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 33 (Intermediate) and
Series 34
(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 November 25, 1994 pursuant to paragraph (b) of Rule 485.
SERIES 34
10,261 Units
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.Please retain both parts of this Prospectus for future reference.
THE TRUST
The above-named series of Van Kampen Merritt Insured Income Trust ("the
"Trust") consists of an insured portfolio of interest-bearing
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 the Part One and "The Trust"in Part Two).
The Units being offered by this Prospectus are issued and outstanding Units
which have been purchased by the Sponsor in the secondary market or from the
Trustee after having been tendered for redemption. The profit or loss
resulting from the sale of Units will accrue to the Sponsor. No proceeds from
the sale of Units will be received by the Fund.
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 Returns and Estimated Long-Term Return are set
forth in Part Two of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Date of this Prospectus is November 16, 1994
Van Kampen Merritt
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 34
Summary of Essential Financial Information
As of September 2, 1994
Sponsor: Van Kampen Merritt Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
VIIT
<S> <C>
General Information
Principal Amount (Par Value) of Securities....................................... $ 10,200,000
Number of Units.................................................................. 10,261
Fractional Undivided Interest in Trust per Unit.................................. 1/10,261
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio.................................. $ 8,489,360.00
Aggregate Bid Price of Securities per Unit...................................... $ 827.34
Sales charge 6.045% (5.7% of Public Offering Price excluding principal cash)... $ 50.00
Principal Cash per Unit......................................................... $ (.08)
Public Offering Price per Unit <F1>............................................. $ 877.26
Redemption Price per Unit........................................................ $ 827.26
Excess of Public Offering Price per Unit over Redemption Price per Unit.......... $ 50.00
Minimum Value of the Trust under which Trust Agreement may be terminated......... $ 2,040,000
Annual Premium on Portfolio Insurance............................................ $ 19,500.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution.......$1.00 per Unit
Date of Deposit......................November 30, 1993
Mandatory Termination Date...........December 31, 2042
Evaluator's Annual Supervisory Fee...Maximum of $0.25 per Unit
Evaluator's Annual Fee <F4>..........$1,798
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made as
of 4:00 P.M. Eastern time on days of trading on the New York Stock Exchange
next following receipt of an order for a sale or purchase of Units or receipt
by The Bank of New York of Units tendered for redemption.
<TABLE>
<CAPTION>
Special Information Based On Various Distribution Plans Monthly Semi- Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit......................... $ 70.43 $ 70.43
Less: Estimated Annual Expense excluding Insurance................ $ 1.78 $ 1.30
Less: Annual Premium on Portfolio Insurance....................... $ 1.90 $ 1.90
Estimated Net Annual Interest Income per Unit..................... $ 66.75 $ 67.23
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income.............................. $ 66.75 $ 67.23
Divided by 12 and 2, respectively................................. $ 5.56 $ 33.62
Estimated Daily Rate of Net Interest Accrual per Unit.............. $ .18542 $ .18674
Estimated Current Return Based on Public Offering Price <F2><F3>... 7.61% 7.66%
Estimated Long-Term Return <F2><F3>................................ 7.67% 7.73%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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...........$.91 and $.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 $15.63 and $32.56 respectively, for those portions of the Trust
under the monthly and semi-annual distribution plans.
<F2>The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge.
<F3>The Estimated Current Return and Estimated Long-Term Return on an identical
portfolio without the insurance obtained by the Trust would have been slightly
higher.
<F4>Notwithstanding information to the Contrary in Part Two of this Prospectus,
the Trust Indenture provides that as compensation for its services, the
Evaluator shall receive a fee of $.30 per $1,000 principal amount of Bonds per
Trust annually. This fee may be adjusted for increases in consumer prices for
services under the category "All Services Less Rent of Shelter" in the
Consumer Price Index.
</TABLE>
PORTFOLIO
In selecting 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., (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, 1994. The Trust consists of 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 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, 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.
PER UNIT INFORMATION
Other general problems of the gas, water, telephone and electric utility
industries (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 costs 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>
1994<F1>
<S> <C>
Net asset value per Unit at beginning of period....................................................................... $ 951.00
Net asset value per Unit at end of period............................................................................. $ 867.48
Distributions to Unitholders of investment income including accrued interest to carry paid on Units redeemed (average
Units outstanding for entire period) <F2>............................................................................ $ 23.09
Distributions to Unitholders from Obligation redemption proceeds (average Units outstanding for entire period) ....... $ --
Unrealized appreciation (depreciation) of Bonds (per Unit outstanding at end of period)............................... $ (104.16)
Distributions of investment income by frequency of payment <F2>.......................................................
Monthly.............................................................................................................. $ 24.24
Semiannual........................................................................................................... $ 18.79
Units outstanding at end of period.................................................................................... 10,261
</TABLE>
For the period from November 30, 1993 (date of deposit) through July 31, 1994.
Unitholders may elect to receive distributions on a monthly, quarterly or
semi-annual basis.
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 34:
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 34 as of July 31, 1994 and the related statements
of operations and changes in net assets for the period from November 30, 1993
(date of deposit) through July 31, 1994. These statements are the
responsibility of the Trustee and the Sponsor. Our responsibility is to
express an opinion on such statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of tax-exempt securities owned at July 31,
1994 by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee and
the Sponsor, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of Van Kampen Merritt Insured Income
Trust, Series 34 as of July 31, 1994, and the results of operations and
changes in net assets for the period from November 30, 1993 (date of deposit)
through July 31, 1994 in conformity with generally accepted accounting
principles.
GRANT THORNTON
Chicago, Illinois
September 16, 1994
<TABLE>
VAN KAMPEN MERRITT
INSURED INCOME TRUST
SERIES 34
Statement of Condition
July 31, 1994
<CAPTION>
VIIT
<S> <C>
Trust property
Cash................................................................ $ 32,891
Tax-exempt securities at market value, (cost $9,759,250) (note 1)... 8,690,428
Accrued Interest.................................................... 177,863
Receivable for securities sold --
$ 8,901,182
Liabilities and interest of Unitholders
Cash overdraft...................................................... $ --
Redemptions to Unitholders --
Interest to Unitholders............................................. $ 8,901,182
$ 8,901,182
</TABLE>
<TABLE>
Analysis of Net Assets
<CAPTION>
<S> <C>
Interest of Unitholders (10,261 Units, respectively of fractional undivided interest outstanding)
Cost to original investors of 10,262 Units, respectively (note 1)................................... $ 10,262,000
Less initial underwriting commission (note 3)....................................................... 502,750
9,759,250
Less redemption of Units (1 Unit)................................................................... 822
9,758,428
Undistributed net investment income
Net investment income............................................................................... 448,487
Less distributions to Unitholders................................................................... 236,911
211,576
Realized gain (loss) on Bond sale or redemption..................................................... --
Unrealized appreciation (depreciation) of Bonds (note 2)............................................ (1,068,822)
Distributions to Unitholders of Bond sale or redemption proceeds.................................... --
Net asset value to Unitholders...................................................................... $ 8,901,182
Net asset value per Unit (Units outstanding of 10,261,............................................... $ 867.48
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 34
Statement of Operations
Period from November 30, 1993 (date of deposit)
through July 31, 1994
<CAPTION>
<S> <C>
Investment income
Interest income...................................................... $ 469,771
Expenses
Trustee fees and expenses............................................ 6,104
Evaluator fees....................................................... 1,798
Insurance expense.................................................... 12,176
Supervisory fees..................................................... 1,206
Total expenses....................................................... 21,284
Net investment income................................................ 448,487
Realized gain (loss) from Bond sale or redemption
Proceeds............................................................. --
Cost................................................................. --
Realized gain (loss)................................................. --
Net change in unrealized appreciation (depreciation) of obligations... (1,068,822)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....... $ (620,335)
</TABLE>
<TABLE>
Statement of Changes in Net Assets
Period from November 30, 1993 (date of deposit)
through July 1994
<CAPTION>
Increase (decrease) in net assets
<S> <C>
Operations:
Net investment income....................................................... $ 448,487
Realized gain (loss) on Bond sale or redemption............................. --
Net change in unrealized appreciation (depreciation) of Obligations......... (1,068,822)
Net increase (decrease) in net assets resulting from operations............. (620,335)
Distributions to Unitholders from:
Net investment income....................................................... (236,911)
Sale or redemption proceeds of Obligations.................................. --
Redemption of Units.......................................................... (822)
Total increase (decrease)................................................... (858,068)
Net asset value to Unitholders
Beginning of period......................................................... 9,759,250
End of period (including undistributed net investment income of $211,576)... $ 8,901,182
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED MUNICIPALS INCOME TRUST
PORTFOLIO as of July 31, 1994
<CAPTION>
July 31,
1994
Port- Redemption Market
folio Aggregate Name of Issuer, Title, Interest Rate and Maturity Rating Feature Value
Item Principal Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
A $ 700,000 U.S. Treasury Strip
0.00% Due 2/15/22 ................................. NR $ 80,353
B 1,000,000 Public Service Electric and Gas Company
7.50% Due 3/1/23 .................................. A - 1998 @ 105.38 907,990
C 1,000,000 Detroit Edison Secured Medium Term Notes, Series
1993E
7.82% Due 3/15/23 ................................. BBB+ 2003 @ 103.91 932,470
D 1,000,000 Rochester Gas and Electric Corporation, First
Mortgage Medium-Term Notes
7.64% Due 3/15/23 ................................. BBB+ 2003 @ 103.05 907,930
E 1,000,000 Ohio Edison Company
7.625% Due 6/15/23 ................................ BBB 2003 @ 103.34 916,290
F 1,000,000 Columbus Southern Power Company, First Mortgage
Bonds, Medium Term Notes
7.75% Due 8/1/23 .................................. BBB+ 1998 @ 105.82 914,480
G 1,000,000 Arkansas Power and Light Company
7.00% Due 10/1/23 ................................. BBB 1998 @ 104.23 843,020
H 1,000,000 Niagara Mohawk Power Corporation
7.875% Due 4/1/24 ................................. BBB- 2003 @ 103 922,500
I 1,000,000 Florida Power and Light Company
7.625% Due 6/1/24 ................................. A+ 1998 @ 104.41 915,680
J 1,500,000 Texas Utilities Electric Company
7.625% Due 7/1/25 ................................. BBB 2003 @ 102.69 1,349,715
$ 10,200,000 $ 8,690,428
</TABLE>
The accompanying notes are an integral part of this statement.
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 34
Notes to Financial Statements
July 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Securities are stated at the value determined by the
Evaluator, American Portfolio Evaluation Services (a division of a subsidiary
of the Sponsor). The Evaluator may determine the value of the Obligations (1)
on the basis of current bid prices of the Obligations obtained from dealers or
brokers who customarily deal in Obligations comparable to those held by each
of the Trusts, (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 (November 30, 1993). Since the valuation is based upon
the bid prices the Trust recognized a downward adjustment of $50,125 on the
date of deposit resulting from the difference between the bid and offering
prices. This downward adjustment was included in the aggregate amount of
unrealized depreciation reported in the financial statements for the period
ended July 31,1994.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit in each Unit based upon (1) the cash on hand in such Trust or monies in
the process of being collected, (2) the Bonds in the Trust based on the value
determined by the Evaluator and (3) interest accrued thereon, less accrued
expenses of the Trust, if any.
Federal Income Taxes - Each Unitholder is considered to be the owner of a pro
rata portion of such Trust and, accordingly, no provision has been made for
Federal income taxes.
Other - The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2 - PORTFOLIO
Ratings - The source of all ratings, exclusive of those designated N/R or * is
Standard & Poor's Corporation. Ratings marked * are by Moody's Investors
Service, Inc. as these Bonds are not rated by Standard & Poor's Corporation or
Moody's Investors Service, Inc. N/R indicates that the Bond is not rated by
Standard & Poor's Corporation or Moody's Investors Service, Inc. The ratings
shown represent the latest published ratings of the Bonds. For a brief
description of rating symbols and their related meanings, see "Description
of Securities Ratings"in Part Two.
Redemption Feature - There is shown under this heading the year in which each
issue of 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.
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
Trusts 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.
NOTE 2 - PORTFOLIO (continued)
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 July 31, 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation... $ --
Unrealized Depreciation... (1,068,822)
$ (1,068,822)
</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 each Trust, plus interest accrued to the
date of settlement. If the supply of Units exceeds demand, or for other
business reasons, the Sponsor may discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units, a
Unitholder desiring to dispose of his Units may be able to do so only by
tendering such Units to the Trustee for redemption at the redemption price.
Cost to Investors - The cost to original investors was based on the
Evaluator's determination of the aggregate offering price of the Obligations
per Unit on the date of an investor's purchase, plus a sales charge of 4.9%
of the public offering price which is equivalent to 5.152% of the aggregate
offering price of the Obligations. The secondary market cost to investors is
based on the Evaluator's determination of the aggregate bid price of the
Obligations per Unit on the date of an investor's purchase plus a sales
charge based upon the years to average maturity of the Obligations in the
portfolio. The sales charge ranges from 1.5% of the public offering price
(1.523% of the aggregate bid price of the Bonds) for a Trust with a portfolio
with less than two years to average maturity to 5.7% of the public offering
price (6.045% of the aggregate bid price of the Bonds) for a Trust with a
portfolio with sixteen or more years to average maturity.
Compensation of Evaluator - The Evaluator receives a fee for providing
portfolio supervisory services for each of the Trusts ($.25 per Unit, not to
exceed the aggregate cost of the Evaluator for providing such services to all
applicable Trusts). In addition, the Evaluator receives an annual fee for
regularly evaluating each of the Trust's portfolios. Both fees may be
adjusted for increases under the category "All Services Less Rent of
Shelter"in the Consumer Price Index.
NOTE 4 - REDEMPTION OF UNITS
During the period ending July 31, 1994, 1 Unit was presented for redemption.
VAN KAMPEN MERRITT
INSURED INCOME TRUST
PROSPECTUS
PART TWO
The Trust. The Trust consists of a series of unit investment trusts issued
under the name Van Kampen Merritt Insured Income Trust. 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).
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 (and in certain Trusts long-term taxable
municipal debt obligations) issued after July 18, 1984 (the "Obligations").
See "Investment Objectives And Portfolio Selection". There is no assurance
that the Trust will achieve its objective. The payment of interest and the
preservation of principal is, of course, dependent upon the continuing ability
of the issuers and/or obligors of the Obligations and of the insurer thereof
to meet their respective obligations.
The Trust and "AAA" Rating. Insurance guaranteeing the payments of principal
and interest, when due, on the Obligations in the portfolio of the Trust has
been obtained from an insurance company either by the Trust or by the issuer
of the Obligations involved, by a prior owner of the Obligations or by the
Sponsor prior to the deposit of such Obligations in the Trust. See "Insurance
On The Obligations". Insurance obtained by the Trust applies only while the
Obligations involved are retained in the Trust while insurance obtained on
Preinsured Obligations is effective so long as such Obligations are
outstanding. The Trustee, upon the sale of an Obligation insured under an
insurance policy obtained by the Trust, has the right to obtain from the
insurer involved permanent insurance for such Obligation upon the payment of a
single predetermined insurance premium and any expenses related thereto from
the proceeds of the sale of such Obligation. IT SHOULD BE NOTED THAT THE
INSURANCE, IN EITHER CASE, RELATES ONLY TO THE OBLIGATIONS IN THE TRUST AND
NOT TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE THEREOF. As a result
of such insurance, the Units of the Trust received a rating of "AAA" by
Standard & Poor's 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 and cash, if
any, in the Principal Account held or owned by such Trust plus the sales
charge referred to under "Public Offering-General" plus an amount equal to the
accrued interest from the most recent record of such Trust to the date of
settlement (five business days after order) less distributions from the
Interest Account subsequent to the most recent record date, if any. In
addition, for Series 35 and subsequent series of the Trust the Public Offering
Price will include Purchased Interest. 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 COMMISSIONOR 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"), dated the Initial Date of Deposit 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. For a breakdown
of the portfolio see Part One for each Trust. In addition, securities of the
type initially deposited in the portfolio of the Trust are often not available
in small amounts and may, in the case of privately placed securities, be
available only to institutional investors.
Unless otherwise terminated as provided therein, the Trust Agreement for all
series will terminate at the end of the calendar year prior to the fiftieth
anniversary of its execution.
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 OBJECTIVES AND PORTFOLIO SELECTION
The investment objective of the Trust is to provide a high level of current
income consistent with safety of principal by investing in a professionally
selected portfolio principally consisting of long-term corporate debt
obligations (and in certain Trusts long-term taxable municipal 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) CapMAC and/or (8)
Financial Security Assurance Inc. ("Financial Security" or "FSA")
(collectively, the "Preinsured Obligation Insurers") (see "Insurance on the
Obligations"). The Portfolio Insurers and the Preinsured Obligation Insurers
are collectively referred to herein as the "Insurers". Insurance obtained by
the Trust is effective only while the Obligations thus insured are held in the
Trust. The Trustee has the right to acquire permanent insurance from a
Portfolio Insurer with respect to each Obligation insured by the respective
Portfolio Insurer under a Trust portfolio insurance policy. Insurance
relating to Obligations insured by the issuer, by a prior owner of such
Obligations or by the Sponsor is effective so long as such Obligations are
outstanding. Obligations insured under a policy of insurance obtained by the
issuer, by a prior owner of such Bonds or by the Sponsor from one of the
Preinsured Obligation Insurers (the "Preinsured Obligations") are not
additionally insured by the Trust. No representation is made as to any
Insurer's ability to meet its commitments.
Neither the Public Offering Price nor any evaluation of Units for purposes of
repurchases or redemptions reflects any element of value for the insurance
obtained by the Trust, if any, unless Obligations are in default in payment of
principal or interest or in significant risk of such default. See "Public
Offering-Offering Price".
In order for Obligations to be eligible for insurance they must have credit
characteristics which would qualify them for at least the Standard & Poor's
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. Only monthly
distributions are available for Series 35 and subsequent series. The Estimated
Current Returns are calculated by dividing the Estimated Net Annual Interest
Income per Unit by the Public Offering Price. The Estimated Net Annual
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Obligations while the Public Offering Price will
vary with changes in the offering price of the underlying Obligations and with
changes in Purchased Interest for those series which contain Purchased
Interest; therefore, there is no assurance that the present Estimated Current
Return will be realized in the future. Estimated Long-Term Returns are
calculated using a formula which (1) takes into consideration, and determines
and factors in the relative 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. Only monthly
distributions are available for Series 35 and subsequent series of the Trust.
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 OfferingOffering Price". Because any such
insurance value may be realized in the market value of the Obligation upon the
sale thereof upon exercise of the Permanent Insurance option, the Sponsor
anticipates that (a) in the event the Trust were to be comprised of a
substantial percentage of Obligations in default or significant risk of
default, it is much less likely that the Trust would need at some point in
time to seek a suspension of redemptions of Units than if the Trust were to
have no such option (see "Rights of UnitholdersRight of Redemption") and (b)
at the time of termination of the Trust, if the Trust were holding defaulted
Obligations or Obligations in significant risk of default the Trust would not
need to hold such Obligations until their respective maturities in order to
realize the benefits of the Trust's portfolio insurance (see
"Administration of the TrustAmendment or Termination").
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units. It is the present intention of the
Evaluator to attribute a value for such insurance (including the right to
obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units if the Obligations covered by such insurance are in
default in payment of principal or interest or in significant risk of such
default. The value of the insurance will be equal to the difference between
(i) the market value of an Obligation which is in default in payment of
principal or interest or in significant risk of such default assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium and related expenses attributable to the purchase of Permanent
Insurance) and (ii) the market value of such bonds not covered by Permanent
Insurance. See "Public OfferingOffering Price" herein for a more complete
description of the Trust's method of valuing defaulted Obligations which have
a significant risk of default.
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 all 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate 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.
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.
As at December 31, 1993 and 1992, CapMAC had qualified statutory capital
(which consists of policy holders' surplus and contingency reserve) of
approximately $167 million and $161 million, respectively, and had not
incurred any debt obligations. Article 69 of the New York State Insurance law
requires that CapMAC establishes and maintains the contingency reserve, which
is available to cover claims under surety bonds issued by CapMAC.
In addition to its qualified statutory capital and other reinsurance
available to pay claims under its surety bonds, CapMAC has 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, 1992 MBIA had admitted assets of $2.6 billion (audited),
total liabilities of $1.7 billion (audited), and total capital and surplus of
$896 million (audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. As of
June 30, 1993, MBIA had admitted assets to $2.9 billion (unaudited), total
liabilities of $1.9 billion (unaudited), and total capital and surplus of $945
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,
1993, the total capital and surplus of Financial Guaranty was approximately
$777,000,000. 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 all 50 states and the District of Columbia.
Financial Security Assurance ("Financial Security" or "FSA") is a monoline
insurance company incorporated on March 16, 1984 under the laws of the State
of New York. The operations of Financial Security commenced on July 25, 1985,
and Financial Security received its New York State insurance license on
September 23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to engage in financial guaranty insurance business in 49 states,
the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by US WEST, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither US WEST, Inc. nor Tokio Marine is obligated to pay 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
March 31, 1993, the total policyholders' surplus and contingency reserves and
the total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholders' equity and the total unearned
premium reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York, New
York 10022, Attention: Communications Department, its telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with unaffiliated reinsurers under various quota
share treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company ("Capital Guaranty") was incorporated in
Maryland on June 25, 1986, and is a wholly-owned subsidiary of Capital
Guaranty Corporation, a Maryland insurance holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc. an affiliate of Baltimore Gas and Electric;
Fleet/Norstar Financial Group, Inc., Safeco Corporation; Sibag Finance
Corporation, an affiliate of Siemens A.G.; and United States Fidelity and
Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline financial
guaranty insurer engaged in the underwriting and development of financial
guaranty insurance. Capital Guaranty insures general obligation, tax
supported and revenue bonds structured as tax-exempt and taxable securities as
well as selectively insures taxable corporate/asset backed securities.
Standard & Poor's Corporation rates the claims paying ability of Capital
Guaranty "AAA".
Capital Guaranty's insured portfolio currently includes over $9 billion in
total principal and interest insured. As of September 30, 1993, the total
policyholders' surplus of Capital Guaranty was $118,383,432 (unaudited), and
the total admitted assets were $270,021,126 (unaudited) as reported to the
Insurance Department of the State of Maryland. Financial statements for
Capital Guaranty Insurance Company, that have been prepared in accordance with
statutory insurance accounting standards, are available upon request. The
address of Capital Guaranty's headquarters and its telephone number are
Steuart Tower, 22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and
(415) 995-8000.
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 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 interests 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.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated
rate. Because some or all capital gains are taxed at a comparatively lower
rate under the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision on
their investment in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident of a U.S. corporation, partnership,
estate or Trust) will generally 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.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described 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. In addition,
for Series 35 and subsequent series, the Public Offering Price will also
include Purchased Interest. 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 Years to Maturity Sales Charge
1 1.523% 9 4.712%
2 2.041 10 4.932
3 2.564 11 4.932
4 3.199 12 4.932
5 3.842 13 5.374
6 4.058 14 5.374
7 4.275 15 5.374
8 4.493 16 to 30 6.045
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Obligations in the Trust. Expressed as a percent
of the Public Offering Price (excluding Purchased Interest for those Trusts
which contain Purchased Interest), the sales charge on a Trust consisting
entirely of a portfolio of Obligations with 15 years to maturity would be
5.10%.
The following section "Accrued Interest (Accrued Interest to Carry)" applies
to Series 34 and prior series of the Trust only.
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.
The following section "Purchased and Accrued Interest" applies to Series 35
and subsequent series of the Trust only.
PURCHASED AND ACCRUED INTEREST
Purchased Interest. Purchased Interest is a portion of the unpaid interest
that has accrued on the Obligations from the later of the last payment date on
the Obligations or the date of issuance thereof through the First Settlement
Date and is included in the calculation of the Public Offering Price.
Purchased Interest will be distributed to Unitholders as Units are redeemed or
Obligations mature or are called. See "SUMMARY OF ESSENTIAL FINANCIAL
INFORMATION" in Part One of this Prospectus for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of the
price Unitholders will receive in connection with the sale or redemption of
Units prior to the termination of the Trust.
Accrued Interest. Accrued Interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although a Trust accrues
such interest daily. Because of this, a Trust always has an amount of interest
earned but not yet collected by the Trustee. For this reason, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of a Trust the amount, if any, of accrued interest paid
on their Units.
As indicated in "Purchased Interest", accrued interest as of the First
Settlement Date includes Purchased Interest. In an effort to reduce the amount
of Purchased Interest which would otherwise have to be paid by Unitholders,
the Trustee may advance a portion of such accrued interest to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement (other than the Purchased Interest already included therein),
less any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unitholders Distributions of Interest and
Principal."
Because of the varying interest payment dates of the Obligations, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the Purchased Interest and accrued interest from
the purchaser of his Units. Since the Trustee has the use of the funds
(including Purchased Interest) held in the Interest Account for distributions
to Unitholders and since such Account is non-interest-bearing to Unitholders,
the Trustee benefits thereby.
Offering Price. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Part
One of this Prospectus in accordance with fluctuations in the prices of the
underlying Obligations in the Trust. The price of the Units as of the opening
of business on the date of Part One of this Prospectus was determined by
adding to the determination of the aggregate bid price of the Obligations in
the Trust the amount equal to the applicable sales charge expressed as a
percentage of the aggregate bid price of such value plus Purchased Interest
for those Trusts which include Purchased Interest and dividing the sum so
attained by the number of Units then outstanding. This computation produces a
gross profit equal to such sales charge expressed as a percentage of the
Public Offering Price (excluding Purchased Interest for those Trusts which
contain Purchased Interest). For secondary market purposes such appraisal and
adjustment will be made by the Evaluator as of 4:00 P.M. Eastern time on days
on which the New York Stock Exchange is open for each day on which any Unit of
the Trust is tendered for redemption, and it shall determine the aggregate
value of the Trust as of 4:00 P.M. Eastern time on such other days as may be
necessary.
The aggregate price of the Obligations in the Trust has been and will be
determined on the basis of bid prices (a) on the basis of current market
prices for the Obligations obtained from dealers or brokers who customarily
deal in bonds comparable to those held by the Trust; (b) if such prices are
not available for any particular Obligations, on the basis of current market
prices for comparable bonds; (c) by causing the value of the Obligations to be
determined by others engaged in the practice of evaluation, quoting or
appraising comparable bonds; or (d) by any combination of the above. Unless
the Obligations are in default in payment of principal or interest or in
significant risk of such default, the Evaluator will not attribute any value
to the insurance obtained by the Trust.
The Evaluator will consider in its evaluation of Obligations which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of such default (the "Defaulted Obligations") the value
of the insurance guaranteeing interest and principal payments. The value of
the insurance obtained by the Trust will be equal to the difference between
(i) the market value of Defaulted Obligations assuming the exercise of the
right to obtain Permanent Insurance (less the insurance premiums and related
expenses attributable to the purchase of Permanent Insurance) and (ii) the
market value of such Defaulted Obligations not covered by Permanent Insurance.
In addition, the Evaluator will consider the ability of the affected
Portfolio Insurer to meet its commitments under any Trust insurance policy,
including the commitments to issue Permanent Insurance. It is the position of
the Sponsor that this is a fair method of valuing the Obligations and the
insurance obtained by the Trust and reflects a proper valuation method in
accordance with the provisions of the
Investment Company Act of 1940.
Although payment is normally made 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 OfferingGeneral" above.
As stated under "Public Market" below, the Sponsor intends to, and certain of
the dealers may maintain a secondary market for the Units of the Trust. In so
maintaining a market, the Sponsor or any such dealers will also realize
profits or sustain losses in the amount of any difference between the price
at which Units are purchased and the price at which Units are resold (which
price is based on the bid prices of the Obligations in the Trust and includes
a sales charge). In addition, the Sponsor or any such dealer will also
realize profits or sustain losses resulting from a redemption of such
repurchased Units at a price above or below the purchase price for such Units,
respectively.
Public Market. Although they are not obligated to do so, the Sponsor intends
to, and/or certain of the other dealers may, maintain a market for the Units
offered hereby and to offer continuously to purchase such Units at prices,
subject to change at any time, based upon the aggregate bid price of the
Obligations in the portfolio plus Purchased Interest for those Trusts which
contain Purchased Interest plus interest accrued to the date of settlement
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. If the supply of Units exceeds demand or if some other business
reason warrants it, the Sponsor and/or the other dealers may either
discontinue all purchases of Units or discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units and the
Unitholder cannot find another purchaser, a Unitholder desiring to dispose of
his Units may be able to dispose of such Units only by tendering them to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the Obligations in the portfolio plus Purchased
Interest for those Trusts which contain Purchased Interest and any accrued
interest. The aggregate bid prices of the underlying Obligations in the Trust
are expected to be less than the related aggregate offering prices. See
"Rights of UnitholdersRedemption of Units". A Unitholder who wishes to
dispose of his Units should inquire of his broker as to current market prices
in order to determine whether there is in existence any price in excess of the
Redemption Price and, if so, the amount thereof.
RIGHTS OF UNITHOLDERS
Certificates. The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the Trustee.
Ownership of Units of the Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor. 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 participant in the Securities Transfer
Agents Medallion Program ("STAMP"), or in such other manner in addition to, or
in substitution for STAMP, as may be acceptable to the Trustee. In certain
instances the Trustee may require additional documents such as, but not
limited to, Trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority. Certificates will be
issued in denominations of one Unit or any multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require a
Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. Destroyed, stolen,
mutilated or lost certificates will be replaced upon delivery to the Trustee
of satisfactory indemnity, evidence of ownership and payment of expenses
incurred. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distributions of Interest and Principal. Interest received by the Trust,
including that part of the proceeds of any disposition of Obligations which
represents Purchased Interest, if any, and/or accrued interest and including
any insurance proceeds representing interest due on defaulted Obligations, is
credited by the Trustee to the Interest Account. Other receipts are credited
to the Principal Account. All distributions will be net of applicable
expenses. The pro rata share of cash in the Principal Account will be
computed as of the semi-annual record date and distributions to the
Unitholders as of such record date will be made on or shortly after the
fifteenth day of such month. For Series 35 and subsequent series, such
computation and distribution will occur monthly. Proceeds received from the
disposition of any of the Obligations after such record date and prior to the
following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to
pay interest on funds held in the Principal or Interest Accounts (but may
itself earn interest thereon and therefore benefits from the use of such
funds) nor to make a distribution from the Principal Account unless the amount
available for distribution shall equal at least $1.00 per Unit.
The distribution to the Unitholders as of each record date will be made on the
following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the Unitholders' pro rata
share of the estimated net annual unit income in the Interest Account after
deducting estimated expenses attributable as is consistent with the
distribution plan chosen. Only monthly distributions will be available for
Series 35 and subsequent series of the Trust. Because interest payments are
not received by the Trust at a constant rate throughout the year, such
interest distribution may be more or less than the amount credited to the
Interest Account as of the record date. For the purpose of minimizing
fluctuation in the distributions from the Interest Account, the Trustee is
authorized to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee shall be
reimbursed, without interest, for any such advances from funds in the Interest
Account on the ensuing record date. Persons who purchase Units will commence
receiving distributions only after such person becomes a record owner.
Notification to the Trustee of the transfer of Units is the responsibility of
the purchaser, but in the normal course of business such notice is provided by
the selling broker- dealer. Only monthly distributions will be available for
Series 35 and subsequent series of the Trust.
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, and in the case of
Series 34 and prior series of the Trust, the Unitholder has elected to receive
them semi-annually. Distributions of funds from the Principal Account will be
made on a semi-annual basis, except under the special circumstances outlined
in "Rights of UnitholdersDistributions of Interest and Principal" above.
Record dates for monthly distributions will be the first day of each month and
record dates for semi-annual distributions will be the first day of June and
December. Distributions will be made on the fifteenth day of the month
subsequent to the respective record dates. Unitholders of Series 35 and
subsequent series of the Trust will receive distributions of interest and
principal on a monthly basis.
In the case of Series 34 and prior series of the Trust, 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. Only monthly distributions
are available for Series 35 and subsequent series of the Trust.
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee at its Unit Investment Trust Division, 101 Barclay
Street, New York, New York 10286, of the certificates representing the Units
to be redeemed, duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates) and by payment of
applicable governmental charges, if any. Thus, redemption of Units cannot be
effected until certificates representing such Units have been delivered by
the person seeking redemption or satisfactory indemnity provided. No
redemption fee will be charged. On the 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.
Purchased Interest, if any, and accrued interest paid on redemption shall be
withdrawn from the Interest Account or, if the balance therein is
insufficient, from the Principal Account. All other amounts will be withdrawn
from the Principal Account. The Trustee is empowered to sell underlying
Obligations in order to make funds available for redemption. Units so
redeemed shall be cancelled.
The Redemption Price per Unit will be determined on the basis of the bid price
of the Obligations in the Trust, as of 4:00 P.M. Eastern time on days of
trading on the New York Stock Exchange on the date any such determination is
made. While the Trustee has the power to determine the Redemption Price per
Unit when Units are tendered for redemption, such authority has been delegated
to the Evaluator which determines the price per Unit on a daily basis. The
Redemption Price per Unit is the pro rata share of each Unit in the Trust
determined on the basis of (i) the cash on hand in the Trust or monies in the
process of being collected, (ii) the value of the Obligations in the Trust
based on the bid prices of the Obligations, except for those cases in which
the value of insurance has been included, (iii) Purchased Interest, if any,
included in Series 35 and subsequent series of the Trust, and (iv) interest
accrued thereon, less (a) amounts representing taxes or other governmental
charges payable out of the Trust and (b) the accrued expenses of the Trust.
The Evaluator may determine the value of the Obligations in the Trust by
employing any of the methods set forth in "Public OfferingOffering 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
OfferingOffering 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 PortfolioReplacement
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 September 30,
1993, the total stockholders' equity of Van Kampen Merritt Inc. was
$200,885,000 (unaudited). (This paragraph relates only to the Sponsor and not
to the Trusts. The information is included herein only for the purpose of
informing investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. More detailed financial
information will be made available by the Sponsor upon request.)
As of November 30, 1993, the Sponsor and its affiliates managed or supervised
approximately $38.5 billion of investment products, of which over $25 billion
is invested in municipal securities. The Sponsor and its affiliates managed
$23 billion of assets, consisting of $8.2 billion for 19 mutual funds, $8.3
billion for 33 closed-end funds and $6.5 billion for 51 institutional
accounts. The Sponsor has also deposited over $23.5 billion of unit investment
trusts. Based on cumulative assets deposited, the Sponsor believes that it is
the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipal Income Trust or the IM-IT trust.
The Sponsor also provides surveillance and evaluation services at cost for
approximately $15.5 billion of unit investment trust assets outstanding. Since
1976, the Sponsor has opened over one million retail investor accounts through
retail distribution firms. Van Kampen Merritt Inc. is the sponsor of the
various series of the trusts listed below and the distributor of the mutual
funds and closed-end funds listed below. Unitholders may only invest in the
trusts, mutual funds and closed-end funds which are registered for sale in the
state of residence of such Unitholder.
Van Kampen Merritt Inc. is the sponsor of the various series of the following
unit investment trusts: Investors' Quality Tax-Exempt Trust; Investors'
Quality Tax-Exempt Trust, Multi-Series; Insured Municipals Income Trust;
Insured Municipals Income Trust, Insured Multi-Series; California Insured
Municipals Income Trust; New York Insured Municipals Income Trust;
Pennsylvania Insured Municipals Income Trust; Insured Tax Free Bond Trust;
Insured Tax Free Bond Trust, Insured Multi-Series; Investors' Quality
Municipals Trust, AMT Series; Van Kampen Merritt Blue Chip Opportunity Trust;
Van Kampen Merritt Blue Chip Opportunity and Treasury Trust; Investors'
Corporate Income Trust; Investors' Governmental Securities-Income Trust; Van
Kampen Merritt International Bond Income Trust; Van Kampen Merritt Utility
Income Trust; Van Kampen Merritt Insured Income Trust; Van Kampen Merritt
Emerging Markets Income Trust; Van Kampen Merritt Global Telecommunications
Trust; and Van Kampen Merritt Global Energy Trust.
Van Kampen Merritt Inc. is the distributor of the following mutual funds: Van
Kampen Merritt U.S.Government Fund; Van Kampen Merritt California Insured Tax
Free Fund; Van Kampen Merritt Tax-Free High Income Fund; Van Kampen Merritt
Insured Tax-Free Income Fund; Van Kampen Merritt High Yield Fund; Van Kampen
Merritt Growth and Income Fund; Van Kampen Merritt Pennsylvania Tax-Free
Income Fund; Van Kampen Merritt Money Market Fund; Van Kampen Merritt Tax Free
Money Fund; Van Kampen Merritt Municipal Income Fund; Van Kampen Merritt
Adjustable Rate U.S. Government Fund; Van Kampen Merritt Short-Term Global
Income Fund; and Van Kampen Merritt Limited Term Municipal Income Fund.
Van Kampen Merritt is the distributor of the following closed-end funds: Van
Kampen Merritt Municipal Income Trust; Van Kampen Merritt California Municipal
Trust; Van Kampen Merritt Intermediate Term High Income Trust; Van Kampen
Merritt Limited Term High Income Trust; Van Kampen Merritt Prime Rate Income
Trust; Van Kampen Merritt Investment Grade Municipal Trust; Van Kampen Merritt
Municipal Trust; Van Kampen Merritt California Quality Municipal Trust; Van
Kampen Merritt Florida Quality Municipal Trust; Van Kampen Merritt New York
Quality Municipal Trust; Van Kampen Merritt Ohio Quality Municipal Trust; Van
Kampen Merritt Pennsylvania Quality Municipal Trust; Van Kampen Merritt Trust
for Investment Grade Municipals; Van Kampen Merritt Trust for Investment Grade
CA Municipals; Van Kampen Merritt Trust for Insured Municipals; Van Kampen
Merritt Trust for Investment Grade FL Municipals; Van Kampen Merritt Trust for
Investment Grade PA Municipals; Van Kampen Merritt Advantage Pennsylvania
Municipal Income Trust; Van Kampen Merritt Advantage Municipal Income Trust;
Van Kampen Merritt Municipal Opportunity Trust; Van Kampen Merritt Trust for
Investment Grade NY Municipals; Van Kampen Merritt Trust for Investment Grade
NJ Municipals; Van Kampen Merritt Strategic Sector Municipal Trust; Van Kampen
Merritt Value Municipal Income Trust; Van Kampen Merritt California Value
Municipal Income Trust; Van Kampen Merritt Massachusetts Value Municipal
Income Trust; Van Kampen Merritt New Jersey Value Municipal Income Trust; Van
Kampen Merritt New York Value Municipal Income Trust; Van Kampen Merritt Ohio
Value Municipal Income Trust; Van Kampen Merritt Pennsylvania Value Municipal
Income Trust; Van Kampen Merritt Municipal Opportunity Trust II; Van Kampen
Merritt Florida Municipal Opportunity Trust; Van Kampen Merritt Advantage
Municipal Income Trust II; and Van Kampen Merritt Select Municipal Trust.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and
not exceeding amounts prescribed by the Securities and Exchange Commission,
(ii) terminate the Trust Agreement and liquidate the Fund as provided therein
or (iii) continue to act as Trustee without terminating the Trust Agreement.
All costs and expenses incurred in creating and establishing the Fund,
including the cost of the initial preparation, printing and execution of the
Trust Agreement and the certificates, legal and accounting expenses,
advertising and selling expenses, expenses of the Trustee, initial evaluation
fees and other out-of-pocket expenses have been borne by the Sponsor at no
cost to the Fund.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its offices at 101 Barclay
Street, New York, New York 10286, (800) 221-7668. The Bank of New York is
subject to supervision and examination by the Superintendent of Banks of the
State of New York and the Board of Governors of the Federal Reserve System,
and its deposits are insured by the Federal Deposit Insurance Corporation to
the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of
Obligations for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the certificates issued by
the Trust to, every Unitholder of the Trust. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during usual
business hours. The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Rights of UnitholdersReports Provided"). The Trustee
is required to keep a certified copy or duplicate original of the Trust
Agreement on file in its office available for inspection at all reasonable
times during the usual business hours by any Unitholder, together with a
current list of the Obligations held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign and
be discharged of the Trust created by the Trust Agreement by executing an
instrument in writing and filing the same with the Sponsor. The Trustee or
successor trustee must mail a copy of the notice of resignation to all
Unitholders then of record, not less than 60 days before the date specified in
such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor
trustee promptly. If, upon such resignation, no successor trustee has been
appointed and has accepted the appointment within 30 days after notification,
the retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The Sponsor may remove the Trustee and appoint a
successor trustee as provided in the Trust Agreement at any time with or
without cause. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original trustee shall 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*
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.
* As published by the ratings companies.
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.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
Title Page
Summary of Essential Financial Information 1
The Trust 2
Investment Objectives and Portfolio Selection 2
Trust Portfolio 3
Estimated Current Return and Estimated Long-Term Return 5
Trust Operating Expenses 6
Insurance on the Obligations 7
Tax Status 11
Public Offering 14
Accrued Interest (Accrued Interest to Carry) 14
Purchased and Accrued Interest 14
Rights of Unitholders 16
Trust Administration 19
Other Matters 22
Description of Obligation Ratings 22
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
and
Mellon Bank Center
1735 Market Street, Suite 1300
Philadelphia, Pennsylvania 19103
INTERMEDIATE SERIES 33
6,155 Units
PROSPECTUS PART ONE
NOTE: Part One of this Prospectus may not be distributed unless accompanied by
Part Two.Please retain both parts of this Prospectus for future reference.
THE TRUST
The above-named series of Van Kampen Merritt Insured Income Trust Intermediate
Series ("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 Returns and Estimated Long-Term Return are set
forth in Part Two of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Date of this Prospectus is November 16, 1994
Van Kampen Merritt
VAN KAMPEN MERRITT INSURED INCOME TRUST INTERMEDIATE
SERIES 33
Summary of Essential Financial Information
As of September 2, 1994
Sponsor: Van Kampen Merritt Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the Sponsor)
Trustee: The Bank of New York
<TABLE>
<CAPTION>
VIIN
<S> <C>
General Information
Principal Amount (Par Value) of Securities....................................... $ 6,165,000
Number of Units.................................................................. 6,155
Fractional Undivided Interest in Trust per Unit.................................. 1/6,155
Public Offering Price:
Aggregate Bid Price of Securities in Portfolio.................................. $ 5,500,067.55
Aggregate Bid Price of Securities per Unit...................................... $ 893.59
Sales charge 4.712% (4.5% of Public Offering Price excluding principal cash)... $ 42.04
Principal Cash per Unit......................................................... $ (1.45)
Public Offering Price per Unit <F1>............................................. $ 934.18
Redemption Price per Unit........................................................ $ 892.14
Excess of Public Offering Price per Unit over Redemption Price per Unit.......... $ 42.04
Minimum Value of the Trust under which Trust Agreement may be terminated......... $ 1,233,000
Annual Premium on Portfolio Insurance............................................ $ 5,300.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution.......$1.00 per Unit
Date of Deposit......................November 30, 1993
Mandatory Termination Date...........December 31, 2042
Evaluator's Annual Supervisory Fee...Maximum of $0.25 per Unit
Evaluator's Annual Fee <F4>..........$1,087
</TABLE>
Evaluations for purpose of sale, purchase or redemption of Units are made as
of 4:00 P.M. Eastern time on days of trading on the New York Stock Exchange
next following receipt of an order for a sale or purchase of Units or receipt
by The Bank of New York of Units tendered for redemption.
<TABLE>
<CAPTION>
Special Information Based On Various Distribution Plans Monthly Semi-Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit......................... $ 62.75 $ 62.75
Less: Estimated Annual Expense excluding Insurance................ $ 1.86 $ 1.40
Less: Annual Premium on Portfolio Insurance....................... $ .86 $ .86
Estimated Net Annual Interest Income per Unit..................... $ 60.03 $ 60.49
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income.............................. $ 60.03 $ 60.49
Divided by 12 and 2, respectively................................. $ 5.00 $ 30.25
Estimated Daily Rate of Net Interest Accrual per Unit.............. $ .16674 $ .16802
Estimated Current Return Based on Public Offering Price <F2><F3>... 6.42% 6.46%
Estimated Long-Term Return <F2><F3>................................ 7.14% 7.19%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
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...........$.91 and $.51 per $1,000 principal amount of Bonds respectively, for those portions of the
Trust under the monthly and semi-annual distribution plans.
</TABLE>
Plus accrued interest to the date of settlement (five business days after
purchase) of $14.89 and $30.13 respectively, for those portions of the Trust
under the monthly and semi-annual distribution plans.
The Estimated Current Return and Estimated Long-Term Return are increased for
transactions entitled to a reduced sales charge.
The Estimated Current Return and Estimated Long-Term Return on an identical
portfolio without the insurance obtained by the Trust would have been slightly
higher.
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.
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., (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 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 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, 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.
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 costs 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.
PER UNIT INFORMATION
<TABLE>
<CAPTION>
1994<F1>
<S> <C>
Net asset value per Unit at beginning of period ..................................................................... $ 993.13
Net asset value per Unit at end of period............................................................................ $ 917.50
Distributions to Unitholders of investment income including accrued interest to carry paid on Units redeemed
(average Units outstanding for entire period) <F2>.................................................................... $ 20.31
Distributions to Unitholders from Bond redemption proceeds (average Units outstanding for entire period) ............ $ --
Unrealized appreciation (depreciation) of Bonds (per Unit outstanding at end of period).............................. $ (94.70)
Distributions of investment income by frequency of payment <F2>.......................................................
Monthly ........................................................................................................... $ 20.92
Semiannual .......................................................................................................... $ 16.01
Units outstanding at end of period .................................................................................. 6,162
</TABLE>
For the period from November 30, 1993 (date of deposit) through July 31, 1994.
Unitholders may elect to receive distributions on a monthly or semi-annual
basis.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders of
Van Kampen Merritt Insured Income Trust, Intermediate Series 33:
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, Intermediate Series 33 as of July 31, 1994, and the
related statements of operations and changes in net assets for the period from
November 30, 1993 (date of deposit) through July 31, 1994. These statements
are the responsibility of the Trustee and the Sponsor. Our responsibility is
to express an opinion on such statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of tax-exempt securities owned at July 31,
1994 by correspondence with the Trustee. An audit also includes assessing the
accounting principles used and significant estimates made by the Trustee and
the Sponsor, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the statements referred to above present fairly, in all
material respects, the financial position of Van Kampen Merritt Insured Income
Trust, Intermediate Series 33 as of July 31, 1994, and the results of
operations and changes in net assets for the period from November 30, 1993
(date of deposit) through July 31, 1994, in conformity with generally accepted
accounting principles.
GRANT THORNTON
Chicago, Illinois
September 16, 1994
VAN KAMPEN MERRITT INSURED INCOME TRUST INTERMEDIATE
SERIES 33
Statements of Condition
July 31, 1994
<TABLE>
<CAPTION>
VIIN
<S> <C>
Trust property
Cash $ 1,897
Tax-exempt securities at market value, (cost $6,122,706) (note 1) 5,539,183
Accrued interest 112,583
Receivable for securities sold....................................................... --
$ 5,653,663
Liabilities and interest of Unitholders
Cash overdraft $ --
Redemptions to Unitholders --
Interest of Unitholders.............................................................. $ 5,653,663
$ 5,653,663
Analyses of Net Assets
Interest of Unitholders (6,162 Units of fractional undivided interest outstanding)
Cost to original investors of 6,165 Units (note 1) $ 6,312,035
Less initial underwriting commission (note 3)........................................ 189,329
6,122,706
Less redemption of Units (3 Units)................................................... 2,690
6,120,016
Undistributed net investment income
Net investment income 242,353
Less distributions to Unitholders.................................................... 125,183
117,170
Realized gain (loss) on Bond sale or redemption --
Unrealized appreciation (depreciation) of Bonds (note 2) (583,523)
Distributions to Unitholders of Bond sale or redemption proceeds --
Net asset value to Unitholders $ 5,653,663
Net asset value per Unit (Units outstanding of 6,162)................................ $ 917.50
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, INTERMEDIATE SERIES 33
Statement of Operations
Period from November 30, 1993 (date of deposit)
through July 31, 1994
<CAPTION>
<S> <C>
Investment income..................................................
Interest income................................................... $ 251,038
Expenses
Trustee fees and expenses......................................... 3,580
Evaluator fees.................................................... 1,087
Insurance expense................................................. 3,293
Supervisory fees.................................................. 725
Total expenses.................................................... 8,685
Net investment income............................................. 242,353
Realized gain (loss) from Bond sale or redemption
Proceeds.......................................................... --
Cost.............................................................. --
Realized gain (loss).............................................. --
Net change in unrealized appreciation (depreciation) of Bonds...... (583,523)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS... $ (341,170)
</TABLE>
<TABLE>
Statement of Changes in Net Assets
Period from November 30, 1993 (date of deposit)
through July 31, 1994
<CAPTION>
Increase (decrease) in net assets
<S> <C>
Operations:
Net investment income....................................................... $ 242,353
Realized gain (loss) on Bond sale or redemption............................. --
Net change in unrealized appreciation (depreciation) of Bonds............... (583,523)
Net increase (decrease) in net assets resulting from operations............. (341,170)
Distributions to Unitholders from:
Net investment income....................................................... (125,183)
Bond sale or redemption proceeds............................................ --
Redemption of Units.......................................................... (2,690)
Total increase (decrease)................................................... (469,043)
Net asset value to Unitholders
Beginning of period......................................................... 6,122,706
End of period (including undistributed net investment income of $117,170)... $ 5,653,663
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
VAN KAMPEN MERRITT INSURED MUNICIPALS INCOME TRUST
INTERMEDIATE
PORTFOLIO as of July 31, 1994
<CAPTION>
July 31,
1994
Port- Redemption Market
folio Aggregate Name of Issuer, Title, Interest Rate and Rating Feature Value
Item Principal Maturity Date (Note 2) (Note 2) (Note 1)
<S> <C> <C> <C> <C> <C>
A $ 1,000,000 Detroit Edison Secured Medium Term Notes,
Series 1993E
6.69% Due 3/17/03 ................................... BBB+ $ 927,030
B 1,000,000 State of Indiana, Indiana Transportation Finance
Authority, Taxable Tollroad Lease Revenue
Refunding Bonds, Series 1993 (FGIC Insured)
5.75% Due 7/1/03..................................... AAA 871,620
C 1,000,000 Niagara Mohawk Power Corporation
7.375% Due 8/1/03 ................................... BBB- 962,850
D 165,000 College Park Business and Industrial Development
Authority (Georgia) Taxable Revenue Bonds
(Federal Aviation Administration Project)
Series 1993 (MBIA Insured)
6.25% Due 10/1/03 ................................... AAA 148,728
E 1,000,000 Nassau County, New York, General Obligation Bonds
(Federally Taxable) AMBAC Indemnity Insured
5.70% Due 10/15/03 .................................. AAA 865,630
F 500,000 Ohio Power Company, First Mortgage Bonds,
Designated Secured Medium Term Notes
6.15% Due 12/1/03 ................................... A- 1998 @ 101.76 444,015
G 500,000 Connecticut Municipal Electric Authority, Taxable
Power Supply System Revenue Bonds,
Series 1993B (MBIA Insured)
5.70% Due 1/1/04 .................................... AAA 433,390
H 500,000 Public Service Electric and Gas
6.50% Due 5/1/04 .................................... A 452,685
I 500,000 Suffolk County, New York, Taxable Pension System
Serial Bonds, General Obligation-Unlimited Tax,
Series 1993 (FGIC Insured)
5.80% Due 11/1/04 ................................... AAA 2003 @ 101 433,235
$ 6,165,000 $ 5,539,183
</TABLE>
The accompanying notes are an integral part of this statement.
VAN KAMPEN MERRITT INSURED INCOME TRUST INTERMEDIATE
SERIES 33
Notes to Financial Statements
July 31, 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation - Securities are stated at the value determined by the
Evaluator, American Portfolio Evaluation Services (a division of a subsidiary
of the Sponsor). The Evaluator may determine the value of the Obligations (1)
on the basis of current bid prices of the Obligations obtained from dealers or
brokers who customarily deal in Obligations comparable to those held by each
of the Trusts, (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 Bonds on the
date of deposit (November 30, 1993). Since the valuation is based upon the bid
prices, the Trust recognized downward adjustments of $23,118 on the date of
deposit resulting from the difference between the bid and offering prices. The
downward adjustments was included in the aggregate amount of unrealized
depreciation reported in the financial statements forrthe period ended July
31, 1994.
Unit Valuation - The redemption price per Unit is the pro rata share of each
Unit in each Unit based upon (1) the cash on hand in such Trust or monies in
the process of being collected, (2) the Bonds in the Trust based on the value
determined by the Evaluator and (3) interest accrued thereon, less accrued
expenses of the Trust, if any.
Federal Income Taxes - Each Unitholder is considered to be the owner of a pro
rata portion of such Trust and, accordingly, no provision has been made for
Federal income taxes.
Other - The financial statements are presented on the accrual basis of
accounting. Any realized gains or losses from securities transactions are
reported on an identified cost basis.
NOTE 2 - PORTFOLIO
Ratings - The source of all ratings, exclusive of those designated N/R or * is
Standard & Poor's Corporation. Ratings marked * are by Moody's Investors
Service, Inc. as these Bonds are not rated by Standard & Poor's Corporation or
Moody's Investors Service, Inc. N/R indicates that the Bond is not rated by
Standard & Poor's Corporation or Moody's Investors Service, Inc. The ratings
shown represent the latest published ratings of the Bonds. For a brief
description of rating symbols and their related meanings, see "Description
of Securities Ratings"in Part Two.
Redemption Feature - There is shown under this heading the year in which each
issue of 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.
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
Trusts 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 July 31, 1994 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Unrealized Appreciation $ --
Unrealized Depreciation (583,523)
$ (583,523)
</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 each Trust, plus interest accrued to the
date of settlement. If the supply of Units exceeds demand, or for other
business reasons, the Sponsor may discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units, a
Unitholder desiring to dispose of his Units may be able to do so only by
tendering such Units to the Trustee for redemption at the redemption price.
Cost to Investors - The cost to original investors was based on the
Evaluator's determination of the aggregate offering price of the Obligations
per Unit on the date of an investor's purchase, plus a sales charge of 4.9%
of the public offering price which is equivalent to 5.152% of the aggregate
offering price of the Obligations. The secondary market cost to investors is
based on the Evaluator's determination of the aggregate bid price of the
Obligations per Unit on the date of an investor's purchase plus a sales
charge based upon the years to average maturity of the Obligations in the
portfolio. The sales charge ranges from 1.5% of the public offering price
(1.523% of the aggregate bid price of the Bonds) for a Trust with a portfolio
with less than two years to average maturity to 5.7% of the public offering
price (6.045% of the aggregate bid price of the Bonds) for a Trust with a
portfolio with sixteen or more years to average maturity.
Compensation of Evaluator - The Evaluator receives a fee for providing
portfolio supervisory services for each of the Trusts ($.25 per Unit, not to
exceed the aggregate cost of the Evaluator for providing such services to all
applicable Trusts). In addition, the Evaluator receives an annual fee for
regularly evaluating each of the Trust's portfolios. Both fees may be
adjusted for increases under the category "All Services Less Rent of
Shelter"in the Consumer Price Index.
NOTE 4 - REDEMPTION OF UNITS
During the period ending July 31, 1994, 3 Units were presented for redemption.
VAN KAMPEN MERRITT
INSURED INCOME TRUST
PROSPECTUS
PART TWO
The Trust. The Trust consists of a series of unit investment trusts issued
under the name Van Kampen Merritt Insured Income Trust. 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).
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 (and in certain Trusts long-term taxable
municipal debt obligations) issued after July 18, 1984 (the "Obligations").
See "Investment Objectives And Portfolio Selection". There is no assurance
that the Trust will achieve its objective. The payment of interest and the
preservation of principal is, of course, dependent upon the continuing ability
of the issuers and/or obligors of the Obligations and of the insurer thereof
to meet their respective obligations.
The Trust and "AAA" Rating. Insurance guaranteeing the payments of principal
and interest, when due, on the Obligations in the portfolio of the Trust has
been obtained from an insurance company either by the Trust or by the issuer
of the Obligations involved, by a prior owner of the Obligations or by the
Sponsor prior to the deposit of such Obligations in the Trust. See "Insurance
On The Obligations". Insurance obtained by the Trust applies only while the
Obligations involved are retained in the Trust while insurance obtained on
Preinsured Obligations is effective so long as such Obligations are
outstanding. The Trustee, upon the sale of an Obligation insured under an
insurance policy obtained by the Trust, has the right to obtain from the
insurer involved permanent insurance for such Obligation upon the payment of a
single predetermined insurance premium and any expenses related thereto from
the proceeds of the sale of such Obligation. IT SHOULD BE NOTED THAT THE
INSURANCE, IN EITHER CASE, RELATES ONLY TO THE OBLIGATIONS IN THE TRUST AND
NOT TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE THEREOF. As a result
of such insurance, the Units of the Trust received a rating of "AAA" by
Standard & Poor's 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 and cash, if
any, in the Principal Account held or owned by such Trust plus the sales
charge referred to under "Public Offering-General" plus an amount equal to the
accrued interest from the most recent record of such Trust to the date of
settlement (five business days after order) less distributions from the
Interest Account subsequent to the most recent record date, if any. In
addition, for Series 35 and subsequent series of the Trust the Public Offering
Price will include Purchased Interest. 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 COMMISSIONOR 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"), dated the Initial Date of Deposit 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. For a breakdown
of the portfolio see Part One for each Trust. In addition, securities of the
type initially deposited in the portfolio of the Trust are often not available
in small amounts and may, in the case of privately placed securities, be
available only to institutional investors.
Unless otherwise terminated as provided therein, the Trust Agreement for all
series will terminate at the end of the calendar year prior to the fiftieth
anniversary of its execution.
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 OBJECTIVES AND PORTFOLIO SELECTION
The investment objective of the Trust is to provide a high level of current
income consistent with safety of principal by investing in a professionally
selected portfolio principally consisting of long-term corporate debt
obligations (and in certain Trusts long-term taxable municipal 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) CapMAC and/or (8)
Financial Security Assurance Inc. ("Financial Security" or "FSA")
(collectively, the "Preinsured Obligation Insurers") (see "Insurance on the
Obligations"). The Portfolio Insurers and the Preinsured Obligation Insurers
are collectively referred to herein as the "Insurers". Insurance obtained by
the Trust is effective only while the Obligations thus insured are held in the
Trust. The Trustee has the right to acquire permanent insurance from a
Portfolio Insurer with respect to each Obligation insured by the respective
Portfolio Insurer under a Trust portfolio insurance policy. Insurance
relating to Obligations insured by the issuer, by a prior owner of such
Obligations or by the Sponsor is effective so long as such Obligations are
outstanding. Obligations insured under a policy of insurance obtained by the
issuer, by a prior owner of such Bonds or by the Sponsor from one of the
Preinsured Obligation Insurers (the "Preinsured Obligations") are not
additionally insured by the Trust. No representation is made as to any
Insurer's ability to meet its commitments.
Neither the Public Offering Price nor any evaluation of Units for purposes of
repurchases or redemptions reflects any element of value for the insurance
obtained by the Trust, if any, unless Obligations are in default in payment of
principal or interest or in significant risk of such default. See "Public
Offering-Offering Price".
In order for Obligations to be eligible for insurance they must have credit
characteristics which would qualify them for at least the Standard & Poor's
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. Only monthly
distributions are available for Series 35 and subsequent series. The Estimated
Current Returns are calculated by dividing the Estimated Net Annual Interest
Income per Unit by the Public Offering Price. The Estimated Net Annual
Interest Income per Unit will vary with changes in fees and expenses of the
Trustee and the Evaluator and with the principal prepayment, redemption,
maturity, exchange or sale of Obligations while the Public Offering Price will
vary with changes in the offering price of the underlying Obligations and with
changes in Purchased Interest for those series which contain Purchased
Interest; therefore, there is no assurance that the present Estimated Current
Return will be realized in the future. Estimated Long-Term Returns are
calculated using a formula which (1) takes into consideration, and determines
and factors in the relative 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. Only monthly
distributions are available for Series 35 and subsequent series of the Trust.
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 OfferingOffering Price". Because any such
insurance value may be realized in the market value of the Obligation upon the
sale thereof upon exercise of the Permanent Insurance option, the Sponsor
anticipates that (a) in the event the Trust were to be comprised of a
substantial percentage of Obligations in default or significant risk of
default, it is much less likely that the Trust would need at some point in
time to seek a suspension of redemptions of Units than if the Trust were to
have no such option (see "Rights of UnitholdersRight of Redemption") and (b)
at the time of termination of the Trust, if the Trust were holding defaulted
Obligations or Obligations in significant risk of default the Trust would not
need to hold such Obligations until their respective maturities in order to
realize the benefits of the Trust's portfolio insurance (see
"Administration of the TrustAmendment or Termination").
Except as indicated below, insurance obtained by the Trust has no effect on
the price or redemption value of Units. It is the present intention of the
Evaluator to attribute a value for such insurance (including the right to
obtain Permanent Insurance) for the purpose of computing the price or
redemption value of Units if the Obligations covered by such insurance are in
default in payment of principal or interest or in significant risk of such
default. The value of the insurance will be equal to the difference between
(i) the market value of an Obligation which is in default in payment of
principal or interest or in significant risk of such default assuming the
exercise of the right to obtain Permanent Insurance (less the insurance
premium and related expenses attributable to the purchase of Permanent
Insurance) and (ii) the market value of such bonds not covered by Permanent
Insurance. See "Public OfferingOffering Price" herein for a more complete
description of the Trust's method of valuing defaulted Obligations which have
a significant risk of default.
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 all 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate 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.
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.
As at December 31, 1993 and 1992, CapMAC had qualified statutory capital
(which consists of policy holders' surplus and contingency reserve) of
approximately $167 million and $161 million, respectively, and had not
incurred any debt obligations. Article 69 of the New York State Insurance law
requires that CapMAC establishes and maintains the contingency reserve, which
is available to cover claims under surety bonds issued by CapMAC.
In addition to its qualified statutory capital and other reinsurance
available to pay claims under its surety bonds, CapMAC has 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, 1992 MBIA had admitted assets of $2.6 billion (audited),
total liabilities of $1.7 billion (audited), and total capital and surplus of
$896 million (audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. As of
June 30, 1993, MBIA had admitted assets to $2.9 billion (unaudited), total
liabilities of $1.9 billion (unaudited), and total capital and surplus of $945
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,
1993, the total capital and surplus of Financial Guaranty was approximately
$777,000,000. 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 all 50 states and the District of Columbia.
Financial Security Assurance ("Financial Security" or "FSA") is a monoline
insurance company incorporated on March 16, 1984 under the laws of the State
of New York. The operations of Financial Security commenced on July 25, 1985,
and Financial Security received its New York State insurance license on
September 23, 1985. Financial Security and its two wholly owned subsidiaries
are licensed to engage in financial guaranty insurance business in 49 states,
the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by US WEST, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither US WEST, Inc. nor Tokio Marine is obligated to pay 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
March 31, 1993, the total policyholders' surplus and contingency reserves and
the total unearned premium reserve, respectively, of Financial Security and
its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $479,110,000 (unaudited) and $220,078,000
(unaudited), and the total shareholders' equity and the total unearned
premium reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with generally accepted accounting
principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York, New
York 10022, Attention: Communications Department, its telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with unaffiliated reinsurers under various quota
share treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company ("Capital Guaranty") was incorporated in
Maryland on June 25, 1986, and is a wholly-owned subsidiary of Capital
Guaranty Corporation, a Maryland insurance holding company.
Capital Guaranty Corporation is owned by the following investors:
Constellation Investments, Inc. an affiliate of Baltimore Gas and Electric;
Fleet/Norstar Financial Group, Inc., Safeco Corporation; Sibag Finance
Corporation, an affiliate of Siemens A.G.; and United States Fidelity and
Guaranty Company and management.
Capital Guaranty, headquartered in San Francisco, is a monoline financial
guaranty insurer engaged in the underwriting and development of financial
guaranty insurance. Capital Guaranty insures general obligation, tax
supported and revenue bonds structured as tax-exempt and taxable securities as
well as selectively insures taxable corporate/asset backed securities.
Standard & Poor's Corporation rates the claims paying ability of Capital
Guaranty "AAA".
Capital Guaranty's insured portfolio currently includes over $9 billion in
total principal and interest insured. As of September 30, 1993, the total
policyholders' surplus of Capital Guaranty was $118,383,432 (unaudited), and
the total admitted assets were $270,021,126 (unaudited) as reported to the
Insurance Department of the State of Maryland. Financial statements for
Capital Guaranty Insurance Company, that have been prepared in accordance with
statutory insurance accounting standards, are available upon request. The
address of Capital Guaranty's headquarters and its telephone number are
Steuart Tower, 22nd Floor, One Market Plaza, San Francisco, CA 94105-1413 and
(415) 995-8000.
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 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 interests 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.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") raised tax rates on
ordinary income while capital gains remain subject to a 28% maximum stated
rate. Because some or all capital gains are taxed at a comparatively lower
rate under the Tax Act, the Tax Act includes a provision that recharacterizes
capital gains as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders and prospective investors should consult
with their tax advisers regarding the potential effect of this provision on
their investment in Units.
Foreign Investors. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident of a U.S. corporation, partnership,
estate or Trust) will generally 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.
It should be noted that the Tax Act includes a provision which eliminates the
exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received
after December 31, 1993. No opinion is expressed herein regarding the
potential applicability of this provision and whether United States taxation
or withholding taxes could be imposed with respect to income derived from the
Units as a result thereof. Unitholders and prospective investors should
consult with their tax advisers regarding the potential effect of this
provision on their investment in Units.
General. Each Unitholder (other than a foreign investor who has properly
provided the certifications described 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. In addition,
for Series 35 and subsequent series, the Public Offering Price will also
include Purchased Interest. 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 Years to Maturity Sales Charge
1 1.523% 9 4.712%
2 2.041 10 4.932
3 2.564 11 4.932
4 3.199 12 4.932
5 3.842 13 5.374
6 4.058 14 5.374
7 4.275 15 5.374
8 4.493 16 to 30 6.045
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Obligations in the Trust. Expressed as a percent
of the Public Offering Price (excluding Purchased Interest for those Trusts
which contain Purchased Interest), the sales charge on a Trust consisting
entirely of a portfolio of Obligations with 15 years to maturity would be
5.10%.
The following section "Accrued Interest (Accrued Interest to Carry)" applies
to Series 34 and prior series of the Trust only.
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.
The following section "Purchased and Accrued Interest" applies to Series 35
and subsequent series of the Trust only.
PURCHASED AND ACCRUED INTEREST
Purchased Interest. Purchased Interest is a portion of the unpaid interest
that has accrued on the Obligations from the later of the last payment date on
the Obligations or the date of issuance thereof through the First Settlement
Date and is included in the calculation of the Public Offering Price.
Purchased Interest will be distributed to Unitholders as Units are redeemed or
Obligations mature or are called. See "SUMMARY OF ESSENTIAL FINANCIAL
INFORMATION" in Part One of this Prospectus for the amount of Purchased
Interest per Unit for each Trust. Purchased Interest is an element of the
price Unitholders will receive in connection with the sale or redemption of
Units prior to the termination of the Trust.
Accrued Interest. Accrued Interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although a Trust accrues
such interest daily. Because of this, a Trust always has an amount of interest
earned but not yet collected by the Trustee. For this reason, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of a Trust the amount, if any, of accrued interest paid
on their Units.
As indicated in "Purchased Interest", accrued interest as of the First
Settlement Date includes Purchased Interest. In an effort to reduce the amount
of Purchased Interest which would otherwise have to be paid by Unitholders,
the Trustee may advance a portion of such accrued interest to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement (other than the Purchased Interest already included therein),
less any distributions from the Interest Account subsequent to the First
Settlement Date. See "Rights of Unitholders Distributions of Interest and
Principal."
Because of the varying interest payment dates of the Obligations, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the Purchased Interest and accrued interest from
the purchaser of his Units. Since the Trustee has the use of the funds
(including Purchased Interest) held in the Interest Account for distributions
to Unitholders and since such Account is non-interest-bearing to Unitholders,
the Trustee benefits thereby.
Offering Price. The Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Part
One of this Prospectus in accordance with fluctuations in the prices of the
underlying Obligations in the Trust. The price of the Units as of the opening
of business on the date of Part One of this Prospectus was determined by
adding to the determination of the aggregate bid price of the Obligations in
the Trust the amount equal to the applicable sales charge expressed as a
percentage of the aggregate bid price of such value plus Purchased Interest
for those Trusts which include Purchased Interest and dividing the sum so
attained by the number of Units then outstanding. This computation produces a
gross profit equal to such sales charge expressed as a percentage of the
Public Offering Price (excluding Purchased Interest for those Trusts which
contain Purchased Interest). For secondary market purposes such appraisal and
adjustment will be made by the Evaluator as of 4:00 P.M. Eastern time on days
on which the New York Stock Exchange is open for each day on which any Unit of
the Trust is tendered for redemption, and it shall determine the aggregate
value of the Trust as of 4:00 P.M. Eastern time on such other days as may be
necessary.
The aggregate price of the Obligations in the Trust has been and will be
determined on the basis of bid prices (a) on the basis of current market
prices for the Obligations obtained from dealers or brokers who customarily
deal in bonds comparable to those held by the Trust; (b) if such prices are
not available for any particular Obligations, on the basis of current market
prices for comparable bonds; (c) by causing the value of the Obligations to be
determined by others engaged in the practice of evaluation, quoting or
appraising comparable bonds; or (d) by any combination of the above. Unless
the Obligations are in default in payment of principal or interest or in
significant risk of such default, the Evaluator will not attribute any value
to the insurance obtained by the Trust.
The Evaluator will consider in its evaluation of Obligations which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of such default (the "Defaulted Obligations") the value
of the insurance guaranteeing interest and principal payments. The value of
the insurance obtained by the Trust will be equal to the difference between
(i) the market value of Defaulted Obligations assuming the exercise of the
right to obtain Permanent Insurance (less the insurance premiums and related
expenses attributable to the purchase of Permanent Insurance) and (ii) the
market value of such Defaulted Obligations not covered by Permanent Insurance.
In addition, the Evaluator will consider the ability of the affected
Portfolio Insurer to meet its commitments under any Trust insurance policy,
including the commitments to issue Permanent Insurance. It is the position of
the Sponsor that this is a fair method of valuing the Obligations and the
insurance obtained by the Trust and reflects a proper valuation method in
accordance with the provisions of the
Investment Company Act of 1940.
Although payment is normally made 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 OfferingGeneral" above.
As stated under "Public Market" below, the Sponsor intends to, and certain of
the dealers may maintain a secondary market for the Units of the Trust. In so
maintaining a market, the Sponsor or any such dealers will also realize
profits or sustain losses in the amount of any difference between the price
at which Units are purchased and the price at which Units are resold (which
price is based on the bid prices of the Obligations in the Trust and includes
a sales charge). In addition, the Sponsor or any such dealer will also
realize profits or sustain losses resulting from a redemption of such
repurchased Units at a price above or below the purchase price for such Units,
respectively.
Public Market. Although they are not obligated to do so, the Sponsor intends
to, and/or certain of the other dealers may, maintain a market for the Units
offered hereby and to offer continuously to purchase such Units at prices,
subject to change at any time, based upon the aggregate bid price of the
Obligations in the portfolio plus Purchased Interest for those Trusts which
contain Purchased Interest plus interest accrued to the date of settlement
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. If the supply of Units exceeds demand or if some other business
reason warrants it, the Sponsor and/or the other dealers may either
discontinue all purchases of Units or discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units and the
Unitholder cannot find another purchaser, a Unitholder desiring to dispose of
his Units may be able to dispose of such Units only by tendering them to the
Trustee for redemption at the Redemption Price, which is based upon the
aggregate bid price of the Obligations in the portfolio plus Purchased
Interest for those Trusts which contain Purchased Interest and any accrued
interest. The aggregate bid prices of the underlying Obligations in the Trust
are expected to be less than the related aggregate offering prices. See
"Rights of UnitholdersRedemption of Units". A Unitholder who wishes to
dispose of his Units should inquire of his broker as to current market prices
in order to determine whether there is in existence any price in excess of the
Redemption Price and, if so, the amount thereof.
RIGHTS OF UNITHOLDERS
Certificates. The Trustee is authorized to treat as the record owner of Units
that person who is registered as such owner on the books of the Trustee.
Ownership of Units of the Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor. 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 participant in the Securities Transfer
Agents Medallion Program ("STAMP"), or in such other manner in addition to, or
in substitution for STAMP, as may be acceptable to the Trustee. In certain
instances the Trustee may require additional documents such as, but not
limited to, Trust instruments, certificates of death, appointments as executor
or administrator or certificates of corporate authority. Certificates will be
issued in denominations of one Unit or any multiple thereof.
Although no such charge is now made or contemplated, the Trustee may require a
Unitholder to pay a reasonable fee for each certificate reissued or
transferred and to pay any governmental charge that may be imposed in
connection with each such transfer or interchange. Destroyed, stolen,
mutilated or lost certificates will be replaced upon delivery to the Trustee
of satisfactory indemnity, evidence of ownership and payment of expenses
incurred. Mutilated certificates must be surrendered to the Trustee for
replacement.
Distributions of Interest and Principal. Interest received by the Trust,
including that part of the proceeds of any disposition of Obligations which
represents Purchased Interest, if any, and/or accrued interest and including
any insurance proceeds representing interest due on defaulted Obligations, is
credited by the Trustee to the Interest Account. Other receipts are credited
to the Principal Account. All distributions will be net of applicable
expenses. The pro rata share of cash in the Principal Account will be
computed as of the semi-annual record date and distributions to the
Unitholders as of such record date will be made on or shortly after the
fifteenth day of such month. For Series 35 and subsequent series, such
computation and distribution will occur monthly. Proceeds received from the
disposition of any of the Obligations after such record date and prior to the
following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to
pay interest on funds held in the Principal or Interest Accounts (but may
itself earn interest thereon and therefore benefits from the use of such
funds) nor to make a distribution from the Principal Account unless the amount
available for distribution shall equal at least $1.00 per Unit.
The distribution to the Unitholders as of each record date will be made on the
following distribution date or shortly thereafter and shall consist of an
amount substantially equal to such portion of the Unitholders' pro rata
share of the estimated net annual unit income in the Interest Account after
deducting estimated expenses attributable as is consistent with the
distribution plan chosen. Only monthly distributions will be available for
Series 35 and subsequent series of the Trust. Because interest payments are
not received by the Trust at a constant rate throughout the year, such
interest distribution may be more or less than the amount credited to the
Interest Account as of the record date. For the purpose of minimizing
fluctuation in the distributions from the Interest Account, the Trustee is
authorized to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee shall be
reimbursed, without interest, for any such advances from funds in the Interest
Account on the ensuing record date. Persons who purchase Units will commence
receiving distributions only after such person becomes a record owner.
Notification to the Trustee of the transfer of Units is the responsibility of
the purchaser, but in the normal course of business such notice is provided by
the selling broker- dealer. Only monthly distributions will be available for
Series 35 and subsequent series of the Trust.
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, and in the case of
Series 34 and prior series of the Trust, the Unitholder has elected to receive
them semi-annually. Distributions of funds from the Principal Account will be
made on a semi-annual basis, except under the special circumstances outlined
in "Rights of UnitholdersDistributions of Interest and Principal" above.
Record dates for monthly distributions will be the first day of each month and
record dates for semi-annual distributions will be the first day of June and
December. Distributions will be made on the fifteenth day of the month
subsequent to the respective record dates. Unitholders of Series 35 and
subsequent series of the Trust will receive distributions of interest and
principal on a monthly basis.
In the case of Series 34 and prior series of the Trust, 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. Only monthly distributions
are available for Series 35 and subsequent series of the Trust.
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee at its Unit Investment Trust Division, 101 Barclay
Street, New York, New York 10286, of the certificates representing the Units
to be redeemed, duly endorsed or accompanied by proper instruments of transfer
with signature guaranteed (or by providing satisfactory indemnity, as in
connection with lost, stolen or destroyed certificates) and by payment of
applicable governmental charges, if any. Thus, redemption of Units cannot be
effected until certificates representing such Units have been delivered by
the person seeking redemption or satisfactory indemnity provided. No
redemption fee will be charged. On the 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.
Purchased Interest, if any, and accrued interest paid on redemption shall be
withdrawn from the Interest Account or, if the balance therein is
insufficient, from the Principal Account. All other amounts will be withdrawn
from the Principal Account. The Trustee is empowered to sell underlying
Obligations in order to make funds available for redemption. Units so
redeemed shall be cancelled.
The Redemption Price per Unit will be determined on the basis of the bid price
of the Obligations in the Trust, as of 4:00 P.M. Eastern time on days of
trading on the New York Stock Exchange on the date any such determination is
made. While the Trustee has the power to determine the Redemption Price per
Unit when Units are tendered for redemption, such authority has been delegated
to the Evaluator which determines the price per Unit on a daily basis. The
Redemption Price per Unit is the pro rata share of each Unit in the Trust
determined on the basis of (i) the cash on hand in the Trust or monies in the
process of being collected, (ii) the value of the Obligations in the Trust
based on the bid prices of the Obligations, except for those cases in which
the value of insurance has been included, (iii) Purchased Interest, if any,
included in Series 35 and subsequent series of the Trust, and (iv) interest
accrued thereon, less (a) amounts representing taxes or other governmental
charges payable out of the Trust and (b) the accrued expenses of the Trust.
The Evaluator may determine the value of the Obligations in the Trust by
employing any of the methods set forth in "Public OfferingOffering 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
OfferingOffering 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 PortfolioReplacement
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 September 30,
1993, the total stockholders' equity of Van Kampen Merritt Inc. was
$200,885,000 (unaudited). (This paragraph relates only to the Sponsor and not
to the Trusts. The information is included herein only for the purpose of
informing investors as to the financial responsibility of the Sponsor and its
ability to carry out its contractual obligations. More detailed financial
information will be made available by the Sponsor upon request.)
As of November 30, 1993, the Sponsor and its affiliates managed or supervised
approximately $38.5 billion of investment products, of which over $25 billion
is invested in municipal securities. The Sponsor and its affiliates managed
$23 billion of assets, consisting of $8.2 billion for 19 mutual funds, $8.3
billion for 33 closed-end funds and $6.5 billion for 51 institutional
accounts. The Sponsor has also deposited over $23.5 billion of unit investment
trusts. Based on cumulative assets deposited, the Sponsor believes that it is
the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipal Income Trust or the IM-IT trust.
The Sponsor also provides surveillance and evaluation services at cost for
approximately $15.5 billion of unit investment trust assets outstanding. Since
1976, the Sponsor has opened over one million retail investor accounts through
retail distribution firms. Van Kampen Merritt Inc. is the sponsor of the
various series of the trusts listed below and the distributor of the mutual
funds and closed-end funds listed below. Unitholders may only invest in the
trusts, mutual funds and closed-end funds which are registered for sale in the
state of residence of such Unitholder.
Van Kampen Merritt Inc. is the sponsor of the various series of the following
unit investment trusts: Investors' Quality Tax-Exempt Trust; Investors'
Quality Tax-Exempt Trust, Multi-Series; Insured Municipals Income Trust;
Insured Municipals Income Trust, Insured Multi-Series; California Insured
Municipals Income Trust; New York Insured Municipals Income Trust;
Pennsylvania Insured Municipals Income Trust; Insured Tax Free Bond Trust;
Insured Tax Free Bond Trust, Insured Multi-Series; Investors' Quality
Municipals Trust, AMT Series; Van Kampen Merritt Blue Chip Opportunity Trust;
Van Kampen Merritt Blue Chip Opportunity and Treasury Trust; Investors'
Corporate Income Trust; Investors' Governmental Securities-Income Trust; Van
Kampen Merritt International Bond Income Trust; Van Kampen Merritt Utility
Income Trust; Van Kampen Merritt Insured Income Trust; Van Kampen Merritt
Emerging Markets Income Trust; Van Kampen Merritt Global Telecommunications
Trust; and Van Kampen Merritt Global Energy Trust.
Van Kampen Merritt Inc. is the distributor of the following mutual funds: Van
Kampen Merritt U.S.Government Fund; Van Kampen Merritt California Insured Tax
Free Fund; Van Kampen Merritt Tax-Free High Income Fund; Van Kampen Merritt
Insured Tax-Free Income Fund; Van Kampen Merritt High Yield Fund; Van Kampen
Merritt Growth and Income Fund; Van Kampen Merritt Pennsylvania Tax-Free
Income Fund; Van Kampen Merritt Money Market Fund; Van Kampen Merritt Tax Free
Money Fund; Van Kampen Merritt Municipal Income Fund; Van Kampen Merritt
Adjustable Rate U.S. Government Fund; Van Kampen Merritt Short-Term Global
Income Fund; and Van Kampen Merritt Limited Term Municipal Income Fund.
Van Kampen Merritt is the distributor of the following closed-end funds: Van
Kampen Merritt Municipal Income Trust; Van Kampen Merritt California Municipal
Trust; Van Kampen Merritt Intermediate Term High Income Trust; Van Kampen
Merritt Limited Term High Income Trust; Van Kampen Merritt Prime Rate Income
Trust; Van Kampen Merritt Investment Grade Municipal Trust; Van Kampen Merritt
Municipal Trust; Van Kampen Merritt California Quality Municipal Trust; Van
Kampen Merritt Florida Quality Municipal Trust; Van Kampen Merritt New York
Quality Municipal Trust; Van Kampen Merritt Ohio Quality Municipal Trust; Van
Kampen Merritt Pennsylvania Quality Municipal Trust; Van Kampen Merritt Trust
for Investment Grade Municipals; Van Kampen Merritt Trust for Investment Grade
CA Municipals; Van Kampen Merritt Trust for Insured Municipals; Van Kampen
Merritt Trust for Investment Grade FL Municipals; Van Kampen Merritt Trust for
Investment Grade PA Municipals; Van Kampen Merritt Advantage Pennsylvania
Municipal Income Trust; Van Kampen Merritt Advantage Municipal Income Trust;
Van Kampen Merritt Municipal Opportunity Trust; Van Kampen Merritt Trust for
Investment Grade NY Municipals; Van Kampen Merritt Trust for Investment Grade
NJ Municipals; Van Kampen Merritt Strategic Sector Municipal Trust; Van Kampen
Merritt Value Municipal Income Trust; Van Kampen Merritt California Value
Municipal Income Trust; Van Kampen Merritt Massachusetts Value Municipal
Income Trust; Van Kampen Merritt New Jersey Value Municipal Income Trust; Van
Kampen Merritt New York Value Municipal Income Trust; Van Kampen Merritt Ohio
Value Municipal Income Trust; Van Kampen Merritt Pennsylvania Value Municipal
Income Trust; Van Kampen Merritt Municipal Opportunity Trust II; Van Kampen
Merritt Florida Municipal Opportunity Trust; Van Kampen Merritt Advantage
Municipal Income Trust II; and Van Kampen Merritt Select Municipal Trust.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and
not exceeding amounts prescribed by the Securities and Exchange Commission,
(ii) terminate the Trust Agreement and liquidate the Fund as provided therein
or (iii) continue to act as Trustee without terminating the Trust Agreement.
All costs and expenses incurred in creating and establishing the Fund,
including the cost of the initial preparation, printing and execution of the
Trust Agreement and the certificates, legal and accounting expenses,
advertising and selling expenses, expenses of the Trustee, initial evaluation
fees and other out-of-pocket expenses have been borne by the Sponsor at no
cost to the Fund.
Trustee. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its offices at 101 Barclay
Street, New York, New York 10286, (800) 221-7668. The Bank of New York is
subject to supervision and examination by the Superintendent of Banks of the
State of New York and the Board of Governors of the Federal Reserve System,
and its deposits are insured by the Federal Deposit Insurance Corporation to
the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of
Obligations for the Trust portfolio.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Trust. Such
records shall include the name and address of, and the certificates issued by
the Trust to, every Unitholder of the Trust. Such books and records shall be
open to inspection by any Unitholder at all reasonable times during usual
business hours. The Trustee shall make such annual or other reports as may
from time to time be required under any applicable state or Federal statute,
rule or regulation (see "Rights of UnitholdersReports Provided"). The Trustee
is required to keep a certified copy or duplicate original of the Trust
Agreement on file in its office available for inspection at all reasonable
times during the usual business hours by any Unitholder, together with a
current list of the Obligations held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may resign and
be discharged of the Trust created by the Trust Agreement by executing an
instrument in writing and filing the same with the Sponsor. The Trustee or
successor trustee must mail a copy of the notice of resignation to all
Unitholders then of record, not less than 60 days before the date specified in
such notice when such resignation is to take effect. The Sponsor upon
receiving notice of such resignation is obligated to appoint a successor
trustee promptly. If, upon such resignation, no successor trustee has been
appointed and has accepted the appointment within 30 days after notification,
the retiring Trustee may apply to a court of competent jurisdiction for the
appointment of a successor. The Sponsor may remove the Trustee and appoint a
successor trustee as provided in the Trust Agreement at any time with or
without cause. Notice of such removal and appointment shall be mailed to each
Unitholder by the Sponsor. Upon execution of a written acceptance of such
appointment by such successor trustee, all the rights, powers, duties and
obligations of the original trustee shall 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*
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.
* As published by the ratings companies.
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.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
No person is authorized to give any information or to make any representation
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the dealers. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
Title Page
Summary of Essential Financial Information 1
The Trust 2
Investment Objectives and Portfolio Selection 2
Trust Portfolio 3
Estimated Current Return and Estimated Long-Term Return 5
Trust Operating Expenses 6
Insurance on the Obligations 7
Tax Status 11
Public Offering 14
Accrued Interest (Accrued Interest to Carry) 14
Purchased and Accrued Interest 14
Rights of Unitholders 16
Trust Administration 19
Other Matters 22
Description of Obligation Ratings 22
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
and
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 33
(Intermediate) and Series 34, certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on
its behalf by the undersigned thereunto duly authorized, and its seal to
be hereunto affixed and attested, all in the City of Chicago and State of
Illinois on the 25th day of November, 1994.
Van Kampen Merritt Insured Income
Trust, Series 33 (Intermediate)
and Series 34
(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 November 25, 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 September 16, 1994 accompanying the
financial statements of Van Kampen Merritt Insured Income Trust, Series
33 (Intermediate) and Series 34 as of July 31, 1994, 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
November 25, 1994
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