor, rendered an opinion under then existing
law substantially to the effect that:
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 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 interest derived from each Trust asset when such
interest is 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 is
disposed of (whether by sale, exchange, redemption, or payment at
maturity) or when the Unitholder redeems or sells his Units. The cost of
the Units to a Unitholder on the date such Units are purchased is
allocated among the Obligations held in the Trust (in accordance with the
proportion of the fair market values of such Obligations) in order to
determine his tax basis for his pro rata portion in each Obligation.
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 and, consequently, such
Unitholders may have an increase in taxable gain or reduction in capital
loss upon the disposition of such Units. Gain or loss upon the sale or
redemption of Units is measured by comparing the proceeds of such sale or
redemption with the adjusted basis of the Units. If the Trustee disposes
of Obligations, gain or loss is recognized to the Unitholder. The amount
of any such gain or loss is measured by comparing the Unitholder's pro
rata share of the total proceeds from such disposition with his basis for
his fractional interest in the asset disposed of. The basis of each Unit
and of each Obligation which was issued with original issue discount
(including the Treasury Bonds) must be increased by the amount of accrued
original issue discount 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 cost
reduction requirements of the Code relating to amortization of bond
premium may, under some circumstances, result in the Unitholder realizing
a taxable gain when his Units are sold or redeemed for an amount equal 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 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 interest in "stripped"
U.S. Treasury bonds, a Unitholder's initial cost for his pro rata portion
of each Treasury Bond held by 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. In
general, original issue discount accrues daily under a constant interest
rate method which takes into account the semi-annual compounding of
accrued interest. In the case of the Treasury Bonds, this method will
generally result in an increasing amount of income to the Unitholders
each year. Unitholders should consult their tax advisers regarding the
Federal income tax consequences and accretion of original issue discount.
Limitations on Deductibility of Trust Expenses by Unitholders. Each
Unitholder's pro rata share of each expense paid by the Trust is
deductible by the Unitholder to the same extent as though the expense had
been paid directly by him, subject to the following limitation. It
should be noted that as a result of the Tax Reform Act of 1986 (the
"Act"), 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. Temporary regulations have been
issued which require Unitholders to treat certain expenses of the Trust
as miscellaneous itemized deductions subject to this limitation.
Acquisition 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
"acquisition 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 advisers regarding whether such
election should be made and the manner of amortizing acquisition 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"). Unitholders
should also consult their tax advisers regarding these special rules.
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.
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 advisers 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 acquisition 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. Any gain recognized on a
sale or exchange and not constituting a realization of accrued "market
discount," and any loss will, under current law, generally be capital
gain or loss except in the case of a dealer or financial institution.
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 be short-term capital gain or loss unless the Unitholder has held
his Units for more than one year in which case such capital gain or loss
will be long-term. For taxpayers other than corporations, net capital
gains are subject to a maximum marginal stated tax rate of 28 percent.
However, it should be noted that legislative proposals are introduced
from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed. The
tax cost 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.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident of 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) 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), 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, (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 should consult
their tax advisers with respect to United States tax consequences of
ownership of Units.
General. Each Unitholder (other than a foreign investor who has
properly provided the certifications described in the preceding
paragraph) 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 will be subject to back-up withholding.
In the opinion of the special counsel to the Trust for New York tax
matters, the Trust is not an association taxable as a corporation and the
income of the Trust will be treated as the income of the Unitholders
under the existing income tax laws of the State and City of New York.
The foregoing discussion relates only to United States Federal and
New York State and City income taxes; Unitholders may be subject to state
and local taxation in other jurisdictions (including a foreign investor's
country of residence). Unitholders should consult their tax advisers
regarding potential state, local, or foreign taxation with respect to the
Units.
Public Offering
General. Units are offered at the Public Offering Price (which in
the secondary market is based on the bid prices of all the Obligations
and includes a sales charge determined in accordance with the table set
forth below, which is based upon the dollar weighted average maturity of
the Trust) plus accrued and undistributed interest to the settlement
date. 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 funds or securities have been placed in escrow
to redeem them on an earlier call date, in which case such call date will
be deemed to be the date upon which they mature; or (b) such 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 dollar weighted average maturity of such Trust's Portfolio, in
accordance with the following schedule:
Years to Maturity Sales Charge Year to Maturity Sales Charge
1..................... 1.523% 9 ........... 4.712%
2..................... 2.041 10 ........... 4.932
3..................... 2.564 11 ........... 4.932
4..................... 3.199 12 ........... 4.932
5..................... 3.842 13 ........... 5.374
6..................... 4.058 14 ........... 5.374
7..................... 4.275 15 ........... 5.374
8..................... 4.493 16 to 30 ..... 6.045
The sales charges in the above table are expressed as a percentage of the
net amount invested. Expressed as a percent of the Public Offering
Price, the sales charge on a Trust consisting entirely of a portfolio of
Obligations with 15 years to maturity would be 5.10%.
Accrued Interest (Accrued Interest to Carry). Accrued interest to
carry consists of two elements. The first element arises as a result of
accrued interest which is the accumulation of unpaid interest on a bond
from the last day on which interest thereon was paid. Interest on
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 but 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.
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 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. For secondary market purposes such appraisal and adjustment will
be made by the Evaluator as of 4:00 P.M. Eastern time on days on which
the New York Stock Exchange is open for each day on which any Unit of the
Trust is tendered for redemption, and it shall determine the aggregate
value of the Trust as of 4:00 P.M. Eastern time on such other days as may
be necessary.
The aggregate price of the Obligations in the Trust has been and
will be determined on the basis of bid prices (a) on the basis of current
market prices for the Obligations obtained from dealers or brokers who
customarily deal in bonds comparable to those held by the Trust; (b) if
such prices are not available for any particular Obligations, on the
basis of current market prices for comparable bonds; (c) by causing the
value of the Obligations to be determined by others engaged in the
practice of evaluation, quoting or appraising comparable bonds; or (d) by
any combination of the above. Unless the Obligations are in default in
payment of principal or interest or in significant risk of such default,
the Evaluator will not attribute any value to the insurance obtained by
the Trust.
The Evaluator will consider in its evaluation of Obligations which
are in default in payment of principal or interest or, in the Sponsor's
opinion, in significant risk of such default (the "Defaulted
Obligations") the value of the insurance guaranteeing interest and
principal payments. The value of the insurance obtained by the Trust
will be equal to the difference between (i) the market value of Defaulted
Obligations assuming the exercise of the right to obtain Permanent
Insurance (less the insurance premiums and related expenses attributable
to the purchase of Permanent Insurance) and (ii) the market value of such
Defaulted Obligations not covered by Permanent Insurance. In addition,
the Evaluator will consider the ability of the affected Portfolio Insurer
to meet its commitments under any Trust insurance policy, including the
commitments to issue Permanent Insurance. It is the position of the
Sponsor that this is a fair method of valuing the Obligations and the
insurance obtained by the Trust and reflects a proper valuation method in
accordance with the provisions of the Investment Company Act of 1940.
Although payment is normally made five business days following the
order for purchase, payment may be made prior thereto. However, delivery
of certificates representing Units so ordered will be made five business
days following such order or shortly thereafter. A person will become
the owner of Units on the date of settlement provided payment has been
received. Cash, if any, made available to the Sponsor prior 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 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 referred to above) is retained by or remitted to
the banks. Under the Glass-Steagall Act, banks are prohibited from
underwriting Trust Units; however, the Glass-Steagall Act does permit
certain agency transactions and the banking regulators have not indicated
that these particular agency transactions are not permitted under such
Act. In addition, state securities laws on this issue may differ from
the interpretations of federal law expressed herein and banks and
financial institutions may be required to register as dealers pursuant to
state law. For secondary market transactions, such concession or agency
commission will amount to 4% of the Public Offering Price per Unit. The
minimum purchase in the secondary market will be one Unit.
The Sponsor reserves the right to reject, in whole or in part, any
order for the purchase of Units and to change the amount of the
concession or agency commission to dealers and others from time to time.
See "Underwriting".
Sponsor and Dealer Profits. Dealers will receive the gross sales
commission as described under "Public 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 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. 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.
Certificates are transferable by presentation and surrender to the
Trustee properly endorsed or accompanied by a written instrument or
instruments of transfer. A Unitholder must sign exactly as his name
appears on the face of the certificate with the signature guaranteed by
an officer of a commercial bank or Trust company, a member firm of either
the New York, American, Midwest or Pacific Stock Exchange, or in such
other manner as may be acceptable to the Trustee. In certain instances
the Trustee may require additional documents such as, but not limited to,
Trust instruments, certificates of death, appointments as executor or
administrator or certificates of corporate authority. Certificates will
be issued in denominations of one Unit or any multiple thereof.
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 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
fifteenth day of such month. 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. However, should the amount available for distribution in
the Principal Account equal or exceed $10.00 per Unit, to the extent
permissible under the Investment Company Act of 1940, the Trustee will
make a special distribution from the Principal Account on the next
succeeding monthly distribution date to holders of record on the related
monthly record date.
The distribution to the Unitholders as of each record date will be
made on the following distribution date or shortly thereafter and shall
consist of an amount substantially equal to such portion of the
Unitholders' pro rata share of the estimated net annual unit income in
the Interest Account after deducting estimated expenses attributable as
is consistent with the distribution plan chosen. Because interest
payments are not received by the Trust at a constant rate throughout the
year, such interest distribution may be more or less than the amount
credited to the Interest Account as of the record date. For the purpose
of minimizing fluctuation in the distributions from the Interest Account,
the Trustee is authorized to advance such amounts as may be necessary to
provide interest distributions of approximately equal amounts. The
Trustee shall be reimbursed, without interest, for any such advances from
funds in the Interest Account on the ensuing record date. Persons who
purchase Units will commence receiving distributions only after such
person becomes a record owner. Notification to the Trustee of the
transfer of Units is the responsibility of the purchaser, but in the
normal course of business such notice is provided by the selling broker-
dealer.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the
Trust (as determined on the basis set 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 first day of each month and record
dates for semi-annual distributions will be the first day of June and
December. Distributions will be made on the fifteenth day of the month
subsequent to the respective record dates.
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 the Trust may elect to have
each distribution of interest income, capital gains and/or principal on
their Units automatically reinvested in shares of any of the mutual funds
listed under "Trust Administration Sponsor" which are registered in the
Unitholder's state of residence. Such mutual funds are hereinafter
collectively referred to as the "Reinvestment Funds".
Each Reinvestment Fund has investment objectives which differ in
certain respects from those of the Trust. The prospectus relating to
each Reinvestment Fund describes the investment policies of such fund and
sets forth the procedures to follow to commence reinvestment. A
Unitholder may obtain a prospectus for the respective Reinvestment Funds
from Van Kampen Merritt Inc. at One Parkview Plaza, Oakbrook Terrace,
Illinois 60181. Texas residents who desire to reinvest may request that
a broker-dealer registered in Texas send the prospectus relating to the
respective fund.
After becoming a participant in a reinvestment plan, each
distribution of interest income, capital gains and/or principal on the
participant's Units will, on the applicable distribution date,
automatically be applied, as directed by such person, as of such
distribution date by the Trustee to purchase shares (or fractions
thereof) of the applicable Reinvestment Fund at a net asset value as
computed as of the close of trading on the New York Stock Exchange on
such date, plus a sales charge of $1.00 per $100 of reinvestment except
if the participant selects the Van Kampen Merritt Money Market Fund or
the Van Kampen Merritt Tax Free Money Fund in which case no sales charge
applies. A minimum of one-half of such sales charge would be paid to Van
Kampen Merritt Inc.
Confirmations of all reinvestments by a Unitholder into a
Reinvestment Fund will be mailed to the Unitholder by such Reinvestment
Fund.
A participant may at any time prior to five days preceding the next
succeeding distribution date, by so notifying the Trustee in writing,
elect to terminate his or her reinvestment plan and receive future
distributions on his or her Units in cash. There will be no charge or
other penalty for such termination. Each Reinvestment Fund, its sponsor
and its 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 seventh calendar day following such tender, or if the
seventh calendar day is not a business day, on the first business day
prior thereto, the Unitholder will be entitled to receive in cash an
amount for each Unit equal to the Redemption Price per Unit next computed
after receipt by the trustee of such tender of Units. The "date of
tender" is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after 4:00 P.M. Eastern
time on days of trading on the New York Stock Exchange, the date of
tender is the next day on which such Exchange is open for trading and
such Units will be deemed to have been tendered to the Trustee on such
day for redemption at the redemption price computed on that day.
Under regulations issued by the Internal Revenue Service, the
Trustee will be required to withhold a specified percentage of the
principal amount of a Unit redemption if the Trustee has not been
furnished the redeeming Unitholder's tax identification number in the
manner required by such regulations. Any amount so withheld is
transmitted to the Internal Revenue Service and may be recovered by the
Unitholder only when filing a return. Under normal circumstances the
Trustee obtains the Unitholder's tax identification number from the
selling broker. However, at any time a Unitholder elects to tender Units
for redemption, such Unitholder should provide a tax identification
number to the Trustee in order to avoid this possible "back-up
withholding" in the event the Trustee has not been previously provided
such number.
Accrued interest paid on redemption shall be withdrawn from the
Interest Account or, if the balance therein is insufficient, from the
Principal Account. All other amounts will be withdrawn from the
Principal Account. The Trustee is empowered to sell underlying
Obligations in order to make funds available for redemption. Units so
redeemed shall be cancelled.
The Redemption Price per Unit will be determined on the basis of the
bid price of the Obligations in the Trust, as of 4:00 P.M. Eastern time
on days of trading on the New York Stock Exchange on the date any such
determination is made. While the Trustee has the power to determine the
Redemption Price per Unit when Units are tendered for redemption, such
authority has been delegated to the Evaluator which determines the price
per Unit on a daily basis. The Redemption Price per Unit is the pro rata
share of each Unit in the Trust determined on the basis of (i) the cash
on hand in the Trust or monies in the process of being collected, (ii)
the value of the Obligations in the Trust based on the bid prices of the
Obligations, except for those cases in which the value of insurance has
been included, and (iii) interest accrued thereon, less (a) amounts
representing taxes or other governmental charges payable out of the Trust
and (b) the accrued expenses of the Trust. The Evaluator may determine
the value of the Obligations in the Trust by employing any of the methods
set forth in "Public Offering - Offering Price". In determining the
Redemption Price per Unit no value will be assigned to the portfolio
insurance maintained by the Trust on the Obligations in the Trust unless
such Obligations are in default in payment of principal or interest or in
significant risk of such default. For a description of the situations in
which the Evaluator may value the insurance obtained by the Trust, see
"Public Offering-Offering Price".
The price at which Units may be redeemed could be less than the
price paid by the Unitholder.
As stated above, the Trustee may sell Obligations to cover
redemptions. When Obligations are sold, the size and diversity of the
Trust will be reduced. Such sales may be required at a time when
Obligations would not otherwise be sold and might result in lower prices
than might otherwise be realized. Pursuant to an irrevocable commitment
of the Portfolio Insurers, the Trustee upon the sale of an Obligation has
the right to obtain permanent insurance for such Obligation upon the
payment of a single predetermined insurance premium and any expenses
related thereto from the proceeds of the sale of such Obligation.
Accordingly, any Obligation may be sold on an insured basis.
The right of redemption may be suspended and payment postponed for
any period during which the New York Stock Exchange is closed, other than
for customary weekend and holiday closings, or during which the
Securities and Exchange Commission determines that trading on that
Exchange is restricted or an emergency exists, as a result of which
disposal or evaluation of the Obligations in the Trust is not reasonably
practicable, or for such other periods as the Securities and Exchange
Commission may by order permit. Under certain extreme circumstances the
Sponsor may apply to the Securities and Exchange Commission for an order
permitting a full or partial suspension of the right of Unitholders to
redeem their Units.
Trust Administration
Sponsor Purchases of Units. The Trustee shall notify the Sponsor of
any tender of Units for redemption. If the Sponsor's bid in the
secondary market at that time equals or exceeds the Redemption Price per
Unit, it may purchase such Units by notifying the Trustee before the
close of business on the second succeeding business day and by making
payment therefor to the Unitholder not later than the day on which the
Units would otherwise have been redeemed by the Trustee. Units held by
the Sponsor may be tendered to the Trustee for redemption as any other
Units.
The offering price of any Units acquired by the Sponsor will be in
accord with the Public Offering Price described in the then currently
effective prospectus describing such Units. Any profit resulting from
the resale of such Units will belong to the Sponsor which likewise will
bear any loss resulting from a lower offering or redemption price
subsequent to its acquisition of such Units.
Portfolio Administration. The Trustee is empowered to sell, for the
purpose of redeeming Units tendered by any Unitholder, and for the
payment of expenses for which funds may not be available, such of the
Obligations designated by the Evaluator as the Trustee in its sole
discretion may deem necessary. The Evaluator, in designating such
Obligations, will consider a variety of factors, including (a) interest
rates, (b) market value and (c) marketability. To the extent that
Obligations are sold which are current in payment of principal and
interest in order to meet redemption requests and defaulted Obligations
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Obligations, the overall quality of the
Obligations remaining in the Trust's portfolio will tend to diminish.
The Sponsor is empowered, but not obligated, to direct the Trustee to
dispose of Obligations in the event of an advanced refunding.
The Sponsor is required to instruct the Trustee to reject any offer
made by an issuer of any of the Obligations to issue new obligations in
exchange or substitution for any Obligation pursuant to a refunding or
refinancing plan, except that the Sponsor may instruct the Trustee to
accept or reject such an offer or to take any other action with respect
thereto as the Sponsor may deem proper if (1) the issuer is in default
with respect to such Obligation or (2) in the written opinion of the
Sponsor the issuer will probably default with respect to such Obligation
in the reasonably foreseeable future. Any obligation so received in
exchange or substitution will be held by the Trustee subject to the terms
and conditions of the Trust Agreement to the same extent as Obligations
originally deposited thereunder. Within five days after the deposit of
obligations in exchange or substitution for underlying Obligations, the
Trustee is required to give notice thereof to each Unitholder,
identifying the Obligations eliminated and the Obligations substituted
therefor. Except as stated herein and under "Trust Portfolio-Replacement
Obligations" regarding the substitution of Replacement Obligations for
Failed Obligations, the acquisition by the Trust of any obligations other
than the Obligations initially deposited is not permitted.
If any default in the payment of principal or interest on any
Obligation occurs and no provision for payment is made therefor either
pursuant to the portfolio insurance, or otherwise, within 30 days, the
Trustee is required to notify the Sponsor thereof. If the Sponsor fails
to instruct the Trustee to sell or to hold such Obligation within 30 days
after notification by the Trustee to the Sponsor of such default, the
Trustee may in its discretion sell the defaulted Obligation and not be
liable for any depreciation or loss thereby incurred.
Amendment or Termination. The Sponsor and the Trustee have the
power to amend the Trust Agreement without the consent of any of the
Unitholders when such an amendment is (a) to cure an ambiguity or to
correct or supplement any provision of the Trust Agreement which may be
defective or inconsistent with any other provision contained therein or
(b) to make such other provisions as shall not adversely affect the
interest of the Unitholders (as determined in good faith by the Sponsor
and the Trustee), provided that the Trust Agreement, may not be amended
to increase the number of Units issuable thereunder or to permit the
deposit or acquisition of obligations either in addition to or in
substitution for any of the Obligations initially deposited in the Trust,
except for the substitution of certain refunding obligations for such
Obligations. In the event of any amendment, the Trustee is obligated to
notify promptly all Unitholders of the substance of such amendment.
The Trust may be terminated at any time by consent of Unitholders
representing 51% of the Units of the Trust then outstanding or by the
Trustee when the value of the Trust, as shown by any semi-annual
evaluation, is less than that indicated under "Summary of Essential
Financial Information".
The Trust Agreement provides that the Trust shall terminate upon the
redemption, sale or other disposition of the last Obligation held in the
Trust, but in no event shall it continue beyond the end of the year
preceding the fiftieth anniversary of the Trust Agreement. In the event
of termination of the Trust, written notice thereof will be sent by the
Trustee to each Unitholder thereof at his address appearing on the
registration books of the Trust maintained by the Trustee, such notice
specifying the time or times at which the Unitholder may surrender his
certificate or certificates for cancellation. Within a reasonable time
thereafter the Trustee shall liquidate any Obligations then held in the
Trust and shall deduct from the funds of the Trust any accrued costs,
expenses or indemnities provided by the Trust Agreement, including
estimated compensation of the Trustee and costs of liquidation and any
amounts required as a reserve to provide for payment of any applicable
taxes or other governmental charges. The sale of Obligations in the
Trust upon termination may result in a lower amount than might otherwise
be realized if such sale were not required at such time. For this
reason, among others, the amount realized by a Unitholder upon
termination may be less than the principal amount of Obligations
represented by the Units held by such Unitholder. The Trustee shall then
distribute to each Unitholder his share of the balance of the Interest
and Principal Accounts. With such distribution the Unitholders shall be
furnished a final distribution statement of the amount distributable. At
such time as the Trustee in its sole discretion shall determine that any
amounts held in reserve are no longer necessary, it shall make
distribution thereof to Unitholders in the same manner.
Limitation on Liabilities. The Sponsor, the Evaluator and the
Trustee shall be under no liability to Unitholders for taking any action
or for refraining from taking any action in good faith pursuant to the
Trust Agreement, or for errors in judgment, but shall be liable only for
their own willful misfeasance, bad faith or negligence (gross negligence
in the case of the Sponsor) in the performance of their duties or by
reason of their reckless disregard of their obligations and duties
hereunder. The Trustee shall not be liable for depreciation or loss
incurred by reason of the sale by the Trustee of any of the Obligations.
In the event of the failure of the Sponsor to act under the Trust
Agreement, the Trustee may act thereunder and shall not be liable for any
action taken by it in good faith under the Trust Agreement.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Obligations or upon the
interest thereon or upon it as Trustee under the Trust Agreement or upon
or in respect of the Trust which the Trustee may be required to pay under
any present or future law of the Untied States of America or of any other
taxing authority having jurisdiction. In addition, the Trust Agreement
contains other customary provisions limiting the liability of the
Trustee.
The Trustee, Sponsor and Unitholders may rely on any evaluation
furnished by the Evaluator and shall have no responsibility for the
accuracy thereof. Determinations by the Evaluator under the Trust
Agreement shall be made in good faith upon the basis of the best
information available to it, provided, however, that the Evaluator shall
be under no liability to the Trustee, Sponsor or Unitholders for errors
in judgment. This provision shall not protect the Evaluator in any case
of willful misfeasance, bad faith, gross negligence or reckless disregard
of its obligations and duties.
Sponsor. Van Kampen Merritt Inc., a Delaware corporation, is the
Sponsor of the Trust. Van Kampen Merritt Inc. is primarily owned by
Clayton, Dubilier & Rice, Inc., a New York-based private investment firm.
Van Kampen Merritt Inc. management owns a significant minority equity
position. Van Kampen Merritt Inc. specializes in the underwriting and
distribution of unit investment trusts and mutual funds. The Sponsor is
a member of the National Association of Securities Dealers, Inc. and has
its principal office at One Parkview Plaza, Oakbrook Terrace, Illinois
60181 (708-684-6000). It maintains a branch office in Philadelphia and
has regional representatives in Atlanta, Dallas, Los Angeles, New York,
San Francisco, Seattle and Tampa. As of December 31, 1992, the total
stockholders' equity of Van Kampen Merritt Inc. was $299,865,984
(audited). (This paragraph relates only to the Sponsor and not to Van
Kampen Merritt Insured Income Trust or to any series thereof. The
information is included herein only for the purpose of informing
investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. More detailed
financial information will be made available by the Sponsor upon
request.)
As of December 31, 1992, the Sponsor managed, or conducted
surveillance and evaluation services with respect to, approximately $34
billion of investment products. The Sponsor managed $18.5 billion of
assets, consisting of $6.9 billion for 12 mutual funds, $6.1 billion for
22 closed-end funds and $5.5 billion for 38 institutional accounts. The
Sponsor has also deposited over $22 billion of unit investment trusts.
Based on cumulative assets deposited, the Sponsor believes that it is the
largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipal Income Trust or the IM-IT
trust. The Sponsor also provides surveillance and evaluation services at
cost for approximately $15 billion of unit investment trust assets
outstanding. Since 1976, the Sponsor has opened over one million retail
investor accounts through retail distribution firms. Van Kampen Merritt
Inc. is the sponsor of the various series of the trusts listed below and
the distributor of the mutual funds and closed-end funds listed below.
Unitholders may only invest in the trusts, mutual funds and closed-end
funds which are registered for sale in the state of residence of such
Unitholder.
Van Kampen Merritt Inc. is the sponsor of the various series of the
following unit investment trusts: Investors' Quality Tax-Exempt Trust;
Investors' Quality Tax-Exempt Trust, Multi-Series; Investors Quality
Municipals Trust, AMT Series; Insured Municipals Income Trust; Insured
Municipals Income Trust, Insured Multi-Series; California Insured
Municipals Income Trust; New York Insured Municipals Income Trust;
Pennsylvania Insured Municipals Income Trust; Insured Tax Free Bond
Trust, Insured Multi-Series; Investors' Corporate Income Trust;
Investors' Governmental Securities-Income Trust; Van Kampen Merritt
International Bond Income Trust; Van Kampen Merritt Utility Income Trust;
Van Kampen Merritt Insured Income Trust; Van Kampen Merritt Blue Chip
Opportunity Trust; and Van Kampen Merritt Blue Chip Opportunity and
Treasury Trust.
Van Kampen Merritt Inc. is the distributor of the following mutual
funds: Van Kampen Merritt U.S. Government Fund; Van Kampen Merritt
California Insured Tax Free Fund; Van Kampen Merritt Tax-Free High Income
Fund; Van Kampen Merritt Insured Tax-Free Income Fund; Van Kampen Merritt
High Yield Fund; Van Kampen Merritt Growth and Income Fund; Van Kampen
Merritt Pennsylvania Tax Free Income Fund; Van Kampen Merritt Money
Market Fund; Van Kampen Merritt Tax Free Money Fund; Van Kampen Merritt
Municipal Income Fund; Van Kampen Merritt Short-Term Global Income Fund;
and Van Kampen Merritt Adjustable Rate U.S. Government Fund.
Van Kampen Merritt is the distributor of the following closed-end
funds: Van Kampen Merritt Municipal Income Trust; Van Kampen Merritt
California Municipal Trust; Van Kampen Merritt Intermediate Term High
Income Trust; Van Kampen Merritt Limited Term High Income Trust; Van
Kampen Merritt Prime Rate Income Trust; Van Kampen Merritt Investment
Grade Municipal Trust; Van Kampen Merritt Municipal Trust; Van Kampen
Merritt California Quality Municipal Trust; Van Kampen Merritt Florida
Quality Municipal Trust; Van Kampen Merritt New York Quality Municipal
Trust; Van Kampen Merritt Ohio Quality Municipal Trust and Van Kampen
Merritt Pennsylvania Quality Municipal Trust; Van Kampen Merritt Trust
for Investment Grade Municipals; Van Kampen Merritt Trust for Insured
Municipals; Van Kampen Merritt Trust for Investment Grade CA Municipals;
Van Kampen Merritt Trust for Investment Grade FL Municipals; Van Kampen
Merritt Trust for Investment Grade NJ Municipals; Van Kampen Merritt
Trust for Investment Grade NY Municipals; Van Kampen Merritt Trust for
Investment Grade PA Municipals; Van Kampen Merritt Municipal Opportunity
Trust; Van Kampen Merritt Advantage Municipal Income Trust; Van Kampen
Merritt Advantage Pennsylvania Municipal Income Trust; and Van Kampen
Merritt Strategic Sector Municipal Trust.
If the Sponsor shall fail to perform any of its duties under the
Trust Agreement or become incapable of acting or become bankrupt or its
affairs are taken over by public authorities, then the Trustee may (i)
appoint a successor Sponsor at rates of compensation deemed by the
Trustee to be reasonable and not exceeding amounts prescribed by the
Securities and Exchange Commission, (ii) terminate the Trust Agreement
and liquidate the Trust as provided therein or (iii) continue to act as
Trustee without terminating the Trust Agreement.
Trustee. The Trustee is The Bank of New York, a trust company
organized under the laws of New York. The Bank of New York has its
offices at 101 Barclay Street, New York, New York 10286, (800) 221-7668.
The bank of New York is subject to supervision and examination by the
Superintendent of Banks of the State of New York and the Board of
Governors of the Federal Reserve System, and its deposits are insured by
the Federal Deposit Insurance Corporation to the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It
did not participate in the selection of 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 vest in the
successor. The resignation or removal of a Trustee becomes effective
only when the successor trustee accepts its appointment as such or when a
court of competent jurisdiction appoints a successor trustee.
Any corporation into which a Trustee may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which a Trustee shall be a party, shall be the successor
trustee. The Trustee must be a banking corporation organized under the
laws of the United States or any State and having at all times an
aggregate capital, surplus and undivided profits of not less than
$5,000,000.
Other Matters
Legal Opinions. The legality of the Units offered hereby has been
passed upon by Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois 60603, as counsel for the Sponsor. Various counsel have acted
as counsel for the Trustee.
Independent Certified Public Accountants. The statement of
condition and the related portfolio included in Part One of this
Prospectus have been audited by Grant Thornton, 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** As published by the ratings
companies.
Standard & Poor's Corporation. A brief description of the
applicable Standard & Poor's Corporation rating symbols and their
meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific debt obligation. This assessment may take into consideration
obligors such as guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the issuer
and obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended, or withdrawn as a result of
changes in, or unavailability of, such information, or for other
circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and willingness of the
obligor as to the timely payment of interest and repayment of
principal in accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the
obligation in the event of bankruptcy, reorganization or other
arrangements under the laws of bankruptcy and other laws affecting
creditors' rights.
AAA - Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small
degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although the are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds in
higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds in
higher rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be
modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
Provisional Ratings: The symbol "(p)" indicates that the rating is
provisional. A provisional rating assumes the successful completion of
the project being financed by the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent
upon the successful and timely completion of the project. This rating,
however, while addressing credit quality subsequent to completion of the
project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
Moody's Investors Service, Inc. A brief description of the
applicable Moody's Investors Service, Inc. rating symbols and their
meanings follow:
Aaa - Bonds which are rated Aaa are judged to be the best quality.
They carry the smallest degree of investment risk and are generally
referred to as "gilt edge". Interest payments are protected by a large,
or by an exceptionally stable, margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues. With the occasional exception of oversupply in a few
specific instances, the safety of obligations of this class is so
absolute that their market value is affected solely by money market
fluctuations.
Aa - Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they compromise what are
generally known as high grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa
securities or fluctuations of protective elements may be of greater
amplitude or there may be other elements present which make the long-term
risks appear somewhat larger than in Aaa securities. These Aa bonds are
high grade, their market value virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A - Bonds which are rated A possess many favorable investment
attributes and are to be considered as higher medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future. The market value of A-rated bonds may
be influenced to some degree by credit circumstances during a sustained
period of depressed business conditions. During periods of normalcy,
bonds of this quality frequently move in parallel with Aaa and Aa
obligations, with the occasional exception of oversupply in a few
specific instances.
Baa - Bonds which are rated Baa are considered as lower medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well. The market value of Baa-rated bonds is more
sensitive to changes in economic circumstances, and aside from occasional
speculative factors applying to some bonds of this class, Baa market
valuations move in parallel with Aaa, Aa and A obligations during periods
of economic normalcy, except in instances of oversupply.
Moody's bond rating symbols may contain numerical modifiers of a
generic rating classification. The modifier 1 indicates that the bond
ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
Con - Bonds for which the security depends upon the completion of
some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction,
(b) earnings of projects unseasoned in operating experience, (c) rentals
which begin when facilities are completed, or (d) payments to which some
other limiting condition attaches. Parenthetical rating denotes probable
credit stature upon completion of construction or elimination of basis of
condition.
No person is authorized to give any information or to make any
representation not contained in this Prospectus; and any information or
representation not contained herein must not be relied upon as having
been authorized by the Trust, the Sponsor or the dealers. This
Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, securities in any state to any person to whom it is not
lawful to make such offer in such state.
Table of Contents
Title Page
Summary of Essential Financial
Information .................. 1
The Trust .................... 2
Investment Objective and
Portfolio Selection .......... 3
Trust Portfolio............... 4
Estimated Current Return and
Estimated Long-Term Return.... 9
Trust Operating Expenses...... 10
Insurance on the Obligations.. 11
Tax Status.................... 20
Public Offering............... 24
Rights of Unitholders......... 28
Trust Administration.......... 33
Other Matters................. 38
Description of Obligation
Ratings....................... 38
This Prospectus contains information concerning the Trust and the
Sponsor, but does not contain all of the information set forth in the
registration statements and exhibits relating thereto, which the Trust
has filed with the Securities and Exchange Commission, Washington, D.C.,
under the Securities Act of 1933 and the Investment Company Act of 1940,
and to which reference is hereby made.
Van Kampen Merritt
Insured Income Trust
Prospectus
Part Two
Note: This Prospectus May Be Used Only When Accompanied by Part One.
Both Parts of this Prospectus should be retained for future reference.
Dated as of the date
of the Prospectus
Part I accompanying
this Prospectus
Part II.
Sponsor:
Van Kampen Merritt
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Mellon Bank Center
1735 Market Street
Suite 1300
Philadelphia, Pennsylvania
19103
Contents of Post-Effective Amendment
to Registration Statement
This Post-Effective Amendment to the Registration Statement
comprises the following papers and documents:
The facing sheet
The prospectus
The signatures
The Consent of Independent Accountants
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Van Kampen Merritt Insured Income Trust, Series 26, certifies
that it meets all of the requirements for effectiveness of this
Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Chicago and State of Illinois on the 24th
day of January, 1994.
Van Kampen Merritt Insured Income
Trust, Series 26
(Registrant)
By Van Kampen Merritt Inc.
(Depositor)
By Sandra A. Waterworth
Vice President
(Seal)
Pursuant to the requirements of the Securities Act of 1933, this
Post Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities on January 24, 1994:
Signature Title
John C. Merritt Chairman, Chief Executive )
Officer and Director )
)
William R. Rybak Senior Vice President and )
Chief Financial Officer )
)
Ronald A. Nyberg Director )
)
William R. Molinari Director )
)
Sandra A. Waterworth
(Attorney in Fact)*
____________________
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Insured Municipals Income
Trust, 113th Insured Multi-Series (File No. 33-46036) and the same
are hereby incorporated herein by this reference.
Consent of Independent Certified Public Accountants
We have issued our report dated December 17, 1993 accompanying the
financial statements of Van Kampen Merritt Insured Income Trust, Series
26 as of September 30, 1993, and for the period then ended, contained in
this Post-Effective Amendment No. 1 to Form S-6.
We consent to the use of the aforementioned report in the Post-
Effective Amendment and to the use of our name as it appears under the
caption "Auditors".
Grant Thornton
Chicago, Illinois
January 24, 1994
