FILE NO. 33-
CIK #897127
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: VAN KAMPEN MERRITT INSURED
INCOME TRUST, Series 36
B. Name of Depositor: VAN KAMPEN MERRITT INC.
C. Complete address of Depositor's principal executive offices:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
D. Name and complete address of agents for service:
VAN KAMPEN MERRITT INC. CHAPMAN AND CUTLER
Attention: John C. Merritt, Chairman Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
E. Title and amount of securities being registered: *1,000 Units
F. Proposed maximum offering price to the public of the securities being
registered: ($1,010 per Unit): $1,010,000**
G. Amount of filing fee, computed at one twenty-nineth of l percent of
the proposed maximum aggregate offering price to the public: $348.28
H. Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT
_________________________________________________________________________
* 500 Units registered for primary distribution.
500 Units registered for resale by Depositor of Units previously sold
in primary distribution.
** Estimated solely for the purpose of calculating the registration fee.
_________________________________________________________________________
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
Van Kampen Merritt Insured Income Trust,
Series 36
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust )
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Summary of Essential Financial
) Information
) Trust Administration
3. Name and address of Trustee ) Summary of Essential Financial
) Information
) Trust Administration
4. Name and address of principal ) Underwriting
underwriter
5. Organization of trust ) The Trusts
6. Execution and termination of ) The Trusts
Trust Indenture and Agreement ) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. General Description of the Trust and
Securities of the Trust
10. General information regarding ) The Trusts
trust's securities and rights of) Insurance on the Bonds
security holders ) Tax Status
) Public Offering
) Rights of Unitholders
) Trust Administration
11. Type of securities comprising units) Prospectus Front Cover Page
) The Trusts
) Trust Portfolios
) Trust Portfolios
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Loan, fees, charges and expenses) Prospectus Front Cover
Page
) Summary of Essential Financial
) Information
) Trust Portfolios
) Annual Unit Income and
) Estimated Current Returns
) Trust Operating Expenses
) Public Offering
) Rights of Unitholders
(b) Certain information regarding) *
periodic payment plan )
certificates )
(c) Certain percentages ) Prospectus Front Cover Page
) Summary of Essential Financial
) Information
) Annual Unit Income and
) Estimated Current Returns
) Insurance on the Bonds
) Public Offering
) Rights of Unitholders
(d) Certain other fees, expenses or)Trust Operating
Expenses
charges payable by holders ) Rights of Unitholders
(e) Certain profits to be received) Public Offering
by depositor, principal ) Underwriting
underwriter, trustee or any) Trust Portfolios
affiliated persons )
(f) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Rights of Unitholders
15. Receipt and handling of payments ) *
from purchasers )
16. Acquisition and disposition of ) The Trusts
underlying securities ) Rights of Unitholders
) Trust Administration
17. Withdrawal or redemption ) Rights of Unitholders
) Trust Administration
18. (a) Receipt and disposition ) Prospectus Front Cover Page
of income ) Rights of Unitholders
(b) Reinvestment of distributions) *
(c) Reserves or special funds ) Trust Operating Expenses
) Rights of Unitholders
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Rights of Unitholders
) Trust Administration
20. Certain miscellaneous provisions ) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Trust Portfolios
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
Trust Indenture Agreement )
III. Organization, Personnel and Affiliated
Persons of Depositor
25. Organization of Depositor ) Trust Administration
26. Fees received by Depositor ) *
27. Business of Depositor ) Trust Administration
28. Certain information as to ) *
officials and affiliated )
persons of Depositor )
29. Companies owning securities ) *
of Depositor )
30. Controlling persons of Depositor ) *
31. Compensation of Officers of ) *
Depositor )
32. Compensation of Directors ) *
33. Compensation to Employees ) *
34. Compensation to other persons ) *
IV. Distribution and Redemption of Securities
35. Distribution of trust's securities) Public Offering
by states )
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
(b) Underwriting agreements ) Public Offering
(c) Selling agreements )
39. (a) Organization of principal )
underwriter )
(b) N.A.S.D. membership by )
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Trust Administration
underwriter )
(b) Branch offices or principal ) *
underwriter )
(c) Salesmen or principal ) *
underwriter )
42. Ownership of securities of ) *
the trust )
43. Certain brokerage commissions ) *
received by principal underwriter)
44. (a) Method of valuation ) Prospectus Front Cover Page
) Summary of Essential Financial
) Information
) Trust Operating Expenses
) Public Offering
(b) Schedule as to offering price) *
(c) Variation in offering price ) *
to certain persons )
45. Suspension of redemption rights ) *
46. (a) Redemption valuation ) Rights of Unitholders
) Trust Administration
(b) Schedule as to redemption price)*
47. Purchase and sale of interests ) Public Offering
in underlying securities ) Trust Administration
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of ) Trust Administration
Trustee )
49. Fees and expenses of Trustee ) Summary of Essential Financial
) Information
) Trust Operating Expenses
50. Trustee's lien ) Trust Operating Expenses
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's ) Cover Page
securities ) Trust Operating Expenses
) Insurance on the Bonds
VII. Policy of Registrant
52. (a) Provisions of trust agree- ) Trust Administration
ment with respect to )
replacement or elimination )
portfolio securities )
(b) Transactions involving ) *
elimination of underlying )
securities )
(c) Policy regarding substitu- ) Trust Administration
tion or elimination of )
underlying securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust ) Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55.)
56.) Certain information regarding ) *
57.) periodic payment certificates )
58.)
59. Financial statements (Instructions) Report of Independent
Certified
1(c) to Form S-6) ) Public Accountants
) Statements of Condition
______________________________________________
* Inapplicable, omitted, answer negative or not required
Preliminary Prospectus Dated May 23, 1994
Van Kampen Merritt Insured Income Trust
1,000 Units Series 36
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is
hereby used as a preliminary Prospectus for the above stated Series. The
narrative information and structure of the attached final Prospectus will
be substantially the same as that of the final Prospectus for this
Series. Information with respect to pricing, the number of Units, dates
and summary information regarding the characteristics of securities to be
deposited in this Series is not now available and will be different since
each Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be considered
as being included for informational purposes only. Ratings of the
securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated
Current Return for this Series will depend on the interest rates and
offering prices of the securities in this Series and may vary materially
from that of the previous Series.
A registration statement relating to the units of this Series will
be filed with the Securities and Exchange Commission but has not yet
become effective. Information contained herein is subject to completion
or amendment. Such Units may not be sold nor may offer to buy be
accepted prior to the time the registration statement becomes effective.
This Prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of the Units in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
state.
February 24, 1994
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 35
THE TRUST. The Trust initially consists of delivery statements relating
to contracts to purchase debt obligations and, thereafter, will consist of a
$8,850,000 aggregate principal amount portfolio principally comprised of
long-term corporate and taxable municipal debt obligations. The Trust is
comprised of 9,004 Units.
ATTENTION FOREIGN INVESTORS. If you are not a United States citizen or
resident, your interest income from each 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 and taxable municipal debt securities 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" on page 12. Insurance obtained by the Trust
applies only while the Obligations involved are retained in such 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 a 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 have received a rating of
"AAA" by Standard & Poor's Corporation. Standard & Poor's Corporation has
indicated that this rating is not a recommendation to buy, hold or sell Units
nor does it take into account the extent to which expenses of 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 Public Offering Price of the Units of the
Trust during the initial offering period is equal to the aggregate offering
price of the Obligations in the portfolio and cash, if any, in the Principal
Account held or owned by the Trust divided by the number of Units outstanding,
plus the applicable sales charge plus Purchased Interest and accrued interest,
if any. For sales charges in the secondary market, see "Public
Offering--General". If the Obligations in the Trust were available for direct
purchase by investors, the purchase price of the Obligations would not include
the sales charge included in the Public Offering Price of the Units. During
the initial offering period, the sales charge is reduced on a graduated scale
for sales involving 100 or more Units. If Units were available for purchase at
8:00 A.M. Central Time on the Date of Deposit, the Public Offering Price per
Unit would have been that amount set forth in the "Summary of Essential
Financial Information" for each Trust. See "Public Offering".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The Estimated
Current Return and Estimated Long-Term Return to Unitholders were as set forth
under "Summary of Essential Financial Information". The methods of calculating
Estimated Current Return and Estimated Long-Term Return are set forth in the
footnotes to the "Summary of Essential Financial Information" and under
"Estimated Current Return and Estimated Long-Term Return".
DISTRIBUTION. Distributions of interest received by the Trust, pro-rated
on an annual basis, will be made monthly. The first such distribution will be
$5.27 per Unit and will be made on April 15, 1994 to Unitholders of record on
April 1, 1994. The first distribution of funds from the Principal Account will
be paid out as provided in the "Summary of Essential Financial Information".
MARKET FOR UNITS. Although not obligated to do so, the Sponsor, Van
Kampen Merritt Inc., intends to, and certain of the other Underwriters may,
maintain a secondary market for the Units at prices based upon the aggregate
bid price of the Obligations in the portfolio of the Trust plus Purchased
Interest; however, during the initial offering period such prices will be
based upon the aggregate offering prices of the Obligations plus Purchased
Interest. If such a market is not maintained and no other over-the-counter
market is available, a Unitholder will be able to dispose of his Units only
through redemption at prices based upon the bid prices of the underlying
Obligations plus Purchased Interest (see "Rights of Unitholders--Redemption of
Units"). Neither the bid nor offering prices of the underlying Obligations or
of the Units, absent situations in which Obligations are in default in payment
of principal or interest or in significant risk of such default, include
value, if any, attributable to the insurance obtained by the Trust. See
"Public Offering--Public Market".
REINVESTMENT OPTION. Unitholders have the opportunity to have their
distributions reinvested into an open-end, management investment company as
described herein. Foreign investors should note, however, that any interest
distributions resulting from such a reinvestment program will be subject to
U.S. Federal income taxes, including withholding taxes. See "Rights of
Unitholders--Reinvestment Option".
2
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST, SERIES 35
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AS OF 8:00 A.M. CENTRAL TIME ON THE DATE OF DEPOSIT: FEBRUARY 24, 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
<CAPTION>
<S> <C>
Principal Amount (Par Value) of Obligations................................................................. $ 8,850,000
Number of Units............................................................................................. 9,004
Fractional Undivided Interest in the Trust per Unit......................................................... 1/9,004
Principal Amount (Par Value) of Obligations per Unit <F1>................................................... $ 982.90
Public Offering Price:
Aggregate Offering Price of Obligations in Portfolio........................................................ $ 8,461,008
Aggregate Offering Price of Obligations per Unit............................................................ $ 939.69
Sales Charge 4.9% (5.152% of the Aggregate Bid Price of the Obligations) per Unit (excluding
Purchased Interest)................................................................................... $ 48.42
Purchased Interest <F2>..................................................................................... $ 107,075
Purchased Interest per Unit <F2>............................................................................ $ 11.89
Public Offering Price per Unit <F2>......................................................................... $ 1000.00
Redemption Price per Unit, including Purchased Interest <F2>................................................ $ 944.40
Secondary Market Repurchase Price per Unit, including Purchased Interest <F2>............................... $ 951.58
Excess of Public Offering Price per Unit Over Redemption Price per Unit..................................... $ 55.60
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit........................ $ 7.18
Minimum Value of the Trust under which Trust Agreement may be terminated.................................... $ 1,770,000
Annual Portfolio Insurance Premium.......................................................................... $ 15,790
Minimum Principal Distribution.......................... $1.00 per Unit
First Settlement Date................................... March 3, 1994
Evaluator's Annual Supervisory Fee...................... Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee....................... $.30 per $1,000 principal amount of Obligations
</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.
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit........................................................................ $ 71.35
Less: Estimated Annual Expense per Unit <F3>..................................................................... $ 1.86
Less: Annual Premium on Portfolio Insurance per Unit............................................................. $ 1.75
Estimated Net Annual Interest Income per Unit.................................................................... $ 67.74
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit.................................................................... $ 67.74
Divided by 12.................................................................................................... $ 5.65
ESTIMATED DAILY RATE OF NET INTEREST ACCRUAL PER UNIT............................................................ $ .18816
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F4><F5><F6><F7>......................................... 6.77%
ESTIMATED LONG-TERM RETURN <F4><F5><F6><F7>...................................................................... 6.81%
Initial Distribution (April 1994)................................................................................ $ 5.27
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F6>...................................................................... $ 5.65
Trustee's Annual Fee................ $.98 per $1,000 principal amount of Obligations
Record and Computation Dates........ FIRST day of each month
DISTRIBUTION DATES.................. FIFTEENTH DAY OF EACH MONTH COMMENCING APRIL 15, 1994
<FN>
<F1>Many unit investment trusts issue a number of units such that each unit
represents approximately $1,000 principal amount of underlying securities.
The Sponsor on the other hand in determining the number of Units for the
Trust has elected not to follow this format but rather to provide that
number of Units which will establish as close as possible as of the Date
of Deposit a Public Offering Price per Unit of $1,000.
<F2>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. Anyone ordering Units for settlement
after the First Settlement Date will pay accrued interest from such date
to the date of settlement (normally five business days after order) less
distributions from the Interest Account subsequent to the First Settlement
Date. For purchases settling on the First Settlement Date, no accrued
interest will be added to the Public Offering Price other than the
Purchased Interest already included therein. After the initial offering
period, the Sponsor's Repurchase Price per Unit will be determined as
described under the caption "Public Offering--Public Market."
<F3>Excluding insurance costs.
<F4>The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge (see "Public
Offering--General").
<F5>The Estimated Current Return is calculated by dividing the estimated net
annualized 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;
therefore, there is no assurance that the present Estimated Current Return
indicated above will be realized in the future. The Estimated Long-Term
Return is calculated using a formula which <F1>takes into consideration,
and determines and factors in the relative weightings of, the market
values, yields (which takes into account the amortization of premiums and
the accretion of discounts) and estimated retirements of all of the
Obligations in each Trust and <F2>takes into account the 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
Return as indicated above will be realized in future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes 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.
<F6>These figures are based on per Unit cash flows. Cash flows will vary with
changes in fees and expenses, with changes in current interest rates and
with the principal prepayment, redemption, maturity, call, exchange or
sale of the underlying Obligations. The estimated cash flows for the Trust
are set forth under "Estimated Cash Flows to Unitholders".
<F7>See "Purchased and Accrued Interest."
</TABLE>
4
<PAGE>
THE TRUST
Van Kampen Merritt Insured Income Trust, Series 35 (the "Trust") was
created under the laws of the State of New York pursuant to a Trust Agreement
(the "Trust Agreement"), dated the Date of Deposit, with 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.
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 "Trust Portfolio". 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 any privately placed
securities, be available only to institutional investors.
On the Date of Deposit, the Sponsor deposited with the Trustee the
Obligations indicated under "Portfolios" herein, including delivery statements
relating to contracts for the purchase of certain such obligations and
irrevocable letters of credit issued by a financial institution in the
aggregate amount required for such purchases (the "Obligations"). Thereafter,
the Trustee, in exchange for the Obligations so deposited, delivered to the
Sponsor the certificates evidencing the ownership of 9,004 Units of the Trust.
Unless otherwise terminated as provided therein, the Trust Agreement will
terminate at the end of the calendar year prior to the fiftieth anniversary of
its execution. All of the Obligations in the Trust are long-term debt
instruments with maturities ranging from 2021 to 2025. The dollar weighted
average life of the Obligations in the Trust is 30 years.
Each Unit initially offered represents a 1/9,004 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
the Underwriters, 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 and 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 such 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 such Trust from (1) AMBAC Indemnity or one of its subsidiaries,
American Municipal Bond Assurance Corporation ("AMBAC") or MGIC Indemnity
Corporation ("MGIC Indemnity"), (2) Financial Guaranty 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 a
Trust is effective only while the Obligations thus insured are held in such
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.
5
<PAGE>
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 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 a Trust
upon the payment of a single predetermined insurance premium from the proceeds
of the sale of such Obligation. Accordingly, any Obligation in a Trust is
eligible to be sold on an insured basis. All Obligations insured by a
Portfolio Insurer or by a Preinsured Obligation Insurer receive a "AAA" rating
by Standard & Poor's Corporation. 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
PORTFOLIO. Series 35 consists of 10 issues, nine of which have been
issued by public utilities and one of which is a general obligation bond.
PUBLIC UTILITY ISSUES. Approximately 95% of the aggregate principal
amount 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,
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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. A certain percentage of the aggregate
principal amount 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 risks
which such an investment may entail. Obligations of municipal issuers can be
either general obligations of a government entity that are backed by the
taxing power of such entity or revenue bonds payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes.
General obligation bonds are secured by the issuer's pledge of its faith,
credit and taxing power for the payment of principal and interest. However,
the taxing power of any governmental entity may be limited by provisions of
state constitutions or laws and an entity's credit will depend on many
factors, including an erosion of the tax base due to population declines,
natural disasters, declines in the state's industrial base or inability to
attract new industries, economic limits on the ability to tax without eroding
the tax base and the extent to which the entity relies on Federal or state
aid, access to capital markets or other factors beyond the entity's control.
As a result of the current recession's adverse impact upon both their
revenues and expenditures, as well as other factors, many state and local
governments are confronting deficits and potential deficits which are the most
severe in recent years. Many issuers are facing highly difficult choices about
significant tax increases or spending reductions in order to restore budgetary
balance. Failure to implement these actions on a timely basis could force the
issuers to depend upon market access to finance deficits or cash flow needs.
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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 such a Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. The major portion of an
airport's gross operating income is generally derived from fees received from
signatory airlines pursuant to use agreements which consist of annual payments
for leases, occupancy of certain terminal space and service fees. Airport
operating income may therefore be affected by the ability of the airlines to
meet their obligations under the use agreements. The air transport industry is
experiencing significant variations in earnings and traffic, due to increased
competition, excess capacity, increased costs, deregulation, traffic
constraints and other factors, and several airlines are experiencing severe
financial difficulties. The Sponsor cannot predict what effect these industry
conditions may have on airport revenues which are dependent for payment on the
financial condition of the airlines and their usage of the particular airport
facility. Similarly, payment on Bonds related to other facilities is dependent
on revenues from the projects, such as user fees from ports, tolls on
turnpikes and bridges and rents from buildings. Therefore, payment may be
adversely affected by reduction in revenues due to such factors as increased
cost of maintenance, decreased use of a facility, lower cost of alternative
modes of transportation, scarcity of fuel and reduction or loss of rents.
Certain of the Obligations in the Trust may be health care revenue bonds.
In view of this an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. Ratings of bonds issued for health care facilities
are often based on feasibility studies that contain projections of occupancy
levels, revenues and expenses. A facility's gross receipts and net income
available for debt service may be affected by future events and conditions
including, among other things, demand for services and the ability of the
facility to provide the services required, physicians' confidence in the
facility, management capabilities, competition with other health care
facilities, efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses, the cost and
possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party payor programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third
party payor programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing a
single nationwide schedule of rates. Prior to such legislation Medicare
reimbursements were based on the actual costs incurred by the health facility.
The current legislation may adversely affect reimbursements to hospitals and
other facilities for services provided under the Medicare program. Such
adverse changes also may adversely affect the ratings of Securities held in
the portfolios of the Trust; however, because of the insurance obtained by the
Trust, the "AAA" rating of the Units of each of the Trust would not be
affected.
Approximately 5% of the Obligations in the Trust are "zero coupon" U.S.
Treasury bonds. See footnote (6) in "Notes to Portfolios". 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
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income on such obligation at a rate as high as the implicit yield on the
discount obligation, but at the same time eliminates the holder's ability to
reinvest at higher rates in the future. For this reason, zero coupon bonds are
subject to substantially greater price fluctuations during periods of changing
market interest rates than are securities of comparable quality which pay
interest.
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. In the
event of a failure to deliver any Obligation that has been purchased for the
Trust under a contract, including those securities purchased on a "when, as
and if issued" basis ("Failed Obligations"), the Sponsor is authorized under
the Trust Agreement to direct the Trustee to acquire other securities
("Replacement Obligations") to make up the original corpus of the affected
Trust.
The Replacement Obligations must be purchased within 20 days after
delivery of the notice of the failed contract and the purchase price
(exclusive of accrued interest) may not exceed the amount of funds reserved
for the purchase of the Failed Obligations. The Replacement Obligations shall
(i) be long-term corporate or taxable municipal bonds, debentures, notes or
other straight debt obligations (whether secured or unsecured and whether
senior or subordinated) without equity or other conversion features, with
fixed maturity dates substantially the same as those of the Failed Obligations
having no warrants or subscription privileges attached;; (ii) be payable in
United States currency; (iii) not be when, as and if issued obligations or
restricted securities; (iv) be issued after July 18, 1984 if interest thereon
is United States source income; (v) be issued or guaranteed by an issuer
subject to or exempt from the reporting requirements under Section 13 or 15(d)
of the Securities Exchange Act of 1934 (or similar provisions of law) or in
effect guaranteed, directly or indirectly, by means of a lease agreement,
agreement to buy securities, services or products, or other similar commitment
of the credit of such an issuer to the payment of the substitute Obligations;
(vi) not cause the Units of the Trust to cease to be rated AAA by Standard &
Poor's Corporation; and (vii) be eligible for (and when acquired be insured
under) the insurance obtained by the Trust. Whenever a Replacement Obligation
has been acquired for the Trust, the Trustee shall, within five days
thereafter, notify all Unitholders of such Trust of the acquisition of the
Replacement Obligation and shall, on the next monthly distribution date which
is more than 30 days thereafter, make a pro rata distribution of the amount,
if any, by which the cost to the affected Trust of the Failed Obligation
exceeded the cost of the Replacement Obligation plus accrued interest. Once
the original corpus of a Trust is acquired, the Trustee will have no power to
vary the investment of the Trust; i.e., the Trust will have no managerial
power to take advantage of market variations to improve a Unitholder's
investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Obligations in the event of a
failed contract, the Sponsor will refund the sales charge attributable to such
Failed Obligations to all Unitholders of the affected Trust and distribute the
principal, Purchased Interest and accrued interest (at the coupon rate of such
Failed Obligations to the date the Failed Obligations are removed from the
Trust) attributable to such Failed Obligations not more than 30 days after
such removal or such earlier time as the Trustee in its sole discretion deems
to be in the interest of the Unitholders. In the event a Replacement
Obligation should not be acquired by a Trust, the Estimated Net Annual
Interest Income per Unit for the Trust would be reduced and the Estimated
Current Return and the Estimated Long-Term Return thereon might be lowered. In
addition, Unitholders should be aware that they may not be able at the time of
receipt of such principal to reinvest such proceeds in other securities at a
yield equal to or in excess of the yield which such proceeds were earning to
Unitholders in the affected Trust.
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
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result in a reduction in the amount of subsequent interest distributions and
it may also offset the current return on Units of the Trust involved. 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" for the Trust and footnote (3) in
"Notes to Portfolio".
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
As of the opening of business on the Date of Deposit, the Estimated
Current Returns and the Estimated Long-Term Returns were those indicated in
the "Summary of Essential Financial Information" for the Trust. 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; 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 a Trust and (2) takes into account the expenses and sales
charge associated with each Trust Unit. Since the market values and estimated
retirements of the Obligations and the expenses of a 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.
In order to acquire certain of the Obligations contracted for by the
Sponsor for deposit in the Trust, it may be necessary for the Sponsor or
Trustee to pay on the settlement dates for delivery of such Obligations
amounts covering accrued interest on such Obligations which exceed (1) the
amounts paid by Unitholders and (2) the amounts which will be made available
through cash furnished by the Sponsor on the Date of Deposit, which amount of
cash may exceed the interest which would accrue to the First Settlement Date.
The Trustee has agreed to pay for any amounts necessary to cover any such
excess and will be reimbursed therefor, without interest, when funds become
available from interest payments on the particular Obligations with respect to
which such payments may have been made.
TRUST OPERATING EXPENSES
INITIAL COSTS. All costs and expenses incurred in creating and
establishing the Trust, including the cost of the initial preparation,
printing and execution of the Trust Agreement and the certificates, legal and
accounting expenses,
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advertising and selling expenses, expenses of the Trustee, initial fees for
evaluations and other out-of-pocket expenses have been borne by the Sponsor at
no cost to the Trust.
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", 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
these Trust, but at no time will the total amount received for portfolio
supervisory services rendered to Series 1 and subsequent series of Van Kampen
Merritt Insured Income Trust 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 of $.30 per $1,000 principal
amount of Obligations (which is based on the outstanding principal amount of
obligations on 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-- Sponsor and Underwriter Compensation".
TRUSTEE'S FEE. For its services, the Trustee will receive a fee based on
the aggregate outstanding principal amount of Obligations in the Trust as of
the opening of business on January 2 and July 2 of each year as set forth
under "Summary of Essential Financial Information." 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 $15,790 per annum so long as the Trust retains the Obligations.
Premiums, which are Trust expenses, 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 such
Trust. 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 governmental 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 expenses 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 or portfolios of the applicable Trust or Trusts. If
the balances in the Interest and Principal Accounts are insufficient to
provide for amounts payable by the Trust, the Trustee has the power to sell
Obligations to pay such amounts.
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INSURANCE ON THE OBLIGATIONS
Insurance has been obtained by the Trust 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 Objectives and Portfolio
Selection". Each insurance policy obtained by the Trust is non-cancellable and
will continue in force so long as such Trust is in existence, the Portfolio
Insurer involved is still in business and the Obligations described in such
policy continue to be held by such Trust (see "Portfolios"). Non-payment of
premiums on a policy obtained by the Trust will not result in the cancellation
of insurance but will force the Portfolio Insurer involved 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 the 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 the
Portfolio Insurer involved 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 Portfolio Insurer involved
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 a 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 a Trust is only effective as to
Obligations owned by and held in such 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 a 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 an 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 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 such Trust's
portfolio insurance). See "Public Offering--Offering Price". Because any such
insurance value may be realized in the market value of the Obligation upon the
sale thereof upon exercise of the Permanent Insurance option, the Sponsor
anticipates that (a) in the event the Trust were to be comprised of a
substantial percentage of Obligations in default or significant risk of
default, it is much less likely that the Trust would need at some point in
time to seek a suspension of redemptions of Units than if the Trust were to
have no such option (see "Rights of Unitholders--Right of Redemption") and (b)
at the time of termination of the Trust, if the Trust were holding defaulted
Obligations or Obligations in significant risk of default, the Trust would not
need to hold such Obligations until their respective maturities in order to
realize the benefits of the Trust's portfolio insurance (see "Trust
Administration--Amendment or Termination").
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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 Obligations not covered by
Permanent Insurance. See "Public Offering--Offering Price" herein for a more
complete description of the Trust's method of valuing defaulted Obligations
which have a significant risk of default.
The portfolio insurance policies obtained by the Trust were issued by
either AMBAC Indemnity or CapMAC. The other policy (or commitment therefor)
obtained by an Obligation issuer was issued by AMBAC Indemnity. See
"Investment Objectives and Portfolio Selection".
CapMAC is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance.
CapMAC is licensed in 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate, municipal and other financial obligations
in the 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"), "AAA" by Duff & Phelps, Inc. ("Duff & Phelps") and "AAA" by
Nippon Industries Inc. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold securities and
are subject to revision or withdrawal at any time by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees.
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or to
make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of
New York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC is
subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and acquisitions. The
amount of exposure per risk that CapMAC may retain, after giving effect to
reinsurance, collateral or other security, is also regulated. Statutory and
regulatory accounting practices may prescribe appropriate rates at which
premiums are earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form of surety
bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bond(s).
THE SURETY BOND IS 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 policyholders' 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 CapMAC to establish and maintain 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 a
specified amount of losses incurred by
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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 a
term of seven years, is extendable for one-year periods and is subject to
early termination upon the occurrence of certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of banks rated
A1+/P1 by Standard & Poor's and Moody's, respectively, having a term of 360
days. Under the Liquidity Facility CapMAC will be able, subject to satisfying
certain conditions, to borrow funds from time to time in order to enable it to
fund any claim payments or payments made in settlement or mitigation of claims
payments under its surety bonds, including the Surety Bond.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the State of
New York are available upon request. CapMAC is located at 885 Third Avenue,
New York, New York 10022, and its telephone number is (212) 755-1155.
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin and licensed to do business in 50 states,
the District of Columbia and the Commonwealth of Puerto Rico, with admitted
assets of approximately $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.
Municipal Bond Investors Assurance Corporation ("MBIA") is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed company.
MBIA Inc. is not obligated to pay the debts of or claims against MBIA. MBIA is
a limited liability corporation rather than a several liability association.
MBIA 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 of $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
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and its ability to pay claims on its policies of insurance. Any further
explanation as to the significance of the above ratings may be obtained only
from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Obligations and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of either or
both ratings may have an adverse effect on the market price of the
Obligations.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC") is
a wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. The Corporation is a wholly-owned subsidiary of General
Electric Capital Corporation ("GECC"). Neither the Corporation nor GECC is
obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is domiciled in the State of New York and is subject to
regulation by the State of New York Insurance Department. As of 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) 621-0389.
In addition, Financial Guaranty is currently licensed to write insurance
in all 50 states and the District of Columbia.
Financial Security Assurance Inc. ("Financial Security" or "FSA") is a
monoline insurance company incorporated on March 16, 1984 under the laws of
the State of New York. The operations of Financial Security commenced on July
25, 1985, and Financial Security received its New York State insurance license
on September 23, 1985. Financial Security and its two wholly owned
subsidiaries are licensed to engage in the financial guaranty insurance
business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by US WEST, Inc. and 8.4%
owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither US WEST, Inc. nor Tokio Marine is obligated to pay the debts of or the
claims against Financial Security. Financial Security is domiciled in the
State of New York and is subject to regulation by the State of New York
Insurance Department. As of March 31, 1993 the total policyholders' surplus
and contingency reserves and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were, in accordance
with generally accepted accounting principles, approximately $479,110,000
(unaudited) and $220,078,000 (unaudited), and the total shareholders' equity
and the total unearned premium reserve, respectively, of Financial Security
and its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of Financial Security's financial statements may be
obtained by writing to Financial Security at 350 Park Avenue, New York, New
York, 10022, Attention: Communications Department. Its telephone number is
(212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such
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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 approximately $118,383,432
(unaudited), and the total admitted assets were approximately $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.
Because the Obligations are insured by CapMAC, MBIA or AMBAC Indemnity 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 Objectives and Portfolio
Selection". The obtaining of this rating by the Trust should not be construed
as an approval of the offering of the Units by Standard and Poor's Corporation
or as a guarantee of the market value of the Trust or of the Units.
On the date of this Prospectus, the Estimated Current Return on the
Obligations in the Trust portfolio was 6.77% after payment of the insurance
premiums payable by the Trust, while the Estimated Long-Term Return on the
Obligations in the Trust portfolio was 6.81%. The Estimated Current Return on
an identical portfolio without the insurance obtained by the Trust would have
been 6.95% on such date, while the Estimated Long-Term Return on an identical
portfolio without the insurance obtained by the Trust would have been 6.98%.
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 is included in gross income for
Federal income tax purposes. In the opinion of Chapman and Cutler, special
counsel for the Sponsor, under existing law:
The Trust is not an association taxable as a corporation for United
States Federal income tax purposes.
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Each Unitholder will be considered the owner of a pro rata portion of
each of the Trust's assets for Federal income tax purposes under Subpart E,
Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (the "Code").
Each Unitholder will be considered to have received his pro rata share of
interest derived from each such 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 of the Trust
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 to or less than his original cost. The Treasury Bonds held by the
Trust are treated as bonds that were originally issued at an original issue
discount provided, pursuant to a Treasury Regulation (the "Regulation") issued
on December 28, 1992, that the amount of original issue discount determined
under Section 1286 of the Code is not less than a "de minimis" amount as
determined thereunder (as discussed below under "Original Issue Discount").
Because the Treasury Bonds represent interests in "stripped" U.S. Treasury
bonds, a Unitholder's initial cost for his pro rata portion of each Treasury
Bond held by the Trust (determined at the time he acquires his Units, in the
manner described above) shall be treated as its "purchase price" by the
Unitholder. Original issue discount is effectively treated as interest for
Federal income tax purposes, and the amount of original issue discount in this
case is generally the difference between the bond's purchase price and its
stated redemption price at maturity. A Unitholder will be required to include
in gross income for each taxable year the sum of his daily portions of
original issue discount attributable to the Treasury Bonds held by the Trust
as such original issue discount accrues and will, in general, be subject to
Federal income tax with respect to the total amount of such original issue
discount that accrues for such year even though the income is not distributed
to the Unitholders during such year to the extent it is not less than a "de
minimis" amount as determined under the Regulation. 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, 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
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Unitholder's election as provided in Section 171 of the Code. Unitholders
should consult their tax advisors regarding whether such election should be
made and the manner of amortizing 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
Obligation 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 advisors 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. "The Revenue
Reconciliation Act of 1993" (the
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"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 characterizes capital gains as ordinary income in the case of
certain financial transactions that are "conversion transactions" effective
for transactions entered into after April 30, 1993. Unitholders and
prospective investors should consult with their tax advisers regarding the
potential effect of this provision on their investment in Units.
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 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.
FOREIGN INVESTORS. A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident or a U.S. corporation,
partnership, estate or trust) will not be subject to United States Federal
income taxes, including withholding taxes, on interest income (including any
original issue discount) on, or any gain from the sale or other disposition
of, his pro rata interest in any Obligation or the sale of his Units provided
that all of the following conditions are met: (i) the interest income or gain
is not effectively connected with the conduct by the foreign investor of a
trade or business within the United States, (ii) 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 Tanner Propp & Farber, special counsel to the Trust for
New York tax matters, the Trust is not an association taxable as a corporation
and the income of such Trust will be treated as the income of the Unitholders
under the existing income tax laws of the State and City of New York.
The foregoing discussion relates only to United States Federal and New
York State and City income taxes; Unitholders may be subject to 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.
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" for the amount of
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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 the Trust
accrues such interest daily. Because of this, the Trust always has an amount
of interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the 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.
PUBLIC OFFERING
GENERAL. Units are offered at the Public Offering Price which includes
Purchased Interest. During the initial offering period the Public Offering
Price is based on the offering prices of the Obligations in the Trust and
includes a sales charge of 4.9% of the Public Offering Price (excluding
Purchased Interest) (5.152% of the aggregate offering price of the
Obligations). However, the sales charge applicable to quantity purchases is,
during the initial offering period, reduced on a graduated basis to any person
acquiring 100 or more Units as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF SALES
AGGREGATE NUMBER OF UNITS PURCHASED CHARGE REDUCTION PER UNIT
<S> <C>
100-249 Units.......................................................... $ 4.00
250-499 Units.......................................................... $ 6.00
500-999 Units.......................................................... $ 14.00
1,000 or more Units.................................................... $ 19.00
</TABLE>
In the secondary market, Units are offered at the Public Offering Price
which is based on the bid prices of all the Obligations and includes a sales
charge determined in accordance with the table set forth below and is based
upon the dollar weighted average maturity of the Trust, plus Purchased
Interest and accrued 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 the Trust based upon the dollar weighted average
maturity of such Trust's portfolio, in accordance with the following schedule:
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<PAGE>
<TABLE>
<CAPTION>
YEARS TO MATURITY SALES CHARGE YEARS TO MATURITY SALES CHARGE
<S> <C> <C> <C>
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
</TABLE>
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Obligations in the Trust. Expressed as a percent
of the Public Offering Price (excluding Purchased Interest), the sales charge
on the Trust consisting entirely of a portfolio of Obligations with 15 years
to maturity would be 5.10%.
Employees of Van Kampen Merritt Inc. and its subsidiaries may purchase
units of the Trust at the current Public Offering Price less the underwriting
commission during the initial offering period, and less the dealer's
concession for secondary market transactions. Registered representatives of
selling Underwriters may purchase Units of the Trust at the current Public
Offering Price less the underwriting commission during the initial offering
period, and less the dealer's concession for secondary market transactions.
Registered representatives of selling brokers, dealers, or agents may
purchase Units of the Trust at the current Public Offering Price less the
dealer's concession during the initial offering period and for secondary
market transactions.
Any such reduced sales charge shall be the responsibility of the selling
Underwriter, broker, dealer or agent. The Sponsor will, however, increase the
concession or agency commission for such quantity purchases. See "Public
Offering--Unit Distribution". This reduced sales charge structure will apply
on all purchases by the same person from any one Underwriter or dealer of
units of Van Kampen Merritt-sponsored unit investment trusts which are being
offered in the initial offering period (a) on any one day (the "Initial
Purchase Date") or (b) on any day subsequent to the Initial Purchase Date if
(1) the units purchased are of a unit investment trust purchased on the
Initial Purchase Date, and (2) the person purchasing the units purchased a
sufficient amount of units on the Initial Purchase Date to qualify for a
reduced sales charge on such date. To determine the applicable sales charge
for units purchased in accordance with (b) above, it is necessary to
accumulate all purchases made on the Initial Purchase Date and all purchases
made in accordance with (b) above. Units purchased in the name of the spouse
of a purchaser or in the name of a child of such purchaser under 21 years of
age will be deemed for the purposes of calculating the applicable sales charge
to be additional purchases by the purchaser. The reduced sales charges will
also be applicable to a trustee or other fiduciary purchasing securities for
one or more trust estate or fiduciary accounts.
OFFERING PRICE. The Public Offering Price of the Units will vary from
the amounts stated under "Summary of Essential Financial Information" in
accordance with fluctuations in the prices of the underlying Obligations in
the Trust.
As indicated above, the price of the Units as of 8:00 A.M. Central time
or the opening of business on the date the Obligations were deposited in the
Trust was determined by adding to the determination of the aggregate offering
price of the Obligations an amount equal to 5.152% of such value plus
Purchased Interest and dividing the sum so obtained by the number of Units
outstanding. This computation produced a gross underwriting profit equal to
4.9% of the Public Offering Price (excluding Purchased Interest). Such price
determination as of 8:00 A.M. Central time or the opening of business on the
Date of Deposit was made on the basis of an evaluation of the Obligations in
the Trust prepared by Interactive Data Services, Inc., a firm regularly
engaged in the business of evaluating, quoting or appraising comparable
securities. Except on the Date of Deposit during the period of initial
offering, the Evaluator will appraise or cause to be appraised daily the value
of the underlying Obligations as of 4:00 P.M. Eastern time on days the New
York Stock Exchange is open and will adjust the Public Offering Price of the
Units commensurate with such appraisal. Such Public Offering Price will be
effective for all orders received at or prior to 4:00 P.M. Eastern time on
each such day. Orders received by the Trustee, Sponsor or any Underwriter for
purchases, sales or redemptions after that time, or on a day when the New York
Stock Exchange is closed, will be held until the next determination of price.
For secondary market sales the Public Offering Price per Unit will be equal to
the aggregate bid price of the Obligations in the Trust plus an amount equal
to the applicable secondary market sales charge expressed as a percentage of
the aggregate bid price of such value plus Purchased Interest and dividing the
sum so attained by the number of Units then outstanding. This computation
produces a gross underwriting profit equal to such sales charge expressed as a
percentage of the Public
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<PAGE>
Offering Price (excluding 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 such 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 or offering prices, as appropriate, (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 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 premium 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 Portfolio Insurer involved to meet its
commitments under theTrust's 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.
No value has been ascribed to insurance obtained by the Trust as of the
date of this Prospectus.
The initial or primary Public Offering Price of the Units and the
Sponsor's initial repurchase price per Unit are based on the offering price
per Unit of the underlying Obligations plus the applicable sales charge plus
Purchased Interest and interest accrued but unpaid from the First Settlement
Date to the date of settlement. The secondary market Public Offering Price and
the Redemption Price per Unit are based on the bid price per Unit of the
Obligations in the Trust plus the applicable sales charge plus Purchased
Interest and accrued interest. The offering price of Obligations in the Trust
may be expected to range from .35%-1% more than the bid price of such
Obligations. On the Date of Deposit, the offering side evaluation of the
Obligations in the Trust were higher than the bid side evaluation of such
Obligations by the amount indicated under footnote (5) in "Notes to
Portfolio".
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. During the initial offering period, Units will be
distributed to the public by Underwriters, broker-dealers and others (see
"Underwriting") at the Public Offering Price, plus accrued interest computed
as described above under "Purchased and Accrued Interest". Upon the completion
of the initial offering, Units repurchased in the secondary market, if any,
may be offered by this prospectus at the secondary Public Offering Price in
the manner described.
The Sponsor intends to qualify the Units for sale in a number of states.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period
of $30.00 per Unit for less than 100 Units, $36.00 per Unit for any single
transaction of 100 to 249 Units, $38.00 per Unit for any single transaction of
250 to 499 Units, $39.00 per Unit for any single transaction of 500 to 999
Units and $39.00 per Unit for any single transaction of 1,000 or more Units,
provided that such Units are acquired either from the Sponsor (in the case of
dealer transactions) or through the Sponsor (in the case of transactions
involving brokers or others). The increased concession or agency commission is
a result of the discount given to purchasers for quantity purchases. See
"Public Offering--General". Certain commercial banks are making Units of the
Trust available to their customers on an
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<PAGE>
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 Units of the Trust;
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. Any quantity discount (see
"General" above) provided to investors will be borne by the selling dealer or
agent. For secondary market transactions, such concession or agency commission
will amount to 4% of the Public Offering Price per Unit.
To facilitate the handling of transactions during the initial offering
period, sales of Units shall normally be limited to transactions involving a
minimum of five Units. Further purchases may be made in multiples of one 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 UNDERWRITER COMPENSATION. The Underwriters through the
initial or primary distribution of Units will receive a gross sales commission
equal to 4.9% of the Public Offering Price of the Units (5.152% of the net
amount invested) (excluding Purchased Interest), less any reduced sales charge
for quantity purchases as described under "General" above.
The Sponsor will receive from the Underwriters the excess of such gross
sales commission over $35.00 per Unit as of the Date of Deposit. In connection
with quantity sales to purchasers of the Trust the Underwriters will receive
from the Sponsor commissions totalling $37.00 per Unit for any single
transaction of 100 to 249 Units, $39.00 per Unit for any single transaction of
250 to 499 Units, $40.00 per Unit for any single transaction of 500 to 999
Units and $39.00 per Unit for any single transaction of 1,000 or more Units.
See "Public Offering--General". Further, each Underwriter who underwrites
1,000 or more Units in any Trust will receive additional compensation from the
Sponsor of $1.00 for each Unit is underwrites. In addition, the Sponsor and
the Underwriters will realize a profit or the Sponsor will sustain a loss, as
the case may be, as a result of the difference between the price paid for the
Obligations by the Sponsor and the cost of such Obligations to the Trust
(which is based on the determination of the aggregate offering price of the
Obligations in such Trust on the Date of Deposit as prepared by Interactive
Data Services, Inc.). See "Underwriting" and "Portfolio". The Sponsor and the
Underwriters may also realize profits or sustain losses with respect to
Obligations deposited in a Trust which were acquired by the Sponsor from
underwriting syndicates of which they were members. The Sponsor has not
participated as sole underwriter or as manager or as a member of any
underwriting syndicates from which any of the Obligations in the portfolio of
the Trust were acquired. The Underwriters may further realize additional
profit or loss during the initial offering period as a result of the possible
fluctuations in the market value of the Obligations in the Trust after the
Date of Deposit, since all proceeds received from purchasers of Units
(excluding dealer concessions or agency commissions allowed, if any) will be
retained by the Underwriters. Affiliates of an Underwriter are entitled to the
same dealer concessions or agency commission that are available to the
Underwriter.
As stated under "Public Market" below, the Sponsor intends to, and
certain of the other Underwriters may, maintain a secondary market for the
Units of the Trust. In so maintaining a market, the Sponsor or any such
Underwriters 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 Underwriters 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. During the initial public offering period, the Sponsor
and/or certain of the other Underwriters intend to offer to purchase Units at
a price based on the aggregate offering price per Unit of the Obligations in
the Trust and the amount of Purchased Interest plus accrued interest to the
date of settlement less the related sales commission. Afterward, although they
are not obligated to do so, the Sponsor intends to, and certain of the other
Underwriters may, maintain a market for the Units offered hereby and to offer
continuously to purchase such Units at price of the Obligations in the
portfolio plus 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
23
<PAGE>
other Underwriters 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 and any accrued interest. The aggregate bid
prices of the underlying Obligations in the Trust are expected to be less than
the related aggregate offering prices. See "Rights of Unitholders--Redemption
of Units". A Unitholder who wishes to dispose of his Units should inquire of
his broker as to current market prices in order to determine whether there is
in existence any price in excess of the Redemption Price and, if so, the
amount thereof.
RIGHTS OF UNITHOLDERS
CERTIFICATES. The Trustee is authorized to treat as the record owner of
Units that person who is registered as such owner on the books of the Trustee.
Ownership of Units of the Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor. Certificates are
transferable by presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer. A Unitholder
must sign exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the Trustee.
In certain instances the Trustee may require additional documents such as, but
not limited to, trust instruments, certificates of death, appointments as
executor or administrator or certificates of corporate authority. Certificates
will be issued in denominations of one Unit or any multiple thereof.
Although no such charge is now made or contemplated, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate 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 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. Interest received by the Trust after deduction of
amounts sufficient to reimburse the Trustee, without interest, for any amounts
advanced and paid to the Sponsor as the Unitholder of record as of the First
Settlement Date (see "Public Offering-- Offering Price") will be distributed
on or shortly after the fifteenth day of each month on a pro rata basis to
Unitholders of record as of the preceding record date (which will be the first
day of the month). All distributions will be net of applicable expenses. The
pro rata share of cash in the Principal Account will be computed on the date
indicated under "Distribution" on page 2, and thereafter as of the record
date, and distributions to the Unitholders as of such record date will be made
on or shortly after the fifteenth day of such month. Proceeds received from
the disposition of any of the Obligations after such record date and prior to
the following distribution date will be held in the Principal Account and not
distributed until the next distribution date. The Trustee is not required to
pay interest on funds held in the Principal or Interest Accounts (but may
itself earn interest thereon and therefore benefits from the use of such
funds) nor to make a distribution from the Principal Account unless the amount
available for distribution shall equal at least $1.00 per Unit.
The distribution to the Unitholders as of each record date after the
First Settlement Date will be made on the following distribution date or
shortly thereafter and shall consist of an amount substantially equal to such
portion of the Unitholders' pro rata share of the estimated net annual unit
income in the Interest Account after deducting estimated expenses attributable
as is consistent with the distribution plan chosen. Because interest payments
are not received by the Trust at a constant rate throughout the year, such
interest distribution may be more or less than the amount credited to the
Interest Account as of the record date. For the purpose of minimizing
fluctuation in the distributions from the Interest Account, the Trustee is
authorized to advance such amounts as may be necessary to provide interest
distributions of approximately equal amounts. The Trustee shall be reimbursed,
without interest, for any such advances from funds in the Interest Account on
the ensuing record date. Persons who purchase Units will commence receiving
distributions only
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<PAGE>
after such person becomes a record owner. Notification to the Trustee of the
transfer of Units is the responsibility of the purchaser, but in the normal
course of business such notice is provided by the selling broker-dealer.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Trust (as
determined on the basis set forth under "Trust Operating Expenses"). The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of
the Trust. Amounts so withdrawn shall not be considered a part of the Trust's
assets until such time as the Trustee shall return all or any part of such
amounts to the appropriate accounts. In addition, the Trustee may withdraw
from the Interest and Principal Accounts such amounts as may be necessary to
cover purchases of Replacement Obligations and redemption of Units by the
Trustee.
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, IL 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
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<PAGE>
after such distributions and deductions expressed both as a total dollar
amount and as a dollar amount representing the pro rata share of each Unit
outstanding on the last business day of such calendar year; (iii) a list of
the Obligations held and the number of Units outstanding on the last business
day of such calendar year; (iv) the Redemption Price per Unit based upon the
last computation thereof made during such calendar year; and (v) amounts
actually distributed during such calendar year from the Interest and Principal
Accounts, separately stated, expressed both as total dollar amounts and as
dollar amounts representing the pro rata share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Obligations in the Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in respect
of the other plan of distribution so that Unitholders may be informed
regarding the results of such other plan of distribution.
REDEMPTION OF UNITS. A Unitholder may redeem all or a portion of his
Units by tender to the Trustee at its Unit Investment Trust Division, 101
Barclay Street, 20th Floor, New York, New York 10286, of the certificates
representing the Units to be redeemed, duly endorsed or accompanied by proper
instruments of transfer with signature guaranteed (or by providing
satisfactory indemnity, as in connection with lost, stolen or destroyed
certificates) and by payment of applicable governmental charges, if any. Thus,
redemption of Units cannot be effected until certificates representing such
Units have been delivered 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 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 (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Obligations in the Trust, while the initial and primary Public Offering Price
of Units will be determined on the basis of the offering price of the
Obligations, 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. On the Date of
Deposit, the Public Offering Price per Unit (which is based on the offering
prices of the Obligations and Purchased Interest and includes the sales
charge) exceeded the value at which Units could have been redeemed (based upon
the current bid prices of the Obligations in such Trust and Purchased
Interest) by the amount shown under "Summary of Essential Financial
Information". 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 such Trust or monies
in the process of being collected, (ii) the value of the Obligations in such
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 and
(iv) interest accrued thereon, less (a) amounts representing taxes or other
governmental charges payable out of such Trust and (b) the accrued expenses of
such Trust. The Evaluator may determine the value of the Obligations in the
Trust by employing any of the methods set forth in "Public Offering--Offering
Price". In determining the Redemption Price per Unit
26
<PAGE>
no value will be assigned to the portfolio insurance maintained by the Trust
on the Obligations in such Trust unless such Obligations are in default in
payment of principal or interest or in significant risk of such default. For a
description of the situations in which the Evaluator may value the insurance
obtained by the Trust, see "Public Offering--Offering Price".
The price at which Units may be redeemed could be less than the price
paid by the Unitholder. As stated above, the Trustee may sell Obligations to
cover redemptions. When Obligations are sold, the size and diversity of the
affected 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 a Trust's portfolio will tend to
diminish. The Sponsor is empowered, but not obligated, to direct the Trustee
to dispose of Obligations in the event of an advanced refunding.
The Sponsor is required to instruct the Trustee to reject any offer made
by an issuer of any of the Obligations to issue new obligations in exchange or
substitution for any Obligation pursuant to a refunding or refinancing plan,
except that the Sponsor may instruct the Trustee to accept or reject such an
offer or to take any other action with respect thereto as the Sponsor may deem
proper if (1) the issuer is in default with respect to such Obligation or (2)
in the written opinion of the Sponsor the issuer will probably default with
respect to such Obligation in the reasonably foreseeable future. Any
obligation so received in exchange or substitution will be held by the Trustee
subject to the terms and conditions of the Trust Agreement to the same extent
as Obligations originally deposited thereunder. Within five days after the
deposit of obligations in exchange or substitution for underlying Obligations,
the Trustee is required to give notice thereof to each Unitholder, identifying
the Obligations eliminated and the Obligations substituted therefor. Except as
stated herein and under "Trust Portfolio--Replacement Obligations" regarding
the substitution of Replacement Obligations for Failed Obligations, the
acquisition by the Trust of any obligations other than the Obligations
initially deposited is not permitted.
If any default in the payment of principal or interest on any Obligation
occurs and no provision for payment is made therefor either pursuant to the
portfolio insurance, or otherwise, within 30 days, the Trustee is required to
notify the Sponsor thereof. If the Sponsor fails to instruct the Trustee to
sell or to hold such Obligation within 30 days after
27
<PAGE>
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.
A 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".
A Trust will be liquidated by the Trustee in the event that a sufficient
number of Units not yet sold are tendered for redemption by the Underwriters,
including the Sponsor, so that the net worth of the Trust would be reduced to
less than 40% of the initial principal amount of the Trust. If the Trust is
liquidated because of the redemption of unsold Units by the Underwriters, the
Sponsor will refund to each purchaser of Units the entire sales charge paid by
such purchaser.
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 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 of the Trust 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 United States of America or of any other taxing authority
having jurisdiction. In addition, the Trust Agreement contains other customary
provisions limiting the liability of the Trustee.
The Trustee, Sponsor and Unitholders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in
good faith upon the basis of the best information available to it, provided,
however, that the Evaluator shall be under no liability to the Trustee,
Sponsor or Unitholders for errors in judgment. This provision shall not
protect the Evaluator in any case of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
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.
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<PAGE>
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 (audited). (This paragraph relates only to the Sponsor and not to
the Trust or to any Series thereof or to any other Underwriter. 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
open end mutual funds, $8.3 billion for 33 closed-end funds and $6.5 billion
for 51 institutional accounts. The Sponsor has also deposited approximately
$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(R) or the IM-IT(R) 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. In order for a Unitholder to invest in the trusts, mutual funds
and closed-end funds listed below, such Unitholder must obtain a prospectus
relating to the trust or fund involved. A prospectus is the only means by
which an offer can be delivered to investors.
<TABLE>
<CAPTION>
NAME OF TRUST TRUST INVESTMENT OBJECTIVE
<S> <C>
Insured Municipals Income Trust................ Tax-exempt income by investing in insured municipal securities
California Insured Municipals Income Trust..... Double tax-exemption for California residents by investing in insured
California municipal securities
New York Insured Municipals Income Trust....... Double and in certain cases triple tax-exemption for New York residents
by investing in insured New York municipal securities
Pennsylvania Insured Municipals Income Trust... Double and in certain cases triple tax-exemption for Pennsylvania
residents by investing in insured Pennsylvania municipal securities
Insured Municipals Income Trust, Insured
Multi-Series................................. Tax-exempt income by investing in insured municipal securities; all
(Premium Bond Series, National, Limited issuers of bonds in a state trust are located in such state or in
Maturity, Intermediate, Short Intermediate, territories or possessions of the United States--providing exemptions
Discount, Alabama, Arizona, California, from all state income tax for residents of such state (except for the
California Intermediate, California Oklahoma IM-IT Trust where a portion of the income of the Trust is
Intermediate Laddered Maturity, California subject to the Oklahoma state income tax)
Premium, Colorado, Connecticut, Florida,
Florida Intermediate, Florida Intermediate
Laddered Maturity, Georgia, Louisiana,
Massachusetts, Massachusetts Premium,
Michigan, Michigan Intermediate, Michigan
Intermediate Laddered Maturity, Michigan
Premium, Minnesota, Missouri, Missouri
Intermediate Laddered Maturity, Missouri
Premium, New Jersey, New Jersey Intermediate
Laddered Maturity, New Mexico, New York, New
York Intermediate, New York Intermediate
Laddered Maturity, New York Limited Maturity,
Ohio, Ohio Intermediate, Ohio Intermediate
Laddered Maturity, Ohio Premium, Oklahoma,
Pennsylvania, Pennsylvania Intermediate,
Pennsylvania Intermediate Laddered Maturity,
Pennsylvania Premium, Tennessee, Texas,
Washington, West Virginia)
Insured Tax Free Bond Trust.................... Tax-exempt income by investing in insured municipal securities
Insured Tax Free Bond Trust, Insured
Multi-Series (National, Limited Maturity, New
York)........................................ Tax-exempt income by investing in insured municipal securities; all
issuers of bonds in a state trust are located in such state--providing
exemptions from state income tax for residents of such state
Investors' Quality Tax-Exempt Trust............ Tax-exempt income by investing in municipal securities
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Investors' Quality Tax-Exempt Trust,
Multi-Series................................. Tax-exempt income by investing in municipal securities; all issuers of
(National, National AMT, Intermediate, bonds in a state trust are located in such state or in territories or
Alabama, Arizona, Arkansas, California, possessions of the United States-- providing exemptions from state
Colorado, Connecticut, Delaware, Florida, income tax for residents of such state
Georgia, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri,
Nebraska, New Jersey, New York, North
Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Virginia)
Investors' Quality Municipals Trust, AMT
Series....................................... Tax-exempt income for investors not subject to the alternative minimum
tax by investing in municipal securities, some or all of which are
subject to the Federal alternative minimum tax
Investors' Corporate Income Trust.............. Taxable income by investing in corporate bonds
Investors' Governmental Securities--Income
Trust........................................ Taxable income by investing in government-backed GNMA securities
Van Kampen Merritt International Bond Income
Trust........................................ High current income through an investment in a diversified portfolio of
foreign currency denominated corporate debt obligations
Van Kampen Merritt Insured Income Trust........ High current income consistent with preservation of capital through a
diversified investment in a fixed portfolio of insured, long-term or
intermediate-term corporate debt securities
Van Kampen Merritt Utility Income Trust........ High dividend income and capital appreciation by investing in common
stock of electric utilities
Van Kampen Merritt Blue Chip Opportunity
Trust........................................ Provide the potential for capital appreciation and income by investing
in a portfolio of actively traded, New York Stock Exchange listed
equity securities which are components of the Dow Jones Industrial
Average*
Van Kampen Merritt Blue Chip Opportunity and
Treasury Trust............................... Protect Unitholders' capital and provide the potential for capital
appreciation and income by investing a portion of its portfolio in
"zero coupon" U.S. Treasury obligations and the remainder of the
trust's portfolio in actively traded, New York Stock Exchange listed
equity securities which at the time of the creation of the trust were
components of the Dow Jones Industrial Average*
Van Kampen Merritt Emerging Markets Income
Trust........................................ High current income consistent with preservation of capital through a
diversified investment in a fixed portfolio primarily consisting of
Brady Bonds of emerging market countries that have restructured
sovereign debt pursuant to the framework
of the Brady Plan
Van Kampen Merritt Global Telecommunications
Trust........................................ Provide the potential for capital appreciation and income consistent
with the preservation of invested capital, by investing in a portfolio
of equity securities which provide equipment for or services to the
telecommunications industry
Van Kampen Merritt Global Energy Trust......... Provide the potential for capital appreciation and income consistent
with the preservation of invested capital, by investing in a portfolio
of equity securities diversified within the energy industry
</TABLE>
<TABLE>
<CAPTION>
NAME OF MUTUAL FUND FUND INVESTMENT OBJECTIVE
<S> <C>
Van Kampen Merritt U.S. Government Fund........ High current income by investing in U.S. Government securities
Van Kampen Merritt Insured Tax-Free Income
Fund.......................................... High current income exempt from Federal income taxes by investing in
insured municipal securities
Van Kampen Merritt Municipal Income Fund....... High level of current income exempt from Federal income tax, consistent
with preservation of capital
Van Kampen Merritt Tax-Free High Income Fund... High current income exempt from Federal income taxes by investing in
medium and lower grade municipal securities
Van Kampen Merritt California Insured Tax Free
Fund.......................................... High current income exempt from Federal and California income taxes by
investing in insured California municipal securities
Van Kampen Merritt High Yield Fund............. Provide a high level of current income by investing in medium and lower
grade domestic and foreign government and corporate debt securities.
The Fund will seek capital appreciation as a secondary objective
Van Kampen Merritt Growth and Income Fund...... Long-term growth of both capital and dividend income by investing in
dividend paying common stocks
Van Kampen Merritt Pennsylvania Tax Free Income
Fund.......................................... High current income exempt from Federal and Pennsylvania state and
local income taxes by investing in medium and lower grade Pennsylvania
municipal securities
Van Kampen Merritt Money Market Fund........... High current income by investing in a broad range of money market
instruments that will mature within twelve months
Van Kampen Merritt Tax Free Money Fund......... High current income exempt from Federal income taxes by investing in a
broad range of municipal securities that will mature within twelve
months
Van Kampen Merritt Short-Term Global Income
Fund.......................................... High current income by investing in a global portfolio of high quality
debt securities denominated in various currencies having remaining
maturities of not more than three years
</TABLE>
* The Dow Jones Industrial Average is the property of Dow Jones & Company,
Inc. Dow Jones & Company, Inc. has not granted to the Trust or the Sponsor a
license to use the Dow Jones Industrial Average.
30
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Van Kampen Merritt Adjustable Rate U.S.
Government Fund............................... High level of current income with a relatively stable net asset value
investing in U.S. Government securities
Van Kampen Merritt Limited Term Municipal
Income Fund................................... High level of current income exempt from federal income tax, consistent
with preservation of capital
</TABLE>
<TABLE>
<CAPTION>
NAME OF CLOSED-END FUND FUND INVESTMENT OBJECTIVE
<S> <C>
Van Kampen Merritt Municipal Income Trust...... High current income exempt from Federal income taxes with safety of
principal by investing in a diversified portfolio of investment grade
municipal securities
Van Kampen Merritt California Municipal
Trust......................................... High current income exempt from Federal and California income taxes
with safety of principal by investing in a diversified portfolio of
investment grade California municipal securities
Van Kampen Merritt Intermediate Term High
Income Trust.................................. High current income while seeking to preserve shareholders' capital by
investing in a diversified portfolio of high yield fixed income
securities
Van Kampen Merritt Limited Term High Income
Trust......................................... High current income while seeking to preserve shareholders' capital by
investing in a diversified portfolio of high yield fixed income
securities
Van Kampen Merritt Prime Rate Income Trust..... High current income, consistent with preservation of capital by
investing in interests in floating or variable rate senior loans
Van Kampen Merritt Investment Grade Municipal
Trust......................................... High current income exempt from Federal income tax, consistent with
preservation of capital
Van Kampen Merritt Municipal Trust............. High level of current income exempt from Federal income tax, consistent
with preservation of capital
Van Kampen Merritt California Quality Municipal
Trust......................................... High current income exempt from Federal and California income taxes
with safety of principal by investing in a diversified portfolio of
investment grade California municipal securities
Van Kampen Merritt Florida Quality Municipal
Trust......................................... High current income exempt from Federal income taxes and Florida
intangible personal property taxes with safety of principal by
investing in a diversified portfolio of investment grade Florida
municipal securities
Van Kampen Merritt New York Quality Municipal
Trust......................................... High current income exempt from Federal as well as New York State and
New York City income taxes with safety of principal by investing in a
diversified portfolio of investment grade New York municipal
securities
Van Kampen Merritt Ohio Quality Municipal
Trust......................................... High current income exempt from Federal and Ohio income taxes with
safety of principal by investing in a diversified portfolio of
investment grade Ohio municipal securities
Van Kampen Merritt Pennsylvania Quality
Municipal Trust............................... High current income exempt from Federal and Pennsylvania income taxes
with safety of principal by investing in a diversified portfolio of
investment grade Pennsylvania municipal securities
Van Kampen Merritt Trust for Investment Grade
Municipals.................................... High level of current income exempt from Federal income tax, consistent
with preservation of capital
Van Kampen Merritt Trust for Insured
Municipals.................................... High level of current income from Federal income tax, consistent with
preservation of capital by investing in a diversified portfolio of
municipal securities which are covered by insurance with respect to
timely payment of principal and interest
Van Kampen Merritt Trust for Investment Grade
CA Municipals................................. High level of current income exempt from Federal and California income
taxes, consistent with preservation of capital by investing in a
diversified portfolio of California municipal securities
Van Kampen Merritt Trust for Investment Grade
FL Municipals................................. High level of current income exempt from Federal income taxes,
consistent with preservation of capital. The Fund also seeks to offer
its Shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes
Van Kampen Merritt Trust for Investment Grade
NJ Municipals................................. High level of current income exempt from Federal income taxes and New
Jersey gross income taxes, consistent with preservation of capital
Van Kampen Merritt Trust for Investment Grade
NY Municipals................................. High level of current income exempt from Federal as well as from New
York State and New York City income taxes, consistent with preservation
of capital
Van Kampen Merritt Trust for Investment Grade
PA Municipals................................. High level of current income exempt from Federal and Pennsylvania
income taxes and, where possible under local law, local income and
property taxes, consistent with preservation of capital
Van Kampen Merritt Municipal Opportunity
Trust......................................... High level of current income exempt from Federal income tax, consistent
with preservation of capital by investing in a diversified portfolio of
municipal securities
Van Kampen Merritt Advantage Municipal Income
Trust......................................... High level of current income exempt from Federal income tax, consistent
with preservation of capital by investing in a diversified portfolio of
municipal securities
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Van Kampen Merritt Advantage Pennsylvania
Municipal Income Trust........................ High level of current income exempt from Federal and Pennsylvania
income taxes and, where possible under local law, local income and
property taxes, consistent with preservation of capital
Van Kampen Merritt Strategic Sector Municipal
Trust......................................... Provide common shareholders with a high level of current income exempt
from Federal income taxes, consistent with preservation of capital
Van Kampen Merritt Value Municipal Income
Trust......................................... High level of current income exempt from Federal income taxes,
consistent with preservation of capital
Van Kampen Merritt California Value Municipal
Income Trust.................................. High level of current income exempt from Federal and California income
taxes, consistent with preservation of capital
Van Kampen Merritt Massachusetts Value
Municipal Income Trust........................ High level of current income exempt from Federal income taxes and
Massachusetts personal income taxes, consistent with preservation of
capital
Van Kampen Merritt New Jersey Value Municipal
Income Trust.................................. High level of current income exempt from Federal income taxes and New
Jersey gross income tax, consistent with preservation of capital
Van Kampen Merritt New York Value Municipal
Income Trust.................................. High level of current income exempt from Federal as well as New York
State and New York City income taxes, consistent with preservation of
capital
Van Kampen Merritt Ohio Value Municipal Income
Trust......................................... High level of current income exempt from Federal and Ohio income taxes,
consistent with preservation of capital
Van Kampen Merritt Pennsylvania Value Municipal
Income Trust.................................. High level of current income exempt from Federal and Pennsylvania
income taxes, consistent with preservation of capital
Van Kampen Merritt Municipal Opportunity Trust
II............................................ High level of current income exempt from federal income tax, consistent
with preservation of capital
Van Kampen Merritt Florida Municipal
Opportunity Trust............................. High level of current income exempt from federal income tax, consistent
with preservation of capital. The Fund seeks to offer its common
shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes
Van Kampen Merritt Advantage Municipal Income
Trust II...................................... Provide common shareholders with a high level of current income exempt
from federal income tax, consistent with preservation of capital
Van Kampen Merritt Select Sector Municipal
Trust......................................... To provide common shareholders with a high level of current income
exempt from federal income tax, consistent with preservation of capital
</TABLE>
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and
not exceeding amounts prescribed by the Securities and Exchange Commission,
(ii) terminate the Trust Agreement and liquidate the Trust as provided therein
or (iii) continue to act as Trustee without terminating the Trust Agreement.
TRUSTEE. The Trustee is The Bank of New York, a trust company organized
under the laws of New York. The Bank of New York has its offices at 101
Barclay Street, New York, New York 10286, (800) 221-7668. The Bank of New York
is subject to supervision and examination by the Superintendent of Banks of
the State of New York and the Board of Governors of the Federal Reserve
System, and its deposits are insured by the Federal Deposit Insurance
Corporation to the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of Obligations for the portfolio of the Trust.
In accordance with the Trust Agreement, the Trustee shall keep proper
books of record and account of all transactions at its office for the Trust.
Such records shall include the name and address of, and the certificates
issued by the Trust to, every Unitholder of the Trust. Such books and records
shall be open to inspection by any Unitholder at all reasonable times during
usual business hours. The Trustee shall make such annual or other reports as
may from time to time be required under any applicable state or Federal
statute, rule or regulation (see "Rights of Unitholders--Reports Provided").
The Trustee is required to keep a certified copy or duplicate original of the
Trust Agreement on file in its office available for inspection at all
reasonable times during the usual business hours by any Unitholder, together
with a current list of the Obligations held in the Trust.
Under the Trust Agreement, the Trustee or any successor trustee may
resign and be discharged of the Trust created by the Trust Agreement by
executing an instrument in writing and filing the same with the Sponsor. The
Trustee or successor trustee must mail a copy of the notice of resignation to
all Unitholders then of record, not less than 60 days before the date
specified in such notice when such resignation is to take effect. The Sponsor
upon receiving notice of
32
<PAGE>
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.
33
<PAGE>
UNDERWRITING
The Underwriters named below have severally purchased Units in the
following respective amounts from the Sponsor.
<TABLE>
<CAPTION>
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 7,954
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 250
Dean Witter Reynolds,
Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Fidelity Capital Markets
A Division of National
Financial Services
Corporation 161 Devonshire Street D4, Boston, Massachusetts 02110 100
First of Michigan Corporation 100 Renaissance Center, 26th Floor, Detroit, Michigan 48243 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Kemper Securities, Inc. 77 West Wacker Drive, 28th Floor, Chicago, Illinois 60601 100
Prudential Securities Inc.
Unit Investment Trust
Department 32 Old Slip, 16th Floor, Financial Square, New York, New York 10292 100
B. C. Ziegler and Company 215 North Main Street, West Bend, Wisconsin 53095 100
100
9,004
</TABLE>
Units may also be sold to broker-dealers and others at prices
representing the per Unit concession or agency commission stated under "Public
Offering--Unit Distribution". However, resales of Units by such broker-dealers
and others to the public will be made at the Public Offering Price described
in the Prospectus. The Sponsor reserves the right to reject, in whole or in
part, any order for the purchase of Units and the right to change the amount
of the concession or agency commission from time to time.
In addition to any other benefits the Underwriters may realize from the
sale of the Units of the Trust, the Agreement Among Underwriters provides that
the Sponsor will share on a pro rata basis among those Underwriters who
underwrite at least 250 Units 50% of the aggregate gain, if any, represented
by the difference between the Sponsor's cost of the Securities in connection
with their acquisition and the evaluation thereof on the Date of Deposit less
deductions for certain accrued interest and certain other costs. See "Public
Offering--Sponsor and Underwriter Compensation" and "Portfolio".
Underwriters and broker-dealers of the Trust, banks and/or others are
eligible to participate in a program in which such firms receive from the
Sponsor a nominal award for each of their registered representatives who have
sold a minimum number of units of unit investment trusts created by the
Sponsor during a specified time period. In addition, at various times the
Sponsor may implement other programs under which the sales forces of
Underwriters, brokers, dealers, banks and/or others may be eligible to win
other nominal awards for certain sales efforts, or under which the Sponsor
will reallow to any such Underwriters, brokers, dealers, banks and/or others
that sponsor sales contests or recognition programs conforming to criteria
established by the Sponsor, or participate in sales programs sponsored by the
Sponsor, an amount not exceeding the total applicable sales charges on the
sales generated by such person at the public offering price during such
programs. Also, the Sponsor in its discretion may from time to time pursuant
to objective criteria established by the Sponsor pay fees to qualifying
Underwriters, brokers, dealers, banks or others for certain services or
activities which are primarily intended to result in sales of Units of the
Trust. Such payments are made by the Sponsor out of its own assets, and not
out of the assets of the Trust. These programs will not change the price
Unitholders pay for their Units or the amount that the Trust will receive from
the Units sold. Approximately every eighteen months the
34
<PAGE>
Sponsor holds a business seminar which is open to Underwriters that sell units
of trusts it sponsors. The Sponsor pays substantially all costs associated
with the seminar, excluding Underwriter travel costs. Each Underwriter is
invited to send a certain number of representatives based on the gross number
of units such firm underwrites during a designated time period.
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. Tanner Propp & Farber, 99 Park Avenue, New York,
New York 10016 has acted as counsel for the Trustee and as special counsel for
the Trust for New York tax matters.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The statement of condition and
the related portfolio at the Date of Deposit included in 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 ("Standard and Poor's") rating symbols and their
meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability
for a particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable.
Standard & Poor's does not perform an audit in connection with any rating and
may, on occasion, rely on unaudited financial information. The ratings may be
changed, suspended, or withdrawn as a result of changes in, or unavailability
of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default--capacity and willingness of the obligor as to
the timely payment of interest
and repayment of principal in accordance
with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy,
reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights.
AAA--Bonds rated AAA have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay
principal although they 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.
*As published by the ratings companies.
35
<PAGE>
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 comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A--Bonds which are rated A possess many favorable investment attributes
and are 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.
36
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and Unitholders of
Van Kampen Merritt Insured Income Trust, Series 35 :
We have audited the accompanying statement of condition and the
related portfolio of Van Kampen Merritt Insured Income Trust, Series 35
as of February 24, 1994. The statement of condition and portfolio are
the responsibility of the Sponsor. Our responsibility is to express an
opinion on such financial 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 an irrevocable letter of credit deposited to purchase
securities by correspondence with the Trustee. An audit also includes
assessing the accounting principles used and significant estimates made
by the Sponsor, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Van Kampen
Merritt Insured Income Trust, Series 35 as of February 24, 1994, in
conformity with generally accepted accounting principles.
Chicago, Illinois
February 24, 1994 GRANT THORNTON
37
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 35
STATEMENT OF CONDITION
AS OF THE DATE OF DEPOSIT: FEBRUARY 24, 1994
<CAPTION>
INVESTMENT IN SECURITIES
<S> <C>
Contracts to purchase securities <F1><F2><F4>............................................................ $ 8,461,008
Accrued interest to the First Settlement Date <F1><F4>................................................... $ 180,334
Total.................................................................................................... $ 8,641,342
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor <F1><F4>............................................................. $ 73,259
Interest of Unitholders--
Units of fractional undivided interest outstanding:
Cost to investors <F3>................................................................................... $ 9,004,000
Less: Gross underwriting commission <F3>................................................................. $ 435,917
Net interest to Unitholders <F3><F4>..................................................................... $ 8,568,083
Total.................................................................................................... $ 8,641,342
<FN>
<F1> The aggregrate value of the Obligations listed under "Portfolio" and
their cost to the Trust are the same. The value of the Obligations is
determined by Interactive Data Services, Inc. on the bases set forth
under "Public Offering--Offering Price". The contracts to purchase
Obligations are collateralized by an irrevocable letter of credit of
$8,639,125 which has been deposited with the Trustee. Of this amount
$8,461,008 relates to the offering price on $8,850,000 principal amount
of Obligations to be purchased, and $178,117 relates to accrued interest
on such Obligations to the expected dates of delivery.
<F2> Insurance coverage providing for the timely payment, when due (as more
fully set forth under "Insurance on the Obligations"), of all principal
and interest on the Obligations in the portfolio of the Trust has been
obtained by the Trust except for Obligations in the Trust for which
insurance has been obtained by the issuer of the Obligation. Such
insurance does not guarantee the market value of the Obligations or the
value of the Units. The insurance obtained by the Trust is effective only
while the Obligations are held in such Trust, however, insurance obtained
by an Obligation issuer is effective so long as such Obligation is
outstanding. Neither the bid nor offering prices of the underlying
Obligations or of the Units, absent situations in which the Obligations
are in default in payment of principal or interest or in significant risk
of such default, include value, if any, attributable to the insurance
obtained by the Trust.
<F3> The aggregate public offering price (exclusive of interest) and the
aggregate sales charge are computed on the bases set forth under "Public
Offering--Offering Price" and "Public Offering--Sponsor and Underwriter
Compensation" and assume all single transactions involve less than 100
Units. For single transactions involving 100 or more Units, the sales
charge is reduced (see "Public Offering-- General") resulting in an equal
reduction in both the Cost to investors and the Gross underwriting
commission while the Net interest to Unitholders remains unchanged.
<F4> Accrued interest on the underlying Obligations represents the interest
accrued as of the First Settlement Date from the later of the last
payment date on the Obligations or the date of issuance thereof. The
Trustee may advance to the Trust a portion of the accrued interest on the
underlying Securities for distribution to the Sponsor as the Unitholder
of record as of the First Settlement Date. A portion of the accrued
interest ("Purchased Interest") on the underlying Obligations, as
indicated under "Summary of Essential Financial Information", is payable
by investors and is included in the Public Offering Price. Purchased
Interest is the difference between Accrued interest to the First
Settlement Date and Accrued interest payable to Sponsor.
</TABLE>
38
<PAGE>
<TABLE>
VAN KAMPEN MERRITT INSURED INCOME TRUST
SERIES 35
PORTFOLIO AS OF FEBRUARY 24, 1994
<CAPTION>
NAME OF ISSUER, TITLE, INTEREST RATE
AND MATURITY DATE OF EITHER OBLIGATIONS
AGGREGATE DEPOSITED OR OBLIGATIONS CONTRACTED AS REDEMPTION OFFERING PRICE
PRINCIPAL<F1> FOR<F1><F5> RATING<F2> INSURED<F7> FEATURES<F3> TO TRUST<F4>
<S> <C> <C> <C> <C> <C>
$ / 450,000 U.S. Treasury Strip
#0.00% Due 11/15/2021................ N/R AAA $ 66,938<F6>
1,000,000 Public Service Electric and Gas Company
7.50% Due 3/1/2023................... A- AAA 1998 @ 105.38 996,250
1,000,000 Detroit Edison Secured Medium Term
Notes, Series 1993E
7.82% Due 3/15/2023.................. BBB+ AAA 2003 @ 103.91 1,001,820
1,000,000 Portland General Electric Company
#7.75% Due 4/15/2023................. A- AAA 2003 @ 103.75 1,016,250
400,000 Jersey Central Power and Light
#7.50% Due 5/1/2023.................. A- AAA 2003 @ 103.33 398,500
/1,000,000 Philadelphia Electric Company
7.75% Due 5/1/2023................... BBB+ AAA 1998 @ 105.29 1,002,500
/1,000,000 Niagara Mohawk Power Corporation
#7.875% Due 4/1/2024................. BBB- AAA 2003 @ 103 1,017,500
1,000,000 Duquesne Light Company
#7.55% Due 6/15/2025................. BBB+ AAA 2000 @ 103.87 996,250
/1,000,000 Texas Utilities Electric Company
7.625% Due 7/1/2025.................. BBB AAA 2003 @ 102.69 992,500
1,000,000 Connecticut Light and Power
#7.375% Due 12/1/2025................ BBB+ AAA 1998 @ 104.47 972,500
8,850,000 $ 8,461,008
</TABLE>
All of the Obligations in the portfolio are insured under a portfolio
insurance policy obtained by the Trust from AMBAC Indemnity or CapMAC.
Obligations that are insured under a portfolio insurance policy obtained by
the Trust from CapMAC are marked by a "/". See "Insurance on the Obligations".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
39
<PAGE>
NOTES TO PORTFOLIO:
AS OF THE DATE OF DEPOSIT: FEBRUARY 24, 1994
(1) All Obligations are represented by "regular way" or "when issued"
contracts for the performance of which an irrevocable letter of credit,
obtained from an affiliate of the Trustee, has been deposited with the
Trustee. At the Date of Deposit, Obligations may have been delivered to
the Sponsor pursuant to certain of these contracts; the Sponsor has
assigned to the Trustee all of its right, title and interest in and to
such Obligations. Contracts to acquire Obligations were entered into
during the period from February 22, 1994 to February 23, 1994. These
Obligations have expected settlement dates from March 1, 1994 to March 2,
1994 (see "Trust Portfolio").
(2) All ratings are by Standard & Poor's Corporation unless otherwise
indicated. "*" indicates that the rating of the Obligation is by Moody's
Investors Service, Inc. The ratings represent the latest published
ratings by the respective ratings agency. "Y" indicates that such rating
is contingent upon physical receipt by the respective ratings agency of a
policy of insurance obtained by the issuer of the bonds involved and
issued by the Preinsured Bond Insurer named in the bond's title. A
commitment for insurance in connection with these bonds has been issued
by the Preinsured Bond Insurer named in the bond's title. "N/R" indicates
that the applicable rating service did not provide a rating for that
particular Obligation. For a brief description of the rating symbols and
their related meaning, see "Description of Obligation Ratings".
(3) There is shown under this heading the year in which each issue of the
Obligations is initially or currently callable and the call price for
that year. Each issue of the Obligations continues to be callable at
declining prices thereafter (but not below par value) except for original
issue discount bonds which are redeemable at prices based on the issue
price plus the amount of original issue discount accreted to redemption
date plus, if applicable, some premium, the amount of which will decline
in subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of the Obligations. Redemption pursuant to call
provisions generally will, and redemption pursuant to sinking fund
provisions may, occur at times when the redeemed bonds have an offering
side valuation which represents a premium over par. Certain Obligations
may be subject to redemption without premium prior to the date shown
pursuant to extraordinary optional or mandatory redemptions if certain
events occur. Notwithstanding any provisions to the contrary, certain
bond issuers have in the past and others may in the future, attempt to
redeem bonds prior to their initially scheduled call dates and at prices
which do not include any premiums. For a general discussion of certain of
these events, see "Trust Portfolio--Redemptions of Obligations". 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 and any premium received on such redemption. The Estimated Current
Return and Estimated Long-Term Return in this event may be affected by
such redemptions. For the Federal tax effect on Unitholders of such
redemptions and resultant distributions, see "Tax Status" and "Estimated
Current Return and Estimated Long-Term Return".
(4) Evaluation of Obligations is made on the basis of current offering prices
for the Obligations. The offering prices are greater than the current bid
prices of the Obligations which is the basis on which Unit value is
determined for purposes of redemption of Units (see "Public
Offering--Offering Price").
(5) Other information regarding the Obligations in the Trust, as of the Date
of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL
ANNUAL INTEREST BID SIDE
INSURANCE COST TO PROFIT (LOSS) INCOME TO EVALUATION OF
COST SPONSOR TO SPONSOR TRUST OBLIGATIONS
<S> <C> <C> <C> <C>
$15,790 $8,450,904 $10,104 $642,450 $8,396,320
</TABLE>
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain Obligations in the portfolio. The cost of any
such contracts and the corresponding gain or loss is included in the Cost
to Sponsor.
40
<PAGE>
On the Date of Deposit, the offering side evaluation of the Obligations
in the Trust was higher than the bid side evaluation of such Obligations
by 0.73% of the aggregate principal amount of such Obligations. All
contracts are expected to be settled by the First Settlement Date for the
purchase of Units.
"#" indicates that such Obligation was issued at an original issue
discount. The tax effect of Obligations issued at an original issue
discount is described in "Tax Status".
(6) This Obligation has been purchased at a deep discount from the par value
because there is little or no stated interest income thereon. Obligations
which pay no interest are normally described as "zero coupon" bonds. Over
the life of bonds purchased at a deep discount the value of such bonds
will increase such that upon maturity the holders of such bonds will
receive 100% of the principal amount thereof. Approximately 5% of the
aggregate principal amount of the Obligations in the Trust are "zero
coupon" bonds.
(7) Standard & Poor's Corporation has assigned its "AAA" investment rating to
all of the Obligations while in the Trust, as insured by the Insurers.
41
<PAGE>
ESTIMATED CASH FLOWS TO UNITHOLDERS
The tables below set forth the per Unit estimated distributions of
interest, principal and rebates of Purchased Interest to Unitholders. The
tables assume no changes in Trust expenses, no changes in the current interest
rates, no exchanges, redemptions, sales, prepayments or partial prepayments of
the underlying Obligations prior to maturity or expected retirement date and
the receipt of principal upon maturity or expected retirement date. To the
extent the foregoing assumptions change actual distributions will vary.
<TABLE>
SERIES 35
MONTHLY
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL PURCHASED TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION INTEREST REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C> <C>
April 1994 5.27 5.27
May 1994 - March 2013 5.65 5.65
Apri1 2013 5.27 111.06 1.45 117.78
May 2013 3.91 333.18 4.32 341.41
June 2013 - November 2021 2.87 2.87
December 2021 2.87 49.98 52.85
January 2022 - February 2023 2.88 2.88
March 2023 2.88 111.06 1.39 115.33
April 2023 2.21 2.21
May 2023 2.21 44.43 .56 47.20
June 2023 - June 2025 1.94 1.94
July 2025 1.59 222.12 2.81 226.52
August 2025 - November 2025 .60 .60
December 2025 .60 111.06 1.36 113.02
</TABLE>
42
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
43
<PAGE>
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Trust, the Sponsor or the Underwriters. 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..... 3
The Trust...................................... 5
Investment Objectives and Portfolio
Selection.................................... 5
Trust Portfolio................................ 6
Estimated Current Return and Estimated
Long-Term Return............................. 10
Trust Operating Expenses....................... 10
Insurance on the Obligations................... 12
Tax Status..................................... 16
Purchased and Accrued Interest................. 19
Public Offering................................ 20
Rights of Unitholders.......................... 24
Trust Administration........................... 27
Underwriting................................... 34
Other Matters.................................. 35
Description of Obligation Ratings.............. 35
Report of Independent Certified Public
Accountants.................................. 37
Statement of Condition......................... 38
Portfolio...................................... 39
Notes to Portfolio............................. 40
Estimated Cash Flows to Unitholders............ 42
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.
(R) denotes a registered trademark of Van Kampen Merritt Inc.
P R O S P E C T U S
February 24, 1994
Series 35
One Parkview Plaza (R)
Oakbrook Terrace, Illinois 60181
Mellon Bank Center
1735 Market Street, Suite 1300
Philadelphia, Pennsylvania 19103
Please retain this Prospectus for future reference.
VAN KAMPEN MERRITT
INSURED INCOME TRUST
Contents Of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
The consents of independent public accountants, rating services
and legal counsel
The following exhibits:
1.1 Proposed form of Trust Agreement between Van Kampen Merritt Inc.,
Depositor, American Portfolio Advisory Service Inc., as Evaluator,
and The Bank of New York, as Trustee (to be supplied by amendment).
1.4 Copy of Bond Fund Portfolio Insurance Policy (to be supplied by
amendment).
1.5 Form of Agreement Among Underwriters (to be supplied by amendment).
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be supplied by amendment).
3.2 Opinion of counsel as to Federal income tax status of securities
being registered (to be supplied by amendment).
3.3 Opinion and consent of counsel as to New York tax status of
securities being registered (to be supplied by amendment).
4.1 Consent of Interactive Data Services, Inc. (to be supplied by
amendment).
4.2 Consent of Standard & Poor's Corporation (to be supplied by
amendment).
4.3 Consent of Grant Thornton (to be supplied by amendment).
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Van Kampen Merritt Insured Income Trust, Series 36 has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago and State
of Illinois on the 23rd day of May, 1994.
Van Kampen Merritt Insured Income
Trust, Series 36
By Van Kampen Merritt Inc.
(Depositor)
By Sandra A. Waterworth
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on May 23, 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 and
Investors' Quality Tax-Exempt Trust, Multi-Series 203 (File No. 33-65744)
and the same are hereby incorporated herein by this reference.
