March 20, 1998
MEMORANDUM OF CHANGES
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST
SERIES 71
The Prospectus filed with Amendment No. 1 of the Registration Statement
on Form S-6 has been revised to reflect information regarding the deposit of
bonds on March 20, 1998, and to set forth certain statistical data based
thereon. An effort has been made to set forth below each of the changes and also
to reflect the same by blacklining the marked counterparts of the Prospectus
submitted with the Amendment.
Cover Page. The size of the Trust, number of units in the Trust, date
of the Prospectus and series number have been completed.
Pages 3-5. Various dates, amounts and percentages have been completed.
The "Summary of Essential Financial Information" section has been
completed.
Pages 16. The "Trust Portfolio" section has been completed.
Page 33. The Underwriting list has been completed.
Pages 36 and 37. The Report of Independent Certified Public Accountants
and Statement of Condition have been completed.
Page 38. The Portfolio has been completed.
Pages 39 and 40. The "Notes to Portfolio" section has been completed.
Page 41 and 42. The "Estimated Cash Flows to Unitholders" section has
been completed.
Back Cover. The date has been completed and the series numbers have
been revised.
<PAGE>
FILE NO. 333-47923
CIK #897184
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST,
SERIES 71
B. Name of Depositor: VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
C. Complete address of Depositor's principal executive One Parkview Plaza
offices: Oakbrook Terrace,
Illinois 60181
D. Name and complete address of agents for service:
CHAPMAN AND CUTLER VAN KAMPEN AMERICAN CAPITAL
Attention: Mark J. Kneedy DISTRIBUTORS, INC.
111 West Monroe Street Attention: Don G. Powell, Chairman
Chicago, Illinois 60603 One Parkview Plaza
Oakbrook Terrace, Illinois 60181
E. Title of securities being registered: An indefinite number of Units pursuant
to Rule 24f-2.
F. Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT
- ------
X Check box if it is proposed that this filing will become effective
- ------ on March 20, 1998 at 2:00 P.M. pursuant to Rule 487.
<PAGE>
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST,
SERIES 71
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
<TABLE>
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I. ORGANIZATION AND GENERAL INFORMATION
<S> <C>
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 Trust
6. Execution and termination of ) The Trust
Trust Indenture and Agreement ) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
<PAGE>
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II. GENERAL DESCRIPTION OF THE TRUST AND
SECURITIES OF THE TRUST
<S> <C>
10. General information regarding ) The Trust
trust's securities and rights of ) Insurance on the Obligations
security holders ) Tax Status
) Public Offering
) Rights of Unitholders
) Trust Administration
11. Type of securities comprising units ) Prospectus Front Cover Page
) The Trust
) Trust Portfolio
) Trust Portfolio
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Loan, fees, charges and expenses ) Prospectus Front Cover Page
) Summary of Essential Financial
) Information
) Trust Portfolio
) Estimated Current Return and
) Estimated Long-Term Return
) 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
) Estimated Current Returns and
) Estimated Long-Term Returns
) Insurance on the Obligations
) 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 Portfolio
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 Trust
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 Portfolio
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
Trust Indenture Agreement )
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III. ORGANIZATION, PERSONNEL AND AFFILIATED
PERSONS OF DEPOSITOR
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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 ) *
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IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
<S> <C>
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; Underwriting
(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
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V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
<S> <C>
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
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VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
<S> <C>
51. Insurance of holders of trust's ) Cover Page
securities ) Trust Operating Expenses
) Insurance on the Obligations
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VII. POLICY OF REGISTRANT
<S> <C>
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
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VIII. FINANCIAL AND STATISTICAL INFORMATION
<S> <C>
54. Trust's securities during ) *
last ten years )
55.)
56.) Certain information regarding ) * 57.) periodic payment certificates )
58.)
59. Financial Statement (Instructions ) Report of Independent Certified
1(c) to Form S-6) ) Public Accountants
) Statement of Condition
- ----------------------------------------------
* Inapplicable, omitted, answer negative or not required
</TABLE>
<PAGE>
March 20, 1998
VAN KAMPEN AMERICAN CAPITAL
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST, SERIES 71
- --------------------------------------------------------------------------------
THE TRUST. The Trust initially consists of delivery statements relating to
contracts to purchase debt obligations and, thereafter, will consist of a
$9,030,000 aggregate principal amount portfolio principally comprised of
long-term corporate, taxable municipal or U.S. government debt obligations. The
Trust is comprised of 9,017 Units.
ATTENTION FOREIGN INVESTORS. If you are not a United States citizen or
resident, your interest income from the Trust may not be subject to Federal
withholding taxes if certain conditions are met. See "Tax Status".
INVESTMENT OBJECTIVE OF THE TRUST. The investment objective of the Trust is
a high level of current income consistent with preservation of capital through a
diversified investment in a fixed portfolio principally consisting of 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". 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, A Division of the
McGraw-Hill Companies ("Standard & Poor's"). Standard & Poor's has indicated
that this rating is neither 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 includes the aggregate offering price of the
Obligations in the Trust's portfolio, an applicable sales charge, cash, if any,
in the Principal Account held or owned by the Trust, and accrued interest, if
any. After the initial public offering period, the secondary market Public
Offering Price of the Trust will include the aggregate bid price of the
Obligations in the Trust, an applicable sales charge, cash, if any, in the
Principal Account held or owned by the Trust, and accrued interest, if any. If
the Obligations in the Trust were available for direct purchase by investors,
the purchase price of the Obligations would not include the sales charge
included in the Public Offering Price of the Units. 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 the close of business on
the day before 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 the Trust. The minimum purchase requirement is one Unit except
for certain transactions described under "Trust Administration--Unit
Distributions". See "Public Offering".
Units of the Trust are not insured by the FDIC, are not deposits or other
obligations of, or guaranteed by, any depository institution or any government
agency and are subject to investment risk, including possible loss of the
principal amount invested.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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 OPTIONS. Purchasers of Units who desire to receive
distributions on a monthly or semi-annual basis may elect to do so at the time
of settlement during the initial public offering period. See "Rights of
Unitholders--Change of Distribution Option". The plan of distribution selected
by such purchasers will remain in effect until changed. Those indicating no
choice will be deemed to have chosen the monthly distribution plan. The first
monthly distribution will be $2.57 per Unit and will be made on April 25, 1998
to Unitholders of record on April 10, 1998. Record dates for monthly
distributions will be the tenth day of each month and record dates for
semi-annual distributions will be the tenth day of the months indicated under
"Per Unit Information". Distributions will be made on the twenty-fifth day of
the month subsequent to the respective record dates. The first distribution of
funds from the Principal Account, if any, will be made on June 25, 1998 to
Unitholders of record on June 10, 1998, and thereafter such distributions will
be made on a semi-annual basis, except under certain special circumstances (see
"Rights of Unitholders--Distributions of Interest and Principal").
MARKET FOR UNITS. Although not obligated to do so, the Sponsor, Van Kampen
American Capital Distributors, Inc., intends to, 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
interest accrued to the date of settlement; however, during the initial offering
period such prices will be based upon the aggregate offering prices of the
Obligations plus interest accrued to the date of settlement. If such a market is
not maintained and no other over-the-counter market is available, a Unitholder
will be able to dispose of his Units only through redemption at prices based
upon the bid prices of the underlying Obligations plus interest accrued to the
date of settlement (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 of any Van Kampen American
Capital-sponsored unit investment trust may utilize their redemption or
termination proceeds to purchase units of any other Van Kampen American Capital
trust in the initial offering period accepting rollover investments subject to a
reduced sales charge to the extent stated in the related prospectus (which may
be deferred in certain cases). 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".
RISK FACTORS. An investment in Units of the Trust should be made with an
understanding of the risks associated therewith, including, among other factors,
the inability of the issuer or an insurer to pay the principal of or interest on
a bond when due, volatile interest rates, early call provisions and general
economic conditions. See "Risk Factors".
<PAGE>
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST, SERIES 71
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AS OF THE CLOSE OF BUSINESS ON THE DAY BEFORE THE DATE OF DEPOSIT: MARCH 19, 1998
SPONSOR: VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
SUPERVISOR: VAN KAMPEN AMERICAN CAPITAL INVESTMENT ADVISORY CORP.
EVALUATOR: AMERICAN PORTFOLIO EVALUATION SERVICES
(A DIVISION OF AN AFFILIATE OF THE SPONSOR)
TRUSTEE: THE BANK OF NEW YORK
GENERAL INFORMATION
<S> <C>
Principal Amount (Par Value) of Obligations $ 9,030,000
Number of Units 9,017
Fractional Undivided Interest in the Trust per Unit 1/9,017
Principal Amount (Par Value) of Obligations per Unit (1)(2) $ 1,001.44
Public Offering Price:
Aggregate Offering Price of Obligations in Portfolio $ 8,575,203
Aggregate Offering Price of Obligations per Unit $ 951.00
Sales Charge 4.9% (5.152% of the Aggregate Offering Price of the Obligations) per Unit $ 49.00
Public Offering Price per Unit (3) $ 1,000.00
Redemption Price per Unit $ 946.20
Secondary Market Repurchase Price per Unit $ 951.00
Excess of Public Offering Price per Unit Over Redemption Price per Unit $ 53.80
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit $ 4.80
Minimum Value of the Trust under which the Trust Agreement may be terminated $ 1,806,000
<CAPTION>
Annual Portfolio Insurance Premium $ 5,700
<S> <C>
Minimum Principal Distribution $1.00 per Unit
First Settlement Date March 25, 1998
Evaluator's Annual Supervisory Fee Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee $0.30 per $1,000 principal amount of Obligations
Evaluations for purpose of sale, purchase or redemption of Units are made as
of the close of the New York Stock Exchange on days of trading on such
Exchange next following receipt of an order for a sale or purchase of Units
or receipt by The Bank of New York of Units tendered for redemption.
</TABLE>
<TABLE>
<CAPTION>
SEMI-
PER UNIT INFORMATION: MONTHLY ANNUAL
-----------------------------
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
<S> <C> <C>
Estimated Annual Interest Income per Unit $ 64.78 $ 64.78
Less: Estimated Annual Expense per Unit (4) $ 2.25 $ 1.84
Less: Annual Premium on Portfolio Insurance per Unit $ .63 $ .63
Estimated Net Annual Interest Income per Unit $ 61.90 $ 62.31
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit $ 61.90 $ 62.31
Divided by 12 and 2, respectively $ 5.15 $ 31.15
ESTIMATED DAILY RATE OF NET INTEREST ACCRUAL PER UNIT $ .17193 $ .17307
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE (5)(6)(7) 6.19% 6.23%
ESTIMATED LONG-TERM RETURN (5)(6)(7) 6.27% 6.31%
Estimated Initial Monthly Distribution (April 1998) $ 2.57
Estimated Initial Semi-annual Distribution (June 1998) $ 12.98
ESTIMATED NORMAL DISTRIBUTION PER UNIT (7) $ 5.15 $ 31.15
<S> <C>
Trustee's Annual Fee $.91 and $.51 per $1,000 principal amount of Obligations, respectively, for those
portions of the Trust under the monthly and semi-annual distribution plans
Record and Computation Dates TENTH day of the month as follows: monthly--each month; semi-annual--June and
December
Distribution Dates TWENTY-FIFTH DAY OF EACH MONTH AS FOLLOWS: MONTHLY--EACH MONTH; SEMI-ANNUAL--JUNE
AND DECEMBER COMMENCING APRIL 25, 1998
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(1)Because certain of the Securities may from time to time under certain
circumstances be sold or redeemed or will be called or mature in accordance
with their terms (including the call or sale of zero coupon bonds at prices
less than par value), there is no guarantee that the value of each Unit at
the Trust's termination will be equal to the Principal Amount (Par Value) of
Securities per Unit stated above.
(2)Many unit investment trusts issue a number of units such that each unit
represents approximately $1,000 principal amount of underlying securities. In
determining the number of Units for this Trust, however, the Sponsor 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.
(3)Anyone ordering Units for settlement after the First Settlement Date will pay
accrued interest from such date to the date of settlement (normally three
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. After the initial offering period, the Sponsor's Repurchase Price per
Unit will be determined as described under the caption Offering--Public
Market.""
(4)Excluding insurance costs. The Estimated Annual Expenses are expected to
fluctuate periodically (see "Trust Operating Expenses--Miscellaneous
Expenses").
(5)The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge (see "Public
Offering--General").
(6)The Estimated Current Returns are 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; therefore, there is no assurance that the present
Estimated Current Returns indicated above will be realized in the future. The
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 of
the Obligations in each 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 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 Returns and
Estimated Long-Term Returns 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 may be lower because of a
possible delay in the first payment to Unitholders.
(7) These figures are based on per Unit cash flows. Estimated 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".
</TABLE>
THE TRUST
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Van Kampen American Capital Insured Income Trust, Series 71 (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
American Capital Distributors, Inc., as Sponsor, American Portfolio Evaluation
Services, a division of Van Kampen American Capital Investment Advisory Corp.,
as Evaluator, and The Bank of New York, as Trustee.
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 "Portfolio" 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 9,017 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 2033. The dollar weighted average life of the
Obligations in the Trust is 27 years.
Each Unit initially offered represents a 1/9,017 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 OBJECTIVE AND PORTFOLIO SELECTION
- --------------------------------------------------------------------------------
The investment objective of the Trust is to provide a high level of current
income consistent with safety of principal by investing in a professionally
selected portfolio consisting of long-term corporate, taxable municipal debt or
government 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 Assurance Corporation ("AMBAC Assurance"), 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 Assurance or one of its subsidiaries, American
Municipal Bond Assurance Corporation ("AMBAC"), (2) Financial Guaranty Insurance
Company ("Financial Guaranty"), (3) MBIA Insurance Corporation ("MBIA"), (4)
Financial Security Assurance of Maryland Inc. ("FSA Maryland"), (5) CapMAC
and/or (6) 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.
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
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. Standard & Poor's describes
securities it rates "AAA" as having "the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay principal is
extremely strong." See "Insurance on the Obligations".
In selecting Obligations for the Trust, the following facts, among others,
were considered by the Sponsor: (a) the prices of the Obligations relative to
other obligations of comparable quality and maturity, (b) the diversification of
Obligations as to purpose of issue and location of issuer, (c) the availability
and cost of insurance for the prompt payment of principal and interest on the
Obligations and (d) whether the debt obligations were issued after July 18,
1984.
TRUST PORTFOLIO
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PORTFOLIO. Series 71 consists of 11 issues, 7 of which have been issued by
municipalities and 4 of which have been issued by public utilities.
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; 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 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.
REDEMPTION OF OBLIGATIONS. Certain of the Obligations in the Trust are
subject to redemption prior to their stated maturity date pursuant to sinking
fund provisions, call provisions or extraordinary optional or mandatory
redemption provisions or otherwise. A sinking fund is a reserve fund accumulated
over a period of time for retirement of debt. A callable debt obligation is one
which is subject to redemption or refunding prior to maturity at the option of
the issuer. A refunding is a method by which a debt obligation is redeemed, at
or before maturity, by the proceeds of a new debt obligation. In general, call
provisions are more likely to be exercised when the offering side valuation is
at a premium over par than when it is at a discount from par. The exercise of
redemption or call provisions will (except to the extent the proceeds of the
called Obligations are used to pay for Unit redemptions) result in the
distribution of principal and may result in a reduction in the amount of
subsequent interest distributions and it may also offset the current return on
Units of the Trust 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
uneconomical; 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".
RISK FACTORS
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PUBLIC UTILITY ISSUES. Approximately 44% 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. 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.
Recently, the California Public Utility Commission ("CPUC") announced its
intention to deregulate the electric utility industry in California. This change
will eventually result in full competition between electric utilities and
independent power producers in the generation and sale of power to all customers
in California by the year 2002. In September of 1996, the California Legislature
passed and the Governor signed into law Assembly Bill 1890 (AB 1890) to
restructure the California electrical industry by promoting competition and
allowing customers a right to choose their electrical supplier. In February
1997, a bill was introduced which creates a joint oversight committee on
electricity and reform to oversee implementation of AB 1890 as well as other
bills passed in conjunction with AB 1890. Preliminary assessments of the CPUC
plan and the new law suggest that the deregulation of the electric utility
industry in California could have a significant adverse effect on electric
utility stocks of California issuers. Furthermore, the move toward full
competition in California could indicate that similar changes may be made in
other states in the future which could negatively impact the profitability of
electric utilities. Further deregulation could adversely affect the issuers of
certain of the Obligations in the portfolio. In view of the uncertainties
regarding the CPUC deregulation plan, it is unclear what effect, if any, that
full competition will have on electric utilities in California or whether
similar changes will be adopted in other states.
Certain of the issuers of the Obligations in the Trust may own or operate
nuclear generating facilities. Governmental authorities may from time to time
review existing, and impose additional, requirements governing the licensing,
construction and operation of nuclear power plants. Nuclear generating projects
in the electric utility industry have experienced substantial cost increases,
construction delays and licensing difficulties. These have been caused by
various factors, including inflation, high financing costs, required design
changes and rework, allegedly faulty construction, objections by groups and
governmental officials, limits on the ability to finance, reduced forecasts of
energy requirements and economic conditions. This experience indicates that the
risk of significant cost increases, delays and licensing difficulties remains
present through to completion and achievement of commercial operation of any
nuclear project. Also, nuclear generating units in service have experienced
unplanned outages or extensions of scheduled outages due to equipment problems
or new regulatory requirements sometimes followed by a significant delay in
obtaining regulatory approval to return to service. A major accident at a
nuclear plant anywhere, such as the accident at a plant in Chernobyl, could
cause the imposition of limits or prohibitions on the operation, construction or
licensing of nuclear units in the United States.
Other general problems of the gas, water, telephone and electric utility
industry (including state and local joint action power agencies) include
difficulty in obtaining timely and adequate rate increases, difficulty in
financing large construction programs to provide new or replacement facilities
during an inflationary period, rising costs of rail transportation to transport
fossil fuels, the uncertainty of transmission service costs for both interstate
and intrastate transactions, changes in tax laws which adversely affect a
utility's ability to operate profitably, increased competition in service costs,
recent reductions in estimates of future demand for electricity and gas in
certain areas of the country, restrictions on operations and increased cost and
delays attributable to environmental considerations, uncertain availability and
increased cost of capital, unavailability of fuel for electric generation at
reasonable prices, including the steady rise in fuel costs and the costs
associated with conversion to alternate fuel sources such as coal, availability
and cost of natural gas for resale, technical and cost factors and other
problems associated with construction, licensing, regulation and operation of
nuclear facilities for electric generation, including among other considerations
the problems associated with the use of radioactive materials and the disposal
of radioactive wastes, and the effects of energy conservation. Each of the
problems referred to could adversely affect the ability of the issuers of any
utility bonds in the Trust to make payments due on these bonds.
In view of the pending investigations and the other uncertainties discussed
above, there can be no assurance that any company's share of the full cost of
nuclear units under construction ultimately will be recovered in rates or of the
extent to which a company could earn an adequate return on its investment in
such units. The likelihood of a significantly adverse event occurring in any of
the areas of concern described above varies, as does the potential severity of
any adverse impact. It should be recognized, however, that one or more of such
adverse events could occur and individually or collectively could have a
material adverse impact on the financial condition or the results of operations
of a company's ability to make interest and principal payments on its
outstanding debt.
TAXABLE MUNICIPAL ISSUES. Approximately 56% of the aggregate principal
amount of the Obligations in the Trust are 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.
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 portfolio of the Trust; however, because of the insurance
obtained by the Trust, the "AAA" rating of the Units of the Trust would not be
affected.
ZERO COUPON BONDS. Certain of the Obligations in the Trust may be "zero
coupon" bonds. See footnote (6) in "Notes to Portfolio". Zero coupon bonds are
purchased at a deep discount because the buyer receives only the right to
receive a final payment at the maturity of the bond and does not receive any
periodic interest payments. The effect of owning deep discount bonds which do
not make current interest payments (such as the zero coupon bonds) is that a
fixed yield is earned not only on the original investment but also, in effect,
on all discount earned during the life of such income on such obligation at a
rate as high as the implicit yield on the discount obligation, but at the same
time eliminates the holder's ability to reinvest at higher rates in the future.
For this reason, zero coupon bonds are subject to substantially greater price
fluctuations during periods of changing market interest rates than are
securities of comparable quality which pay interest.
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN
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As of the close of business on the day before 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;
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
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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,
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 American Capital
Investment Advisory Corp., which is an affiliate of the Sponsor (the "), 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 the 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 or its successor
trusts (Van Kampen American Capital 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 as
indicated under "Summary of Essential Financial Information" (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." Such fee will be computed at $.51
and $.91 per $1,000 principal amount, respectively, for those portions of the
Trust representing semi-annual and monthly distribution plans. Based on the size
of the Trust on the Date of Deposit and assuming all Unitholders had chosen the
semi-annual distribution plan, the Trustee's estimated annual fee for ordinary
recurring services would initially amount to $4,605. Assuming in the alternative
that all Unitholders had elected the monthly distribution plan, such fee would
initially amount to $8,217. 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 $5,700 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, (f) any special
custodial fees payable in connection with the sale of any bonds in a Trust, (g)
expenditures incurred in contacting Unitholders upon termination of the Trust
and (h) costs incurred to reimburse the Trustee for advancing funds to the Trust
to meet scheduled distributions (which costs may be adjusted periodically in
response to fluctuations in short-term interest rates).
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.
INSURANCE ON THE OBLIGATIONS
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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 (except for issues for which insurance has been
obtained by the issuer of the Obligations). 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
"Portfolio"). 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").
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 Assurance or CapMAC. The other policy (or commitment therefor) obtained by
an Obligation issuer was issued by AMBAC Assurance. See "Investment Objectives
and Portfolio Selection".
Capital Markets Assurance Corporation ("CapMAC") is a New York-domiciled
monoline stock insurance company which engages only in the business of financial
guaranty and surety insurance. CapMAC is licensed in all 50 states in addition
to the District of Columbia, the Commonwealth of Puerto Rico and the territory
of Guam. CapMAC insures structured asset-backed, corporate, municipal and other
financial obligations in the U.S. and international capital markets. CapMAC also
provides financial guarantee reinsurance for structured asset-backed, corporate,
municipal and other financial obligations written by other major insurance
companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by Standard & Poor's, "AAA" by Duff & Phelps Credit
Rating Co. ("Duff & Phelps") and "AAA" by Nippon Investors Service, Inc. Such
ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Pursuant to a merger of a subsidiary of MBIA Inc. with and into CapMAC
Holdings Inc., CapMAC became an indirect wholly-owned subsidiary of MBIA Inc. on
February 17, 1998. MBIA Inc., through its wholly-owned subsidiary, MBIA
Insurance Corporation, is a financial guaranty insurer of municipal bonds and
structured finance transactions. MBIA Insurance Corporation has a claims paying
rating of triple-A from Moody's Investor Service, Inc., Standard & Poor's
Ratings Services and Fitch Investors Service. Pursuant to a reinsurance
agreement, it is anticipated that CapMAC will cede all of its net insured risks,
as well as its unearned premiums and contingency reserves, to MBIA Insurance
Corporation and that MBIA Insurance Corporation will reinsure CapMAC's net
outstanding exposure. NEITHER MBIA INC. NOR ANY OF ITS STOCKHOLDERS IS OBLIGATED
TO PAY ANY CLAIMS UNDER ANY POLICY ISSUED BY CAPMAC OR ANY DEBTS OF CAPMAC OR TO
MAKE ADDITIONAL CAPITAL CONTRIBUTIONS TO CAPMAC.
CapMAC is regulated by the Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to regulation by the insurance laws and
regulations of the other jurisdictions in which it is licensed. Such insurance
laws regulate, among other things, the amount of net exposure per risk that
CapMAC may retain, capital transfers, dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and acquisitions.
CapMAC is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC's obligations under the Policy(s) may be reinsured. Such reinsurance
does not relieve CapMAC of any of its obligations under the Policy(s).
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As of December 31, 1995 and 1996, CapMAC had qualified statutory capital
(which consists of policyholders' surplus, statutory capital, and contingency
reserves) of approximately $260 million and $240 million, respectively, and had
not incurred any debt obligations. As of September 30, 1997, CapMAC had
qualified statutory capital of $278.6 million and had not incurred any debt
obligations. Article 69 of the New York State Insurance Law requires CapMAC to
establish and maintain the contingency reserve, which is available to cover
claims under policies issued by CapMAC.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted accounting
principles, are filed with the Insurance Department of the State of New York and
are available upon request. CapMAC is located at 885 Third Avenue, New York, New
York 10022, and its telephone is (212) 755-1155.
Effective July 14, 1997, AMBAC Indemnity Corporation changed its name to
AMBAC Assurance Corporation ("AMBAC Assurance"). AMBAC Assurance is a
Wisconsin-domiciled stock insurance corporation regulated by the Office of the
Commissioner of Insurance of the State of Wisconsin and licensed to do business
in 50 states, the District of Columbia and the Commonwealth of Puerto Rico, with
admitted assets of $2,735,772,668 (unaudited) and statutory capital of
$1,547,693,950 (unaudited) as of June 30, 1997. Statutory capital consists of
AMBAC Assurance's policyholders' surplus and statutory contingency reserve.
AMBAC Assurance is a wholly owned subsidiary of AMBAC Financial Group, Inc., a
100% publicly-held company. Moody's Investors Service, Inc. and Standard &
Poor's have both assigned a triple-A claims-paying ability rating to AMBAC
Assurance.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Assurance. The address of AMBAC
Assurance's administrative offices and its telephone number are One State Street
Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Assurance has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Assurance has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated
to pay the debts of or claims against MBIA. MBIA is domiciled in the State of
New York and licensed to do business in and subject to regulation under the laws
of all fifty states, the District of Columbia, the Commonwealth of the Northern
Mariana Islands, the Commonwealth of Puerto Rico, the Virgin Islands of the
United States and the Territory of Guam. MBIA has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
Effective February 17, 1998, MBIA, Inc. acquired all of the outstanding
stock of CapMAC, through a merger with its parent, CapMAC Holdings, Inc. MBIA,
Inc. then contributed the common stock of CapMAC to MBIA. Pursuant to a
reinsurance agreement, CapMAC has ceded all of its net insured risks as well as
its unearned premiums and contingency reserves to MBIA and MBIA has reinsured
CapMAC's net outstanding exposure. MBIA, Inc. is not obligated to pay debts of
or claims against CapMAC.
As of December 31, 1996, the insurer had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of September 30, 1997, MBIA had admitted assets of $5.1 billion
(unaudited), total liabilities of $3.4 billion (unaudited), and total capital
and surplus of $1.7 billion (unaudited), determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's financial statements prepared in accordance with
statutory accounting practices are available from MBIA. The address of MBIA is
113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA, Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company (BIG), now
known as MBIA Insurance Corp. of Illinois. Through a reinsurance agreement, BIG
has ceded all of its net insured risks, as well as its unearned premium and
contingency reserves, to MBIA and MBIA has reinsured BIG's net outstanding
exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG-1," both designated to be of the highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA" Prime Grade.
Moody's, Standard & Poor's and Fitch IBCA, Inc. (formerly Fitch Investors
Service, L.P.), all rate the claims paying ability of MBIA as "Triple A."
The Moody's Investors Service, Inc. rating of MBIA should be evaluated
independently of the Standard & Poor's rating of MBIA. No application has been
made to any other rating agency in order to obtain additional ratings on the
Obligations. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of MBIA and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Obligations and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of either or
both ratings may have an adverse effect on the market price of the Obligations.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC") is a
wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. The Corporation is a subsidiary of General Electric Capital
Corporation ("GECC"). Neither the Corporation nor GECC is obligated to pay the
debts of or the claims against Financial Guaranty. Financial Guaranty is a
monoline financial guaranty insurer domiciled in the State of New York and
subject to regulation by the State of New York Insurance Department. As of
December 31, 1997, the total capital and surplus of Financial Guaranty was
$1,255,590,411. Copies of Financial Guaranty's financial statements, prepared on
the basis of statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York, New
York 10006, Attention: Communications Department, telephone number: (212)
312-3000 or to the New York State Insurance Department at 25 Beaver Street, New
York, New York 10004-2319, Attention:
Financial Condition Property/Casualty Bureau, telephone number: (212) 480-5187.
In addition, Financial Guaranty is currently licensed to write insurance in
all 50 states and the District of Columbia.
Financial Security Assurance Inc. ("Financial Security" or "FSA") is a
monoline insurance company incorporated in 1984 under the laws of the State of
New York. Financial Security is licensed to engage in the financial guaranty
insurance business in all 50 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities, thereby enhancing the credit rating of those securities, in
consideration for payment of a premium to the insurer. Financial Security and
its subsidiaries principally insure asset-backed, collateralized and municipal
securities. Asset-backed securities are generally supported by residential
mortgage loans, consumer or trade receivables, securities or other assets having
an ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments.
Financial Security insures both newly issued securities sold in the primary
market and outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprises Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Financial Security is obligated to pay any debt of Financial
Security or its subsidiaries or any claim under any insurance policy issued by
Financial Security or its subsidiaries or to make any additional contribution to
the capital of Financial Security or its subsidiaries. As of September 30, 1997,
the total policyholders' surplus and contingency reserves and the total unearned
premium reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with statutory accounting principles,
approximately $788,108,000 (unaudited) and $461,203,000 (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 $894,461,000 (unaudited)
and $401,251,000 (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 or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries (including FSA
Maryland) are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, Financial
Security and FSA Maryland reinsure a portion of their liabilities under certain
of their financial guaranty insurance policies with other reinsurers under
various quota share treaties and on a transaction-by-transaction basis. Such
reinsurance is utilized as a risk management device and to comply with certain
statutory and rating agency requirements; it does not alter or limit the
obligations of Financial Security or FSA Maryland under any financial guaranty
insurance policy.
The claims-paying ability of Financial Security and FSA Maryland is rated
"Aaa" by Moody's Investors Service, Inc., and "AAA" by Standard & Poor's Ratings
Services, Nippon Investors Service Inc. and Standard & Poor's (Australia) Pty.
Ltd. Such ratings reflect only the views of the respective rating agencies, are
not recommendations to buy, sell or hold securities and are subject to revision
or withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company was involved in a merger in 1995. On
December 20, 1995, Capital Guaranty Corporation ("CGC") merged with a subsidiary
of Financial Security Assurance Holdings Ltd. and Capital Guaranty Insurance
Company, CGC's principal operating subsidiary, changed its name to Financial
Security Assurance of Maryland Inc. ("FSA Maryland") and became a wholly owned
subsidiary of Financial Security Assurance Inc. For further description, see
"Financial Security Assurance Inc." herein.
The address of FSA Maryland and its telephone number are Steuart Tower, One
Market Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
Because the Obligations are insured by CapMAC, MBIA or AMBAC Assurance as to
the timely payment of principal and interest, when due (as more fully described
above), and on the basis of the various reinsurance agreements in effect,
Standard & Poor's has assigned to the Units of the Trust its "AAA" investment
rating. Such rating will be in effect for a period of thirteen months from the
Date of Deposit and will, unless renewed, terminate at the end of such period.
See "Investment Objectives and Portfolio Selection". The obtaining of this
rating by the Trust should not be construed as an approval of the offering of
the Units by Standard & Poor's or as a guarantee of the market value of the
Trusts or of the Units.
On the date of this Prospectus, the Estimated Current Return on the
Obligations in the Trust portfolio was 6.19% based on the monthly plan of
distribution, after payment of the insurance premiums payable by the Trust,
while the Estimated Long-Term Return on the Obligations in the Trust portfolio
was 6.27%. The Estimated Current Return on an identical portfolio without the
insurance obtained by the Trust would have been 6.25% based on the monthly
distribution plan on such date, while the Estimated Long-Term Return on an
identical portfolio without the insurance obtained by the Trust would have been
6.34%.
An objective of portfolio insurance obtained by the Trust is to obtain a
higher yield on the Trust portfolio than would be available if all the
Obligations in such portfolio had Standard & Poor's "AAA" rating and yet at the
same time to have the protection of insurance of prompt payment of interest and
principal, when due (as more fully described above), on the Obligations. There
is, of course, no certainty that this result will be achieved.
In the event of nonpayment of interest or principal, when due (as more fully
described above), in respect of an Obligation, the appropriate Insurer shall
make such payment within 30 days after it has been notified that such nonpayment
has occurred. The appropriate Insurer, as regards any payment it may make, will
succeed to the rights of the Trustee in respect thereof.
The information relating to the Insurers has been furnished by the
respective Insurers. The financial information with respect to the Insurers
appears in reports filed with state insurance regulatory authorities and is
subject to audit and review by such authorities. No representation is made
herein as to the accuracy or adequacy of such information or as to the absence
of material adverse changes in such information subsequent to the dates thereof.
TAX STATUS
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For purposes of the following discussions and opinions, it is assumed that
the Obligations are debt for federal income tax purposes and that interest on
each of the Obligations (including the taxable municipal bonds, if any) is
included in gross income for Federal income tax purposes. In the opinion of
Chapman and Cutler, special counsel for the Sponsor, under existing law:
Each Trust is not an association taxable as a corporation for United States
Federal income tax purposes. Each Unitholder will be considered the owner of a
pro rata portion of each of a Trust's assets for Federal income tax purposes
under Subpart E, Subchapter J of Chapter 1 of the Internal Revenue Code of 1986
(the "Code"). Each Unitholder will be considered to have received his pro rata
share of income derived from each such asset when such income is considered to
be received by each Trust. Each Unitholder will also be required to include in
taxable income for Federal income tax purposes, original issue discount with
respect to his interest in any Obligations held by a Trust at the same time and
in the same manner as though the Unitholder were the direct owner of such
interest.
Each Unitholder will have a taxable event when an Obligation of a Trust is
disposed of (whether by sale, exchange, liquidation, redemption, or payment at
maturity) or when the Unitholder redeems or sells his Units. A Unitholder's tax
basis in his Units will equal his tax basis in his pro rata portion of all of
the assets of the Trust. Such basis is determined (before the adjustments
described below) by apportioning the tax basis for the Units among each of the
Trust assets according to value as of the valuation date nearest the date of
acquisition of the Units. Unitholders must reduce the tax basis of their Units
for their share of accrued interest received, if any, on Obligations delivered
after the date the Unitholders pay for their Units to the extent that such
interest accrued on such Obligations before the date the Trust acquired
ownership of the Obligations (and the amount of this reduction may exceed the
amount of accrued interest paid to the sellers) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in capital loss
upon the disposition of such Units. Unitholders should consult their own tax
advisors with regard to calculation of basis.
Gain or loss upon the sale or redemption of Units is measured by comparing
the proceeds of such sale or redemption with the adjusted basis of the Units. If
the Trustee disposes of Obligations (whether by sale, exchange, payment on
maturity, redemption or otherwise), gain or loss is recognized to the Unitholder
(subject to various non-recognition provisions of the Code). The amount of any
such gain or loss is measured by comparing the Unitholder's pro rata share of
the total proceeds from such disposition with his basis for his fractional
interest in the asset disposed of. The basis of each Unit and of each Obligation
which was issued with original issue discount (including the Treasury Bonds) (or
which has market discount) must be increased by the amount of accrued original
issue discount (and market discount, if the Unitholder elects to include market
discount in income as it accrues) and the basis of each Unit and of each
Obligation which was purchased by a Trust at a premium must be reduced by the
annual amortization of bond premium which the Unitholder has properly elected to
amortize under Section 171 of the Code. The tax basis reduction requirements of
the Code relating to amortization of bond premium may, under some circumstances,
result in the Unitholder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to or less than his original cost. The Treasury
Bonds held by a Trust are treated as bonds that were originally issued at an
original issue discount provided, pursuant to a Treasury Regulation (the
"Regulation") issued on December 28, 1992, that the amount of original issue
discount determined under Section 1286 of the Code is not less than a "de
minimis" amount as determined thereunder (as discussed below under "Original
Issue Discount"). Because the Treasury Bonds represent interests in "stripped"
bonds, a Unitholder's initial cost for his pro rata portion of each Treasury
Bond held by a Trust (determined at the time he acquires his Units, in the
manner described above) shall be treated as its "purchase price" by the
Unitholder. Original issue discount is effectively treated as interest for
Federal income tax purposes, and the amount of original issue discount in this
case is generally the difference between the bond's purchase price and its
stated redemption price at maturity. A Unitholder will be required to include in
gross income for each taxable year the sum of his daily portions of original
issue discount attributable to the Treasury Bonds held by a Trust as such
original issue discount accrues and will, in general, be subject to Federal
income tax with respect to the total amount of such original issue discount that
accrues for such year even though the income is not distributed to the
Unitholders during such year to the extent it is not less than a "de minimis"
amount as determined under the Regulation. To the extent the amount of such
discount is less than the respective "de minimis" amount, such discount shall be
treated as zero. In general, original issue discount accrues daily under a
constant interest rate method which takes into account the semi-annual
compounding of accrued interest. In the case of the Treasury Bonds, this method
will generally result in an increasing amount of income to the Unitholders each
year. Unitholders should consult their tax advisers regarding the Federal income
tax consequences and accretion of original issue discount.
LIMITATIONS ON DEDUCTIBILITY OF TRUST EXPENSES BY UNITHOLDERS. Each
Unitholder's pro rata share of each expense paid by a Trust is deductible by the
Unitholder to the same extent as though the expense had been paid directly by
him. It should be noted that as a result of the Tax Reform Act of 1986, certain
miscellaneous itemized deductions, such as investment expenses, tax return
preparation fees and employee business expenses will be deductible by an
individual only to the extent they exceed 2% of such individual's adjusted gross
income (similar limitations also apply to estates and trusts). Unitholders may
be required to treat some or all of the expenses paid by the Trusts as
miscellaneous itemized deductions subject to this limitation.
PREMIUM. If a Unitholder's tax basis of his pro rata portion in any
Obligations held by a Trust exceeds the amount payable by the issuer of the
Obligation with respect to such pro rata interest upon the maturity of the
Obligation, such excess would be considered premium which may be amortized by
the Unitholder at the Unitholder's election as provided in Section 171 of the
Code. Unitholders should consult their tax advisors regarding whether such
election should be made and the manner of amortizing premium.
ORIGINAL ISSUE DISCOUNT. Certain of the Obligations of the Trusts may have
been acquired with "original issue discount." In the case of any Obligations of
a Trust acquired with "original issue discount" that exceeds a "de minimis"
amount as specified in the Code or in the case of the Treasury Bonds as
specified in the Regulation, such discount is includable in taxable income of
the Unitholders on an accrual basis computed daily, without regard to when
payments of interest on such Obligations are received. The Code provides a
complex set of rules regarding the accrual of original issue discount. These
rules provide that original issue discount generally accrues on the basis of a
constant compound interest rate over the term of the Obligations. Unitholders
should consult their tax advisers as to the amount of original issue discount
which accrues.
Special original issue discount rules apply if the purchase price of the
Obligation by a Trust exceeds its original issue price plus the amount of
original issue discount which would have previously accrued based upon its issue
price (its "adjusted issue price"). Similarly these special rules would apply to
a Unitholder if the tax basis of his pro rata portion of an Obligation issued
with original issue discount exceeds his pro rata portion of its adjusted issue
price. Unitholders should also consult their tax advisers regarding these
special rules.
It is possible that a Corporate Bond that has been issued at an original
issue discount may be characterized as a "high-yield discount obligation" within
the meaning of Section 163(e)(5) of the Code. To the extent that such an
obligation is issued at a yield in excess of six percentage points over the
applicable Federal rate, a portion of the original issue discount on such
obligation will be characterized as a distribution on stock (e.g., dividends)
for purposes of the dividends received deduction which is available to certain
corporations with respect to certain dividends received by such corporation.
MARKET DISCOUNT. If a Unitholder's tax basis in his pro rata portion of
Obligations is less than the allocable portion of such Obligation's stated
redemption price at maturity (or, if issued with original issue discount, the
allocable portion of its "revised issue price"), such difference will constitute
market discount unless the amount of market discount is "de minimis" as
specified in the Code. Market discount accrues daily computed on a straight line
basis, unless the Unitholder elects to calculate accrued market discount under a
constant yield method. The market discount rules do not apply to Treasury Bonds
because they are stripped debt instruments subject to special original issue
discount rules as discussed above. Unitholders should consult their tax advisors
regarding whether such election should be made and as to the amount of market
discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Obligations, on the sale, maturity or
disposition of such Obligations by a Trust, and on the sale by a Unitholder of
Units, unless a Unitholder elects to include the accrued market discount in
taxable income as such discount accrues. If a Unitholder does not elect to
annually include accrued market discount in taxable income as it accrues,
deductions for any interest expense incurred by the Unitholder which is incurred
to purchase or carry his Units will be reduced by such accrued market discount.
In general, the portion of any interest expense which was not currently
deductible would ultimately be deductible when the accrued market discount is
included in income. Unitholders should consult their tax advisers regarding
whether an election should be made to include market discount in income as it
accrues and as to the amount of interest expense which may not be currently
deductible.
COMPUTATION OF THE UNITHOLDER'S TAX BASIS. The tax basis of a Unitholder
with respect to his interest in an Obligation is increased by the amount of
original issue discount (and market discount, if the Unitholder elects to
include market discount, if any, on the Obligations held by the Trust in income
as it accrues) thereon properly included in the Unitholder's gross income as
determined for Federal income tax purposes and reduced by the amount of any
amortized premium which the Unitholder has properly elected to amortize under
Section 171 of the Code. A Unitholder's tax basis in his Units will equal his
tax basis in his pro rata portion of all of the assets of the Trust.
RECOGNITION OF TAXABLE GAIN OR LOSS UPON DISPOSITION OF OBLIGATIONS BY THE
TRUSTS OR DISPOSITION OF UNITS. A Unitholder will recognize taxable capital gain
(or loss) when all or part of his pro rata interest in an Obligation is disposed
of in a taxable transaction for an amount greater (or less) than his tax basis
therefor, subject to various non-recognition provisions of the Code. As
previously discussed, gain realized on the disposition of the interest of a
Unitholder in any Obligation deemed to have been acquired with market discount
will be treated as ordinary income to the extent the gain does not exceed the
amount of accrued market discount not previously taken into income. Any capital
gain or loss arising from the disposition of an Obligation by a Trust or the
disposition of Units by a Unitholder will be determined by the period of time
the Unitholder held his Unit and the period of time the Trust held the
Obligation. The Taxpayer Relief Act of 1997 (the "1997 Act") provides that for
taxpayers other than corporations, net capital gain (which is defined as net
long-term capital gain over net short-term capital loss for the taxable year) is
subject to a maximum marginal stated tax rate of either 28% or 20%, depending
upon the holding periods of the capital assets. Capital gain or loss is
long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. The date on
which a Unit is acquired (i.e., the "trade date") is excluded for purposes for
determining the holding period of the Unit. Generally, capital gains realized
from assets held for more than one year but not more than 18 months are taxed at
a maximum marginal stated tax rate of 28% and capital gains realized from assets
(with certain exclusions) held for more than 18 months are taxed at a maximum
marginal stated tax rate of 20% (10% in the case of certain taxpayers in the
lowest tax bracket). Further, capital gains realized from assets held for one
year or less are taxed at the same rates as ordinary income. Legislation is
currently pending that provides the appropriate methodology that should be
applied in netting the realized capital gains and losses. Such legislation is
proposed to be effective retroactively for tax years ending after May 6, 1997.
In addition, it should be noted that various legislative proposals are
introduced from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed.
In addition, it should be noted that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
"conversion transactions" effective for transactions entered into after April
30, 1993.
The 1997 Act includes provisions that treat certain transactions designed to
reduce or eliminate risk of loss and opportunities for gain (e.g., short sales,
offsetting notional principal contracts, futures or forward contracts, or
similar transactions) as constructive sales for purposes of recognition of gain
(but not loss) and for purposes of determining the holding period. Unit holders
should consult their own tax advisors with regard to any such constructive sales
rules.
The tax basis reduction requirements of the Code relating to amortization of
bond premium may under some circumstances, result in the Unitholder realizing
taxable gain when his Units are sold or redeemed for an amount equal to or less
than his original cost.
If the Unitholder disposes of a Unit, he is deemed thereby to have disposed
of his entire pro rata interest in all Trust assets including his pro rata
portion of all of the Obligations represented by the Unit. This may result in a
portion of the gain, if any, on such sale being taxable as ordinary income under
the market discount rules (assuming no election was made by the Unitholder to
include market discount in income as it accrues) as previously discussed.
FOREIGN INVESTORS. A Unitholder who is a foreign investor (i.e., an investor
other than a U.S. citizen or resident or a U.S. corporation, partnership, estate
or trust) will not be subject to United States Federal income taxes, including
withholding taxes, on interest income (including any original issue discount)
on, or any gain from the sale or other disposition of, his pro rata interest in
any Obligation or the sale of his Units provided that all of the following
conditions are met: (i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business within the
United States, (ii) if the interest is United States source income (which is the
case for most securities issued by United States issuers), the Obligation is
issued after July 18, 1984 (which is the case for each Obligation held by the
Trust), then the foreign investor does not own, directly or indirectly, 10% or
more of the total combined voting power of all classes of voting stock of the
issuer of the Obligation and the foreign investor is not a controlled foreign
corporation related (within the meaning of Section 864(d)(4) of the Code) to the
issuer of the Obligation, or (iii) with respect to any gain, the foreign
investor (if an individual) is not present in the United States for 183 days or
more during his or her taxable year and (iv) the foreign investor provides all
certification which may be required of his status (foreign investors may contact
the Sponsor to obtain a Form W-8 which must be filed with the Trustee and
refiled every three calendar years thereafter). Foreign investors should consult
their tax advisers with respect to United States tax consequences of ownership
of Units.
It should be noted that the Tax Act includes a provision which eliminates
the exemption from United States taxation, including withholding taxes, for
certain "contingent interest." The provision applies to interest received after
December 31, 1993. No opinion is expressed herein regarding the potential
applicability of this provision and whether United States taxation or
withholding taxes could be imposed with respect to income derived from the Units
as a result thereof. Unitholders and prospective investors should consult with
their tax advisers regarding the potential effect of this provision on their
investment in Units.
GENERAL. Each Unitholder (other than a foreign investor who has properly
provided the certifications described above) will be requested to provide the
Unitholder's taxpayer identification number to the Trustee and to certify that
the Unitholder has not been notified that payments to the Unitholder are subject
to back-up withholding. If the proper taxpayer identification number and
appropriate certification are not provided when requested, distributions by the
Trust to such Unitholder including amounts received upon the redemption of the
Units will be subject to back-up withholding.
In the opinion of special counsel to the Trust for New York tax matters, the
Trust is not an association taxable as a corporation and the income of the Trust
will be treated as the income of the Unitholders under the existing income tax
laws of the State and City of New York.
The foregoing discussion relates only to United States Federal and New York
State and City income taxes; Unitholders may be subject to state and local
taxation in other jurisdictions (including a foreign investor's country of
residence). Unitholders should consult their tax advisers regarding potential
state, local, or foreign taxation with respect to the Units.
ACCRUED INTEREST
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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.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee will advance the amount of accrued
interest to the Sponsor as the Unitholder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only accrued interest from the First
Settlement Date to the date of settlement, 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 accrued interest from the purchaser of his Units.
Since the Trustee has the use of the funds held in the Interest Account for
distributions to Unitholders and since such Account is non-interest-bearing to
Unitholders, the Trustee benefits thereby.
PUBLIC OFFERING
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GENERAL. Units are offered at the Public Offering Price. During the initial
offering period the Public Offering Price is based on the aggregate offering
price of the Obligations in the Trust's portfolio, a sales charge of 4.9% of the
Public Offering Price (5.152% of the aggregate offering price of the
Obligations), cash, if any, in the Principal Account held or owned by the Trust,
and accrued interest, if any. 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:
DOLLAR AMOUNT OF SALES
AGGREGATE NUMBER OF UNITS PURCHASED* CHARGE REDUCTION PER UNIT
-------------------------------------- -------------------------
100-249 Units $ 4.00
250-499 Units $ 6.00
500-999 Units $ 14.00
1,000 or more Units $ 19.00
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*The breakpoint sales charges are also applied on a dollar basis utilizing
a breakpoint equivalent in the above table of $1,000 per Unit and will be
applied on whichever basis is more favorable to the investor. The breakpoints
above will be adjusted to take into consideration purchase orders stated in
dollars which cannot be completely fulfilled due to the Trust's requirement that
only whole Units be issued.
After the initial public offering period, the secondary market public
offering price is based on the bid prices of the Obligations in the Trust, an
applicable sales charge as determined in accordance with the table set forth
below, which is based upon the estimated long term return of the Trust, cash, if
any, in the Principal Account held or owned by the Trust, and accrued interest,
if any. For purposes of computation, Obligations will be deemed to mature on
their expressed maturity dates unless: (a) the Obligations have been called for
redemption or are subject to redemption on an earlier call date, in which case
such call date will be deemed to be the date upon which they mature; or (b) such
Obligations are subject to a "mandatory tender", in which case such mandatory
tender will be deemed to be the date upon which they mature. The effect of this
method of sales charge computation will be that different sales charges rates
will be applied to the Trust based upon the estimated long term return life of
such Trust's portfolio, in accordance with the following schedule:
YEARS TO MATURITY SALES CHARGE YEARS TO MATURITY SALES CHARGE
------------------ ------------- ------------------ -------------
1 1.010% 12 4.712%
2 1.523 13 4.822
3 2.041 14 4.932
4 2.302 15 5.042
5 2.564 16 5.152
6 2.828 17 5.263
7 3.093 18 5.374
8 3.627 19 5.485
9 4.167 20 5.597
10 4.384 21 to 30 5.708
11 4.603
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Obligations in the Trust. Expressed as a percent of
the Public Offering Price, the sales charge on the Trust consisting entirely of
a portfolio of Obligations with 15 years to maturity would be 4.80%.
Employees, officers and directors (including their spouses, children,
grandchildren, parents, grandparents, siblings, mothers-in-law, fathers-in-law,
sons-in-law and daughters-in-law, and trustees, custodians or fiduciaries for
the benefit of such persons (collectively referred to herein as "related
purchasers")) of Van Kampen American Capital Distributors, Inc. and its
affiliates and Underwriters and their affiliates may purchase Units at the
Public Offering Price less the applicable underwriting commission or less the
applicable dealer concession in the absence of an underwriting commission and
employees, officers and directors (including related purchasers) of dealers and
their affiliates and vendors providing services to the Sponsor may purchase
Units at the Public Offering Price less the applicable dealer concession.
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 American Capital-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. In the event units of more than one trust are purchased on the Initial
Purchase Date, the aggregate dollar amount of such purchases will be used to
determine whether purchasers are eligible for a reduced sales charge. Such
aggregate dollar amount will be divided by the public offering price per unit
(on the date preceding the date of purchase) of each respective trust purchased
to determine the total number of units which such amount could have purchased of
each individual trust. Purchasers must then consult the applicable trust's
prospectus to determine whether the total number of units which could have been
purchased of a specific trust would have qualified for a reduced sales charge
and, if so qualified, the amount of such reduction. Assuming a purchaser
qualifies for a sales charge reduction or reductions, to determine the
applicable sales charge reduction or reductions 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 ("immediate family
members") 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.
A purchaser desiring to purchase during a 13 month period $500,000 or more
of any combination of series of Van Kampen American Capital Trusts may qualify
for a reduced sales charge by signing a nonbinding Letter of Intent with any
single broker-dealer. After signing a Letter of Intent, at the date total
purchases, less redemptions, of units of any combination of series of Van Kampen
American Capital Trusts by a purchaser (including 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) exceed $500,000, the selling broker-dealer, bank or other will
credit the unitholder with cash as a retroactive reduction of the sales charge
on such units equal to the amount which would have been paid for the total
aggregated sale amount. If a purchase does not complete the required purchases
under the Letter of Intent within the 13 month period, no such retroactive sales
charge reduction shall be made. To qualify as a purchase under a Letter of
Intent each purchase of units of Van Kampen American Capital Trusts must equal
or exceed $100,000.
Purchasers of units of any two consecutive series of a Trust may aggregate
purchases of units of such series for purposes of the sales charge reduction for
quantity purchases, provided that at the time of the initial purchase of units
such purchaser submitted a purchase order for at least 100 units that was
partially unfulfilled due to a lack of units of such Trust series available for
sale at such time. The sales charge reduction shall be applied to the subsequent
purchase of units such that the aggregate sales charge reduction applicable to
both purchases will equal the amount described in the table above.
Units may be purchased in the primary or secondary market at the Public
Offering Price (for purchases which do not qualify for a sales charge reduction
for quantity purchases) less the concession the Sponsor typically allows to
brokers and dealers for purchases (see "Unit Distribution" below) by (1)
investors who purchase Units through registered investment advisers, certified
financial planners and registered broker-dealers who in each case either charge
periodic fees for financial planning, investment advisory or asset management
services, or provide such services in connection with the establishment of an
investment account for which a comprehensive "wrap fee" charge is imposed, (2)
bank trust departments investing funds over which they exercise exclusive
discretionary investment authority and that are held in a fiduciary, agency,
custodial or similar capacity, (3) any person who for at least 90 days, has been
an officer, director or bona fide employee of any firm offering Units for sale
to investors or their immediate family members (as described above) and (4)
officers and directors of bank holding companies that make Units available
directly or through subsidiaries or bank affiliates. Notwithstanding anything to
the contrary in this Prospectus, such investors, bank trust departments, firm
employees and bank holding company officers and directors who purchase Units
through this program will not receive sales charge reductions for quantity
purchases.
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 close of business on the
day before 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 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. Such price
determination was made on the basis of an evaluation of the Obligations in the
Trust prepared by Interactive Data Corporation, 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 the close of the New York Stock Exchange 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 the close of the New York Stock Exchange
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 the Obligations 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
Offering Price. For secondary market purposes such appraisal and adjustment will
be made by the Evaluator as of the close of the New York Stock Exchange on days
on which the New York Stock Exchange is open for each day on which any Unit of
the Trust is tendered for redemption, and it shall determine the aggregate value
of such Trust as of the close of the New York Stock Exchange 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 the Trust'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 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 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 three business days following the order
for purchase, payment may be made prior thereto. However, delivery of
certificates representing Units so ordered will be made three business days
following such order or shortly thereafter. A person will become the owner of
Units on the date of settlement provided payment has been received. Cash, if
any, made available to the Sponsor prior to the date of settlement for the
purchase of Units may be used in the Sponsor's business and may be deemed to be
a benefit to the Sponsor, subject to the limitations of the Securities Exchange
Act of 1934.
UNIT DISTRIBUTION. 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 "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, $32.00 per Unit for any single
transaction of 100 to 249 Units, $34.00 per Unit for any single transaction of
250 to 499 Units, $35.00 per Unit for any single transaction of 500 to 999 Units
and $34.00 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". Volume concessions or agency commissions of an additional
$5.00 per Unit will be given to any broker/dealer or agent (other than
Underwriters) who purchases from the Sponsor at least 250 Units of the Trust
during the initial offering period. The breakpoint concessions or agency
commissions listed above are also applied on a dollar basis utilizing a
breakpoint equivalent of $1,000 per Unit and will be applied on whichever basis
is more favorable to the distributor. The breakpoints will be adjusted to take
into consideration purchase orders stated in dollars which cannot be completely
fulfilled due to the Trust's requirement that only whole Units be issued.
Certain commercial banks are making Units of the Trust available to their
customers on an agency basis. A portion of the sales charge (equal to the agency
commission referred to above) is retained by or remitted to the banks. Under the
Glass-Steagall Act, banks are prohibited from underwriting 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 70% of the applicable sales
charge as set forth above.
Except as stated hereinafter, the minimum purchase requirement in the
initial offering period and in the secondary market is one Unit. In connection
with fully disclosed transactions with the Sponsor, the minimum purchase
requirement will be that number of Units set forth in the contract between the
Sponsor and the related broker or agent.
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), 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 it underwrites. All breakpoints listed above are also
applied on a dollar basis utilizing a breakpoint equivalent of $1,000 per Unit
and will be applied on whichever basis is more favorable to the Underwriter. The
breakpoints will be adjusted to take into consideration purchase orders stated
in dollars which cannot be completely fulfilled due to the Trust's requirement
that only whole Units be issued. 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 Corporation). 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 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
prices, subject to change at any time, based upon the aggregate bid prices of
the Obligations in the portfolio plus interest accrued to the date of settlement
plus any principal cash on hand, less any amounts representing taxes or other
governmental charges payable out of the Trust and less any accrued Trust
expenses. If the supply of Units exceeds demand or if some other business reason
warrants it, the Sponsor and/or the other 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 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
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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 accrued interest and 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 twenty-fifth day of each month on a
pro rata basis to Unitholders of record as of the preceding record date (which
will be the tenth 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 Options" on page 2, and thereafter as
of the semi-annual record date, and distributions to the Unitholders as of such
record date will be made on or shortly after the twenty-fifth day of such month.
Proceeds received from the disposition of any of the Obligations after such
record date and prior to the following distribution date will be held in the
Principal Account and not distributed until the next distribution date. The
Trustee is not required to pay interest on funds held in the Principal or
Interest Accounts (but may itself earn interest thereon and therefore benefits
from the use of such funds) nor to make a distribution from the Principal
Account unless the amount available for distribution shall equal at least $1.00
per Unit. However, should the amount available for distribution in the Principal
Account equal or exceed $10.00 per Unit, the Trustee will make a special
distribution from the Principal Account on the next succeeding monthly
distribution date to holders of record on the related monthly record date.
The distribution to the Unitholders as of each record date 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 for any such
advances from funds in the Interest Account on the ensuing record date. Persons
who purchase Units between a record date and a distribution date will receive
their first distribution on the second distribution date after purchase, under
the applicable plan of distribution. Notification to the Trustee of the transfer
of Units is the responsibility of the purchaser, but in the normal course of
business such notice is provided by the selling broker-dealer.
On or before the twenty-fifth day of each month, the Trustee will deduct
from the Interest Account and, to the extent funds are not sufficient therein,
from the Principal Account, amounts necessary to pay the expenses of the Trust
(as determined on the basis set forth under "Trust Operating Expenses"). The
Trustee also may withdraw from said accounts such amounts, if any, as it deems
necessary to establish a reserve for any governmental charges payable out of the
Trust. Amounts so withdrawn shall not be considered a part of the Trust's assets
until such time as the Trustee shall return all or any part of such amounts to
the appropriate accounts. In addition, the Trustee may withdraw from the
Interest and Principal Accounts such amounts as may be necessary to cover
purchases of Replacement Obligations and redemption of Units by the Trustee.
CHANGE OF DISTRIBUTION OPTION. The plan of distribution selected by a
Unitholder will remain in effect until changed. Unitholders purchasing Units in
the secondary market will initially receive distributions in accordance with the
election of the prior owner. Unitholders may change the plan of distribution in
which they are participating. For convenience of Unitholders, the Trustee will
furnish a card for this purpose; cards may also be obtained upon request from
the Trustee. Unitholders desiring to change their plan of distribution may so
indicate on the card and return it together with their certificate and such
other documentation that the Trustee may then require, to the Trustee.
Certificates should only be sent by registered or certified mail to minimize the
possibility of their being lost or stolen. If the card and certificate are
properly presented to the Trustee, the change will become effective as of the
opening of business on the first day after the next succeeding semi-annual
record date and will be effective, unless further changed, for all subsequent
distributions.
REINVESTMENT OPTION. Unitholders may elect to have each distribution of
interest income, capital gains and/or principal on their Units automatically
reinvested in shares of certain Van Kampen American Capital or Morgan Stanley
mutual funds which are registered in the Unitholder's state of residence. Such
mutual funds are hereinafter collectively referred to as the "Reinvestment
Funds." By reinvesting distributions, investors have the power to increase
earning potential by compounding. If Trust distributions are reinvested into
another investment, the return would be higher than if distributions were merely
taken out of the investment as a source of income.
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 American
Capital Distributors, 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.
Unitholders with an existing Guaranteed Reinvestment Option (GRO) Program
account (whereby a sales charge is imposed on distribution reinvestments) may
transfer their existing account into a new GRO account which allows purchases of
Reinvestment Fund shares at net asset value as described above.
Confirmations of all reinvestments by a Unitholder into a Reinvestment Fund
will be mailed to the Unitholder by such Reinvestment Fund. A participant may at
any time prior to five days preceding the next succeeding distribution date, by
so notifying the Trustee in writing, elect to terminate his or her reinvestment
plan and receive future distributions on his or her Units in cash. There will be
no charge or other penalty for such termination. Each Reinvestment Fund, its
sponsor and its investment adviser shall have the right to terminate at any time
the reinvestment plan relating to such fund.
REPORTS PROVIDED. The Trustee shall furnish Unitholders in connection with
each distribution a statement of the amount of interest and, if any, the amount
of other receipts (received since the preceding distribution) being distributed
expressed in each case as a dollar amount representing the pro rata share of
each Unit outstanding. For as long as the Trustee deems it to be in the best
interests of the Unitholders, the accounts of the Trust shall be audited, not
less frequently than annually, by independent certified public accountants and
the report of such accountants shall be furnished by the Trustee to Unitholders
upon request. Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a registered Unitholder a statement (i) as to the Interest
Account: interest received (including amounts representing interest received
upon any disposition of the Obligations), deductions for applicable taxes and
for fees and expenses of the Trust (including insurance costs), for purchases of
Replacement Obligations and for redemptions of Units, if any, and the balance
remaining after such distributions and deductions, expressed in each case both
as a total dollar amount and as a dollar amount representing the pro rata share
of each Unit outstanding on the last business day of such calendar year; (ii) as
to the Principal Account: the dates of disposition of any Obligations and the
net proceeds received therefrom (excluding any portion representing accrued
interest and the premium and any expenses related thereto attributable to the
exercise of the right to obtain Permanent Insurance), the amount paid for
purchases of Replacement Obligations and for redemptions of Units, if any,
deductions for payment of applicable taxes, fees and expenses of the Trust and
the balance remaining after such distributions and deductions expressed both as
a total dollar amount and as a dollar amount representing the pro rata share of
each Unit outstanding on the last business day of such calendar year; (iii) a
list of the Obligations held and the number of Units outstanding on the last
business day of such calendar year; (iv) the Redemption Price per Unit based
upon the last computation thereof made during such calendar year; and (v)
amounts actually distributed during such calendar year from the Interest and
Principal Accounts, separately stated, expressed both as total dollar amounts
and as dollar amounts representing the pro rata share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Obligations in the Trust furnished to it by the Evaluator.
Each distribution statement will reflect pertinent information in respect of
the other plan of distribution so that Unitholders may be informed regarding the
results of such other plan of distribution.
REDEMPTION OF UNITS. A Unitholder may redeem all or a portion of his Units
by tender to the Trustee at its Unit Investment Trust Division, 101 Barclay
Street, 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 third business day following such tender, the Unitholder
will be entitled to receive in cash an amount for each Unit equal to the
Redemption Price per Unit next computed after receipt by the trustee of such
tender of Units. The "date of tender" is deemed to be the date on which Units
are received by the Trustee, except that as regards Units received after 4:00
P.M. Eastern time on days of trading on the New York Stock Exchange, the date of
tender is the next day on which such Exchange is open for trading and such Units
will be deemed to have been tendered to the Trustee on such day for redemption
at the redemption price computed on that day.
Under regulations issued by the Internal Revenue Service, the Trustee will
be required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's tax
identification number in the manner required by such regulations. Any amount so
withheld is transmitted to the Internal Revenue Service and may be recovered by
the Unitholder only when filing a return. Under normal circumstances the Trustee
obtains the Unitholder's tax identification number from the selling broker.
However, at any time a Unitholder elects to tender Units for redemption, such
Unitholder should provide a tax identification number to the Trustee in order to
avoid this possible "back-up withholding" in the event the Trustee has not been
previously provided such number.
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 close of the New York Stock Exchange on days of trading on the New York
Stock Exchange on the date any such determination is made. On the Date of
Deposit, the Public Offering Price per Unit (which is based on the offering
prices of the Obligations 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) 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 and (iii) 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 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 and may be less than the par value of the Obligations
represented by the Units so redeemed. 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
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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 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 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 or par 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 American Capital Distributors, Inc., a Delaware
corporation, is the Sponsor of the Trust. The Sponsor is an indirect subsidiary
of VK/AC Holding, Inc. VK/AC Holding, Inc. is a wholly owned subsidiary of MSAM
Holdings II, Inc., which in turn is a wholly owned subsidiary of Morgan Stanley,
Dean Witter, Discover & Co. ("MSDWD").
MSDWD is a global financial services firm with a market capitalization of
more than $21 billion which was created by the merger of Morgan Stanley Group
Inc. with and into Dean Witter, Discover & Co. on May 31, 1997. MSDWD, together
with various of its directly and indirectly owned subsidiaries, is engaged in a
wide range of financial services through three primary businesses: securities,
asset management and credit services. These principal businesses include
securities underwriting, distribution and trading; merger, acquisition,
restructuring and other corporate finance advisory activities; merchant banking;
stock brokerage and research services; asset management; trading of futures,
options, foreign exchange commodities and swaps (involving foreign exchange,
commodities, indices and interest rates); real estate advice, financing and
investing; global custody, securities clearance services and securities lending;
and credit card services. As of June 2, 1997, MSDWD, together with its
affiliated investment advisory companies, had approximately $270 billion of
assets under management, supervision or fiduciary advice.
Van Kampen American Capital Distributors, Inc. specializes in the
underwriting and distribution of unit investment trusts and mutual funds with
roots in money management dating back to 1926. The Sponsor is a member of the
National Association of Securities Dealers, Inc. and has offices at One Parkview
Plaza, Oakbrook Terrace, Illinois 60181, (630) 684-6000 and 2800 Post Oak
Boulevard, Houston, Texas 77056, (713) 993-0500. 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 November 30, 1996, the total
stockholders' equity of Van Kampen American Capital Distributors, Inc. was
$129,451,000 (unaudited). (This paragraph relates only to the Sponsor and not to
the Trust or to any other Series thereof. The information is included herein
only for the purpose of informing investors as to the financial responsibility
of the Sponsor and its ability to carry out its contractual obligations. More
detailed financial information will be made available by the Sponsor upon
request.)
As of September 30, 1997, the Sponsor and its Van Kampen American Capital
affiliates managed or supervised approximately $65.3 billion of investment
products, of which over $10.85 billion is invested in municipal securities. The
Sponsor and its Van Kampen American Capital affiliates managed $54 billion of
assets, consisting of $34.3 billion for 55 open-end mutual funds (of which 45
are distributed by Van Kampen American Capital Distributors, Inc.) $14.2 billion
for 37 closed-end funds and $5.5 billion for 106 institutional accounts. The
Sponsor has also deposited approximately $26 billion of unit investment trusts.
All of Van Kampen American Capital's open-end funds, closed-ended funds and unit
investment trusts are professionally distributed by leading financial firms
nationwide. Based on cumulative assets deposited, the Sponsor believes that it
is the largest sponsor of insured municipal unit investment trusts, primarily
through the success of its Insured Municipals Income Trust(R) or the IM-IT(R)
trust. The Sponsor also provides surveillance and evaluation services at cost
for approximately $13 billion of unit investment trust assets outstanding. Since
1976, the Sponsor has serviced over two million investor accounts, opened
through retail distribution firms.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or shall become bankrupt or its affairs
are taken over by public authorities, then the Trustee may (i) appoint a
successor Sponsor at rates of compensation deemed by the Trustee to be
reasonable and not exceeding amounts prescribed by the Securities and Exchange
Commission, (ii) terminate the Trust Agreement and liquidate the Trusts as
provided therein or (iii) continue to act as Trustee without terminating the
Trust Agreement.
TRUSTEE. The Trustee is The Bank of New York, a trust company organized under
the laws of New York. The Bank of New York has its 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 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.
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITING
- -----------------------------------------------------------------------------------------------------------------
The Underwriters named below have severally purchased Units in the following
respective amounts from the Sponsor.
NAME ADDRESS UNITS
------ --------- ------
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 8,017
Fidelity Capital Markets 164 Northern Avenue, Boston, Massachusetts 02210 500
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
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
--------------
9017
==============
</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 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.
<PAGE>
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. Winston & Strawn 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 LLP, independent certified public accountants, as
set forth in their report in this Prospectus, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
DESCRIPTION OF OBLIGATION RATINGS*
- --------------------------------------------------------------------------------
STANDARD & POOR'S, A DIVISION OF THE MCGRAW-HILL COMPANIES. A brief
description of the applicable Standard & Poor's rating symbols and their
meanings follows:
A Standard & Poor's corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific debt
obligation. This assessment may take into consideration obligors such as
guarantors, insurers or lessees.
The bond rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.
The ratings are based on current information furnished by the issuer and
obtained by Standard & Poor's from other sources it considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default--capacity and willingness of the obligor
as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation
in the event of bankruptcy, reorganization or other arrangements under the
laws of bankruptcy and other laws affecting creditors' rights. AAA--Bonds
rated AAA have the highest rating assigned by Standard & Poor's to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although 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.
- --------------------------------------------------------------------------------
*As published by the rating companies.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Provisional Ratings: The symbol "(p)" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
MOODY'S INVESTORS SERVICE, INC. A brief description of the applicable
Moody's Investors Service, Inc. rating symbols and their meanings follow:
Aaa--Bonds which are rated Aaa are judged to be the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge". Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues. With the occasional
exception of oversupply in a few specific instances, the safety of obligations
of this class is so absolute that their market value is affected solely by money
market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they 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.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Van Kampen American Capital Insured Income Trust, Series
71:
We have audited the accompanying statement of condition and the related
portfolio of Van Kampen American Capital Insured Income Trust, Series 71 as of
March 20, 1998. 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 American Capital
Insured Income Trust, Series 71 as of March 20, 1998, in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
March 20, 1998
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST,
SERIES 71
STATEMENT OF CONDITION
AS OF MARCH 20, 1998
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT IN SECURITIES
<S> <C>
Contracts to purchase securities (1)(2)(4) $ 8,575,203
Accrued interest to the First Settlement Date (1)(4) 106,958
--------------
Total $ 8,682,161
==============
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(4) $ 106,958
Interest of Unitholders--
Units of fractional undivided interest outstanding:
Cost to investors (3) 9,017,000
Less: Gross underwriting commission (3) 441,797
--------------
Net interest to Unitholders (3)(4) 8,575,203
--------------
Total $ 8,682,161
--------------
- ---------------------------------------------------------------------------------------------------------------------
(1)The aggregate 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 Corporation on the bases set forth under "Public
Offering--Offering Price". The contracts to purchase Obligations are
collateralized by an irrevocable letter of credit of $8,675,926 which has
been deposited with the Trustee. Of this amount $8,575,203 relates to the
offering price on $9,030,000 principal amount of Obligations to be purchased,
and $100,723 relates to accrued interest on such Obligations to the expected
dates of delivery.
(2)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.
(3)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.
(4)The Trustee will advance to each Trust the amount of net interest accrued to
March 25, 1998, the First Settlement Date, for distribution to the Sponsor as
the Unitholder of record as of the First Settlement Date.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST
SERIES 71
PORTFOLIO AS OF MARCH 20, 1998
- ---------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER, TITLE, INTEREST RATE
AND MATURITY DATE OF EITHER OFFERING
AGGREGATE OBLIGATIONS DEPOSITED OR OBLIGATIONS AS REDEMPTION PRICE TO
PRINCIPAL(1) CONTRACTED FOR (1)(5) RATING(2) INSURED(7) FEATURES(3) TRUST(4)
- ---------- ----------------------------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1,000,000 Phoenix, Arizona, Individual Development
Authority, Taxable Revenue Refunding
Bonds (America West Arena) AMBAC
Assurance Insured 2008 @ 102
#7.125% Due 12/01/21 AAA AAA 2016 @ 100 S.F. $ 1,020,490
1,000,000 Phoenix, Arizona, Civic Plaza Building
Corporation, Excise Tax Revenue Bonds
(East Garage) MBIA Insured 2008 @ 101
#6.500% Due 07/01/22 AAA AAA 2018 @ 100 S.F. 966,250
1,000,000 Baltimore, Maryland, Project Revenue Taxable
Bonds, Baltimore City Parking, Series B
(AMBAC Assurance Insured) 2007 @ 101
#6.625% Due 07/01/22 AAA AAA 2018 @ 100 S.F. 983,750
450,000 Community Redevelopment Agency of the
City of Compton, California, Compton
Redevelopment Project, Tax Allocation
Capital Appreciation Bonds, Series 1995C
(FSA Insured)
140M - #0.000% Due 08/01/23 AAA AAA 79,263
(6)
310M - #0.000% Due 08/01/24 AAA AAA
3 1,000,000 Allegheny Generating Company
#6.875% Due 09/01/23 A AAA 2003 @ 103.28 985,000
1,000,000 Potomac Electric Power Company
6.875% Due 09/01/23 A AAA 2003 @ 102.66 993,750
1,000,000 Virginia Electric and Power Company
#6.750% Due 10/01/23 A AAA 2003 @ 102.77 985,000
580,000 Reedley, California, Redevelopment Agency,
Tax Allocation Taxable Revenue Bonds
(Refunding Redevelopment Project)
MBIA Insured 2008 @ 102
#6.700% Due 11/01/23 AAA AAA 2009 @ 100 S.F. 574,200
1,000,000 Montclair, California, Redevelopment Agency,
Tax Allocation Taxable Revenue Bonds,
Redevelopment Project Area Number III
(AMBAC Assurance Insured) 2007 @ 102
#6.900% Due 12/01/27 AAA AAA 2013 @ 100 S.F. 1,005,000
3 1,000,000 U.S. West Communications
#6.875% Due 09/15/33 A AAA 2003 @ 101.95 982,500
- ---------- -------------
$ 9,030,000 $ 8,575,203
========== =============
All of the Obligations in the portfolio are insured either by one of the
Preinsured Obligation Insurers (as indicated in the obligation name) or under
a portfolio insurance policy obtained by the Trust from AMBAC Assurance or
CapMAC. Obligations that are insured under a portfolio insurance policy
obtained by the Trust from CapMAC are marked by a "3". See "Insurance on the
Obligations".
For an explanation of the footnotes used on this page, see "Notes to
Portfolio".
</TABLE>
NOTES TO PORTFOLIO:
AS OF THE DATE OF DEPOSIT: MARCH 20, 1998
- --------------------------------------------------------------------------------
(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 March 12, 1998
to March 19, 1998. These Obligations have expected settlement dates from
March 20, 1998 to March 24, 1998 (see "Trust Portfolio").
(2)All ratings are by Standard & Poor's 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. "(DEGREE)" 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").
<PAGE>
(5) Other information regarding the Obligations in the Trust, as of the Date
of Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL BID SIDE
ANNUAL INTEREST EVALUATION
INSURANCE COST TO PROFIT (LOSS) INCOME TO OF
COST SPONSOR TO SPONSOR TRUST OBLIGATIONS
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
$5,700 $8,501,106 $74,097 $584,110 $8,531,853
</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.
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 0.48% 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 has assigned its "AAA" investment rating to all of the
Obligations while in the Trust, as insured by the Insurers.
ESTIMATED CASH FLOWS TO UNITHOLDERS
- --------------------------------------------------------------------------------
The table below sets forth the per Unit estimated distributions of interest
and principal to Unitholders. The table assumes 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>
<CAPTION>
SERIES 71
MONTHLY
ESTIMATED ESTIMATED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
April 1998 $ 2.57 $ 2.57
May 1998 - November 2009 5.15 5.15
December 2009 4.97 $110.90 115.87
January 2010 - November 2010 4.53 4.53
December 2010 4.34 110.90 115.24
January 2011 - June 2022 3.89 3.89
July 2022 3.53 221.80 225.33
August 2022 - July 2023 2.71 2.71
August 2023 2.71 15.53 18.24
September 2023 2.34 221.80 224.14
October 2023 1.32 110.90 112.22
November 2023 .79 64.33 65.12
December 2023 - July 2024 .55 .55
August 2024 .55 34.38 34.93
September 2024 - September 2033 .55 .55
October 2033 .05 110.90 110.95
<CAPTION>
SEMI-ANNUAL
DISTRIBUTION DATES ESTIMATED ESTIMATED ESTIMATED
(EACH JUNE AND DECEMBER INTEREST PRINCIPAL TOTAL
UNLESS OTHERWISE INDICATED) DISTRIBUTION DISTRIBUTION DISTRIBUTION
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 1998 $12.98 $ 12.98
December 1998 - June 2009 31.15 31.15
December 2009 30.96 $110.90 141.86
June 2010 27.39 27.39
December 2010 27.20 110.90 138.10
June 2011 - June 2022 23.52 23.52
July 2022 221.80 221.80
December 2022 17.21 17.21
June 2023 16.38 16.38
August 2023 15.53 15.53
September 2023 221.80 221.80
October 2023 110.90 110.90
November 2023 64.33 64.33
December 2023 10.52 10.52
June 2024 3.35 3.35
August 2024 34.38 34.38
December 2024 - June 2033 3.35 3.35
October 2033 1.73 110.90 112.63
</TABLE>
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 Fund,
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.
- --------------------------------------------------------------------------------
TITLE PAGE
Summary Of Essential Financial Information 3
The Trust 5
Investment Objective and Portfolio Selection 5
Trust Portfolio 6
Risk Factors 7
Estimated Current Return and Estimated
Long-Term Return 11
Trust Operating Expenses 11
Insurance on the Obligations 12
Tax Status 17
Accrued Interest 21
Public Offering 22
Rights of Unitholders 26
Trust Administration 30
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 41
- -------------------------------------------------------------------------------
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration statements
and exhibits relating thereto, which the Fund 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.
PROSPECTUS
- --------------------------------------------------------------------------------
MARCH 20, 1998
VAN KAMPEN
AMERICAN CAPITAL
INSURED INCOME TRUST
SERIES 71
------ A Wealth of Knowledge o Knowledge of Wealth(sm) ------
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
PLEASE RETAIN THIS PROSPECTUS FOR FUTURE
REFERENCE.
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Amendment to the 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, ratings services and legal
counsel The following exhibits:
1.1 Copy of Trust Agreement.
1.4 Copy of Unit Investment Trust Portfolio Insurance Policy issued by
AMBAC Assurance Corporation.
1.4(a) Copy of Unit Investment Trust Portfolio Insurance Policy issued by
Capital Markets Assurance Corporation.
1.5 Copy of Master Agreement Among Underwriters.
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to Federal tax status of securities being
registered.
3.3 Opinion and consent of counsel as to New York tax status of securities
being registered.
4.1 Consent of Interactive Data Corporation
4.2 Consent of Standard & Poor's.
4.3 Consent of Grant Thornton LLP.
EX-27 Financial Data Schedule.
SIGNATURES
The Registrant, Van Kampen American Capital Insured Income Trust, Series 71
hereby identifies Van Kampen Merritt Insured Income Trust, Series 1 and Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
189 for purposes of the representations required by Rule 487 and represents the
following: (1) that the portfolio securities deposited in the series as to the
securities of which this Registration Statement is being filed do not differ
materially in type or quality from those deposited in such previous series; (2)
that, except to the extent necessary to identify the specific portfolio
securities deposited in, and to provide essential financial information for, the
series with respect to the securities of which this Registration Statement is
being filed, this Registration Statement does not contain disclosures that
differ in any material respect from those contained in the registration
Statement for such previous series as to which the effective date was determined
by the Commission or the staff; and (3) that it has complied with Rule 460 under
the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Van Kampen American Capital Insured Income Trust, Series 71 duly caused this
Amendment to the 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 20th day of March, 1998.
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST,
SERIES 71
By VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By Gina M. Costello
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below on March 20, 1998 by the
following persons who constitute a majority of the Board of Directors of Van
Kampen American Capital Distributors, Inc.
SIGNATURE TITLE
Don G. Powell Chairman and Chief Executive )
Officer )
John H. Zimmerman President and Chief Operating )
Officer
Ronald A. Nyberg Executive Vice President and )
General Counsel
William R. Rybak Executive Vice President and )
Chief Financial Officer )
Gina M. Costello
(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 Van Kampen American Capital Equity Opportunity Trust,
Series 64 (File No. 333-33087) and Van Kampen American Capital Equity
Opportunity Trust, Series 87 (File No. 333-44581) and the same are hereby
incorporated herein by this reference.
<PAGE>
EXHIBIT 1.1
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST
SERIES 71
TRUST AGREEMENT
Dated: March 20, 1998
This Trust Agreement between Van Kampen American Capital Distributors,
Inc., as Depositor, American Portfolio Evaluation Services, a division of Van
Kampen American Capital Investment Advisory Corp., as Evaluator, and The Bank of
New York, as Trustee, sets forth certain provisions in full and incorporates
other provisions by reference to the document entitled "Standard Terms and
Conditions of Trust for Van Kampen Merritt Insured Income Trust, Series 1 and
Subsequent Series, Effective: April 3, 1990" (herein called the "Standard Terms
and Conditions of Trust") and such provisions as are set forth in full and such
provisions as are incorporated by reference constitute a single instrument. All
references herein to Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee and the Evaluator agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the Provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Section 1.01(4), listed in Schedule
A hereto, have been deposited in trust under this Trust Agreement.
(b) The fractional undivided interest in and ownership of the
Trust Fund represented by each Unit is the amount set forth under
"Summary of Essential Financial Information--Fractional Undivided
Interest in the Fund per Unit" in the Prospectus.
(c) The First General Record Date and the amount of the
second distribution of funds from the Interest Account shall be the
record date for the Interest Account and the amount set forth under
"Distribution Options" on page 2 of the Prospectus.
(d) The First Settlement Date shall be the date set forth
under "Summary of Essential Financial Information--First Settlement
Date" in the Prospectus.
(e) The Evaluation time has been changed from 3:00 P.M.
Eastern time to 4:00 P.M. Eastern time.
(f) Sections 8.02(d) and 8.02(e) of the Standard Terms and
Conditions of Trust are hereby stricken and replaced by the
following:
(d) distribution to each Certificateholder of such
Trust such holder's pro rata share of the balance of the
Interest Account of such Trust;
(e) distribute to each Certificateholder of such
Trust such holder's pro rata share of the balance of the
Principal Account of such Trust; and
(g) Section 1.01(11) of the Standard Terms and
Conditions of Trust are hereby stricken and replaced by the
following:
(11) "Insurer" shall mean AMBAC Assurance
Corporation, and/or Capital Markets Assurance Corporation,
their respective successors and assigns, each having its
principal office in New York, New York, one or both of which
have issued the contract or policy of insurance obtained by
the Trust Fund protecting the Trust Fund and the
Certificateholders thereof against nonpayment when due of the
principal of and interest on certain of the Bonds (except for
Pre-Insured Bonds) held by the Trustee as part of the Fund.
(h) All references to "Van Kampen Merritt Insured Income
Trust," "Van Kampen Merritt Inc." and "Van Kampen Merritt Investment
Advisory Corp." in the Standard Terms and Conditions of Trust are
hereby stricken and replaced with "Van Kampen American Capital Insured
Income Trust," "Van Kampen American Capital Distributors, Inc." and
"Van Kampen American Capital Investment Advisory Corp.," respectively.
(i) The Trustee's annual compensation as set forth under
Section 6.04, under each distribution plan shall be that amount as
specified in the Prospectus under the section entitled "Per Unit
Information" for each Trust and will include a fee to induce the
Trustee to advance funds to meet scheduled distributions.
(j) The term "Record Date" shall mean the "Record and
Computation Dates" set forth under "Per Unit Information" for each
Trust in the Prospectus. Notwithstanding anything to the contrary in
the Standard Terms and Conditions of Trust, all distributions to
Certificateholders shall be computed as of the related Record Date as
that term is defined in the previous sentence.
(k) The term "Distribution Date" shall mean the "Distribution
Dates" set forth under "Per Unit Information" for each Trust in the
Prospectus. Notwithstanding anything to the contrary in the Standard
Terms and Conditions of Trust, all distributions to Certificateholders
shall be made as of the related Distribution Date as that term is
defined in the previous sentence.
<PAGE>
IN WITNESS WHEREOF, Van Kampen American Capital Distributors, Inc. has
caused this Trust Agreement to be executed by one of its Vice Presidents or
Assistant Vice Presidents and its corporate seal to be hereto affixed and
attested by its Secretary or one of its Vice Presidents or Assistant
Secretaries, American Portfolio Evaluation Services, a division of Van Kampen
American Capital Investment Advisory Corp., has caused this Trust Indenture and
Agreement to be executed by its President or one of its Vice Presidents and its
corporate seal to be hereto affixed and attested to by its Secretary, its
Assistant Secretary or one of its Assistant Vice Presidents and The Bank of New
York, has caused this Trust Agreement to be executed by one of its Vice
Presidents and its corporate seal to be hereto affixed and attested to by one of
its Assistant Treasurers; all as of the day, month and year first above written.
VAN KAMPEN AMERICAN CAPITAL
DISTRIBUTORS, INC.
By JAMES J. BOYNE
Vice President, Associate General Counsel
and Assistant Secretary
(SEAL)
Attest:
By CATHY NAPOLI
Assistant Secretary
AMERICAN PORTFOLIO EVALUATION SERVICE, a division of Van Kampen American
Capital Investment Advisory Corp.
By DENNIS J. MCDONNELL
President
(SEAL)
Attest:
By JAMES J. BOYNE
Assistant Secretary
THE BANK OF NEW YORK
By JEFFREY BIESELIN
Vice President
(SEAL)
Attest:
By JEFFREY COHEN
Assistant Treasurer
<PAGE>
SCHEDULE A TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
IN
VAN KAMPEN AMERICAN CAPITAL INSURED INCOME TRUST,
SERIES 71
(Note: Incorporated herein and made a part hereof is the "Portfolio" as set
forth in the Prospectus.)
November 8, 1996 Exhibit 1.4
AMBAC AMBAC Assurance Corporation
c/o CT Corporation Systems
MUNICIPAL BOND INVESTMENT 44 East Mifflin Street
TRUST INSURANCE POLICY Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza
New York, New York 10004
AMBAC ASSURANCE CORPORATION (AMBAC) A Wisconsin Stock Insurance Company
AGREES TO GUARANTEE
Van Kampen American Capital Insured Income Trust, Series 71
TO VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
("Investment Trust") the insured, the payment of that portion of the
principal of and interest on each of the Bonds which shall be due during the
Policy Period but is unpaid by reason of Nonpayment by the Issuer, in
consideration of the insurance premium paid and subject to the terms and
conditions contained herein or added hereto.
Policy No. FE014570
Policy Date: March 20, 1998
Trustee: The Bank of New York
101 Barclay Street, 17flW
New York, New York 10286
IN WITNESS WHEREOF, the Insurer has caused this Policy to be affixed
with a facsimile of its corporate seal and to be signed by its duly authorized
officers in facsimile to become effective as its original seal and signatures
and binding upon the Insurer by virtue of the countersignature of its duly
authorized representative.
AMBAC Assurance Corporation
P. Lassiter Stephen D. Cooke
President Secretary
/w/Nancy Davila
Authorized Representative
<PAGE>
1. DEFINITIONS
(a) "Policy" is this policy of insurance and all applications and
schedules for Municipal Bond Investment Trust Insurance relating hereto, all of
which are hereby incorporated by reference herein.
(b) "Bonds" are the specific securities covered by this Policy and are
identified and described in the Schedule attached hereto and hereby made a part
hereof.
(c) "Issuer" is each respective issuer, identified in the Schedule, of
the Bonds.
(d) "Investment Trust" is the entity represented to have an insurable
interest in the Bonds insured under this Policy, identified on the face of
this Policy.
(e) "Trustee" is the Trustee of the Investment Trust, or any
successor Trustee thereto or Co-Trustee therewith.
(f) "Sponsor" is the firm or entity responsible for creating the
Investment Trust and thereafter performing the services to it required of its
sponsor, or any successor Sponsor thereof or Co-Sponsor therewith.
(g) "Insured Instrument" is any instrument evidencing all or any part
of the principal or of interest on a Bond which is Due for Payment.
(h) "Policy Period" is the period during which this Policy of
insurance is effective. The Policy Period commences at 12:01 A.M.
(i) "Premium Installment Period" is the period for which installments
of the annual insurance premium are payable monthly, quarterly or semiannually,
as determined initially for the Investment Trust.
(j) "Nonpayment" is the failure of an Issuer to provide sufficient
funds to the payment agent for payment in full of all principal and interest on
a Bond which is Due for Payment.
(k) "Due for Payment," when referring to principal of a Bond (or
Insured Instrument evidencing such principal), is when the stated maturity date
has been reached, and does not refer to any earlier date on which payment is due
by reason of call for redemption, acceleration or other advancement of maturity;
and when referring to interest on a Bond (or Insured Instrument evidencing such
interest), is when the stated date for payment has been reached.
(l) "Bond Proceedings" are the legal proceedings by which each of the
Bonds has been authorized, issued or secured, including the governing statutes,
the pertinent resolutions and ordinances of the Issuer, and any trust indenture,
mortgage, lease agreement or other contract relating to the Bond or its
security.
2. NONCANCELLABILITY AND TERMINATION--REFUNDS OF PREMIUM
This Policy cannot be cancelled by AMBAC. The insurance provided by
this Policy shall remain in force throughout the Policy period. This Policy
provides for payment to the Trustee as a result of Nonpayment of the Bonds. In
the event the Trustee sells any of the Bonds, then this Policy shall be
terminated as to any such Bond on the date of said sale, and AMBAC shall not
have any liability under t his Policy on account of Nonpayment of any such Bond
occurring thereafter. This Policy shall be terminated as to any Bond which AMBAC
has been notified by the Sponsor or by the Trustee has been redeemed from or
sold by the Investment Trust, or was not deposited by the Sponsor, or the
contract to purchase which has failed, on the date such notice is received by
AMBAC, and AMBAC shall not have any liability under this Policy on account of
Nonpayment of any such Bond occurring thereafter. When AMBAC is notified by the
Trustee or the Sponsor that any of the Bonds have been redeemed or sold from the
Investment Trust, or were not deposited into it, or a contract to purchase any
such Bonds has failed, a refund of any prepaid premium thereof shall be made to
the Investment Trust or the Sponsor, as the case may be. Such notification to
AMBAC must specify the amount of Bonds affected, identify each by its Item
Number in an Application identified by its date and designate the date of such
disposal or failure.
3. PAYMENT BY INSURER--AMOUNT, WHEN AND HOW PAYABLE
(a) Amount--Payment by AMBAC of the aggregate of the face amount of
all Insured Instruments of the Investment Trust as to which there has been a
Nonpayment, reduced by the aggregate of: (i) the amount which the Issuer shall
have provided for payment of Insured Instruments by the time of Nonpayment; and
(ii) the amount which has been received from any other source to pay Insured
Instruments; such payment shall fully discharge AMBAC from any further liability
on account of the Nonpayment.
(b) When Payable--The payment due the Investment Trust shall be made
not later than thirty days after notice from the Trustee is received by AMBAC
that Nonpayment has occurred, but not earlier than the date on which the Insured
Instruments are Due for Payment.
(c) How Payable--The payment due the Investment Trust shall be paid
by AMBAC in exchange for delivery of Insured Instruments, not less in face
amount than the amount of the payment, in bearer form, free and clear of all
liens and encumbrances and uncancelled. In cases where an Insured Instrument is
issuable only in a form whereby principal is payable to registered holders or
their assigns, AMBAC shall pay principal only upon presentation and surrender of
the unpaid Insured Instrument, uncancelled and free of any adverse claim,
together with an instrument of assignment, in satisfactory form, so as to permit
ownership of such Insured Instrument to be registered in the name of AMBAC or
its nominee. In cases where an Insured Instrument is issuable only in a form
whereby interest is payable to registered holders or their assigns, AMBAC shall
pay interest only upon presentation of proof that the claimant is the person
entitled to the pa shall pay interest only upon presentation of proof that the
claimant is the person entitled to the payment of interest on the Insured
Instrument and delivery of an instrument of assignment, in satisfactory form,
transferring to AMBAC all rights under such Insured Instrument to receive the
interest in respect of which the insurance payment was made.
4. RIGHTS OF AMBAC
(a) Subrogation--When AMBAC has made payment with respect to an
Insured Instrument, it shall be subrogated to all of the rights to payment of
the Investment Trust thereon or in relation thereto to the extent of such
payment.
(b) Vesting of Rights and Powers--When AMBAC has made the payment due
to the Investment Trust as described in Condition 3, and until the full amount
of such payment has been recovered, AMBAC shall be vested with all of the
Investment Trust's options, votes, rights, powers and the like under the Bond
Proceedings. AMBAC shall not be liable to the Investment Trust for any loss or
damage resulting from the exercise of or failure to exercise any of such
options, votes, rights, powers and the like.
(c) Exercise of Rights and Powers--AMBAC may, in its absolute
discretion, exercise or fail to exercise any option, vote, right, power or the
like it may have as holder or registered owner of an Insured Instrument with
respect to which it has made payment. AMBAC shall not be liable to the
Investment Trust for any loss or damage resulting therefrom
(d) Securing of Rights--The Trustee shall execute and deliver
instruments and do whatever else is necessary to secure the foregoing rights for
AMBAC, and will do nothing to prejudice them.
5. PAYMENT OF INSURANCE PREMIUM INSTALLMENTS
The Trustee shall pay, when due, successively, the full amount of each
installment of the insurance premium. Each installment of the insurance premium
is due on or before the last day of the expiring Premium Installment Period.
If AMBAC has not received such payment on or before such last day, it
shall give notice to the Sponsor to that effect. Such installment shall be
deemed to have been paid when due if AMBAC receives such payment within ten days
after it has given such notice.
The Trustee shall, with each payment, notify AMBAC of all Bonds which,
during the expiring Premium Installment period, were redeemed from or sold by
the Investment Trust, or the contract to purchase which failed, or which have
not been deposited by the Sponsor. Such notification to AMBAC must specify the
amounts of Bonds affected and identify each by its Item Number in an Application
identified by date. No such notice need be given as to Bonds with respect to
which AMBAC has previously been notified to the same effect.
6. WHERE NOTICE IS GIVEN
All submissions, designations, payments, notices, reports and other
data or documents required to be submitted shall be mailed to AMBAC at its
administrative office, or to the Investment Trust at its address shown on the
face of this Policy or such other address as it shall designate.
7. WAIVER OF CONDITIONS
No permission affecting this insurance shall exist, or waiver of any
condition be valid, unless expressed in writing added hereto. Each of the
conditions of this Policy is hereby made severable, and waiver of one condition
is not a waiver of any other condition.
8. SUIT
No suit or action on this Policy for the recovery of any amount shall
be sustained in any court of law or equity unless all of the conditions of this
Policy shall have been complied with (unless specifically waived by AMBAC in
writing) and unless commended within two years after a Nonpayment.
9. CONFLICT OF LAWS
Any provision of this Policy which is on conflict with the laws of the
jurisdiction in which it is effective is hereby amended to conform with the
minimum requirements of such laws.
AMBAC Assurance Corporation
c/o CT Corporation Systems
44 East Mifflin Street
Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza
New York, New York 10004
<TABLE>
<CAPTION>
SCHEDULE OF BONDS (a part of the Application and Policy)
Van Kampen American Capital Insured Income Trust, Series 71
Date of Application: March 20, 1998
Item Par Full Name Purpose of Interest Date of Maturity Annual Initial Annual
No. Value of Issuer Bonds Rate Bonds Date Premium Rate Premium
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. $1,000M Virginia Electric (SMIP Option 6.750% 10/19/93 10/01/23 .1300% $1,300
and Power Company Premium
Rate: .70%)
- ---------------
2. $1,000M Potomac Power (SMIP Option 6.875% 09/01/93 09/01/23 .1300% $1,300
Company Premium
Rate: .70%)
* Premium attributable to the original insured amount of each Item of Bonds.
</TABLE>
Exhibit 1.4A
CAPMAC
Capital Markets Assurance Corporation
885 Third Avenue
New York, New York 10022
UNIT INVESTMENT TRUST INSURANCE POLICY
FOR VAN KAMPEN AMERICAN CAPITAL
INSURED INCOME TRUST
SERIES 71
Capital Markets Assurance Corporation
Policy No. SB13050
Capital Markets Assurance Corporation (the "Insurer"), in consideration
of the payment of the premium and subject to the terms of this policy and the
letter agreement dated March 20, 1998 among the Insurer, the Depositor and the
Trustee, each as hereinafter defined, hereby unconditionally and irrevocably
guarantees to the Trust, as hereinafter defined, the full and complete payment
required to be made by or on behalf of the issuer(s) of the Obligations, as
hereinafter defined, to the applicable paying agent(s) for the underlying
Obligations or its/their successor(s) (the "Paying Agent") of an amount equal to
(i) the principal of (either at the stated maturity or by any advancement of
maturity pursuant to a mandatory sinking fund payment) and interest on the
obligations described in Exhibit A attached hereto (referred to herein as the
"Obligations"), as such payments shall become due but shall not be so paid in
accordance with the original terms of the Obligations when issued and without
regard to any amendment or modification which affects in any manner the amount,
terms or conditions of payment of such Obligations thereafter, unless the
Insurer has previously consented in writing to any such amendment or
modification, except that in the event of any acceleration of the due date of
such principal by reason of mandatory or optional redemption or acceleration
resulting from a default (an "Acceleration Default"), a failure to make any
required principal and/or interest payment as and when due (after giving effect
to any applicable grace or cure period) (a "Payment Default") or an event of
bankruptcy, receivership, insolvency or similar action (a "Bankruptcy Default"),
other than any advancement of maturity pursuant to a mandatory sinking fund
payment, the payments guaranteed hereby may be made by the Insurer at its option
upon the earlier to occur of an Acceleration Default, a Payment Default or a
Bankruptcy Default within thirty (30) days of notice of such Acceleration
Default, Payment Default or Bankruptcy Default (x) in such amounts and at such
times as such payments would have been due had there not been any such
acceleration or (y) on such accelerated basis by payment (an "Accelerated
Payment") of an amount equal to the par value of such Obligation plus accrued
interest to the date of any such Accelerated Payment, and (ii) the payment of
any Insured Amount subsequently avoided in whole or in part as a preference
payment under applicable law. The amounts referred to in the preceding sentence,
including the Accelerated Payment, shall be referred to herein collectively as
the "Insured Amounts."
Upon receipt of telegraphic or telecopied notice, such notice promptly
confirmed in writing by registered or certified mail, in the form of Exhibit B
hereto duly completed (such form to be sent and notice to be given for each
Obligation for which a claim is made under this policy), or upon receipt of
written notice by registered or certified mail in the form of Exhibit B hereto
duly completed (such form to be sent and notice to be given for each Obligation
for which a claim is made under this policy), or upon receipt of written notice
by registered or certified mail in the form of Exhibit B hereto duly completed
(such form to be sent and notice to be given for each Obligation for which a
claim is made under this policy) by the Insurer or its designee from the
Trustee, that a Payment Default has occurred, the Insurer shall, on the business
day next succeeding the later of (x) the date which is thirty (30) days after
the date of any Payment Default or (y) receipt of the first notice of such
Payment Default with respect to such Obligation and, in the event the Insurer
does not make an Accelerated Payment, thereafter, within one (1) business day
after the later of (x) receipt of notice of a subsequent Payment Default or (y)
the due date of the Insured Amounts to which such notice relates, disburse to
the Trustee payment of the Insured Amounts due on such Obligation, less any
amount held by the Paying Agent or the Trustee for the payment of the Insured
Amounts and legally available therefor. Notwithstanding the foregoing, in the
event a Bankruptcy Default or Acceleration Default occurs prior to any Payment
Default, the Insurer may, at its option, make an Accelerated Payment upon the
earlier to occur of such Bankruptcy Default or Acceleration Default within
thirty (30) days of such Bankruptcy Default or Acceleration Default. In such
event, the Insurer shall have no further obligation to make any payments in
respect of the Obligation for which such Accelerated Payment was made. The
Trustee will be paid, as to principal or as to principal and interest, upon
presentment and surrender to the Insurer of each Obligation, or in the case of
any Obligation held by a depository (the "Depository") on behalf of the Trustee,
presentment and surrender of such Obligation through the Depository, or
presentment of such other proof of ownership of the Obligation registered,
together with evidence satisfactory to the Insurer that, in all cases, such
Obligation is the Obligation described in this policy or any replacement or
successor hereto, and that such Obligation is free and clear of all claims and
encumbrances created by or on behalf of the Trustee and is uncancelled, and any
appropriate instruments of assignment to evidence the assignment of the Insured
Amounts due on the Obligation as are paid by the Insurer, such instruments being
in a form satisfactory to the Insurer. This policy does not insure against loss
of any prepayment premium which may at any time be payable with respect to any
Obligation.
If payment of any principal of or interest on the Obligations that is
avoided as a preference under applicable bankruptcy, insolvency, receivership or
similar law in the event of a bankruptcy, insolvency, receivership or similar
action of the issuer of the Obligation is required to be made under this policy,
the Insurer will pay such amount as is avoided as a preference pursuant to the
Order or notice referred to below when due to be paid on a scheduled basis in
accordance with the original terms of the Obligations (without reference to any
redemption thereof) and in any event no earlier than the first to occur of the
fourth business day following receipt by the Insurer from the Trustee of (i)(x)
a certified copy of the order of the court, or such regulatory authority which
exercised jurisdiction, to the effect that the Trustee or the Depository is
required to return principal or interest paid on any Obligation during the term
of this policy because such payments were avoidable preferences under applicable
bankruptcy, insolvency, receivership or similar laws (the "Order") and (y) a
certificate of the Trustee that the Order has been entered and is not subject to
any stay or (ii) notice from the Trustee that such payment has been avoided and
the Depository holding the affected Obligation on behalf of the Trust has repaid
such avoided payment and/or charged or reduced the account of the Trustee by the
amount of such avoided payment (provided that if such certified copy and
certificate or notice referred to in clauses (i) and (ii) above are received
after 1:00 p.m., New York City time, on such business day, the Insurer shall
make such payment on the fifth business day following such date). Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Trustee directly in the event of
receipt of the certified copy and certificate referred to in clause (i) above
and to the Trustee in the event of receipt of the notice referred to in clause
(ii) above.
Notwithstanding the foregoing or any other provisions of this policy,
if the Trustee receives notice that payment of any principal of or interest on
any of the Obligations is avoided as a preference under applicable bankruptcy,
insolvency, receivership or similar law and the Depository holding the affected
Obligation has not repaid such amount or charged or reduced the Trustee's
account for such amount, then the Trustee shall forward such notice to the
Insurer within four business days of the Trustee's receipt thereof. The Insurer
shall have the option to commence any appropriate adversary proceeding, in which
case it shall be responsible for all costs and expenses in connection therewith
and shall indemnify and hold the Trustee harmless against any loss or liability
in connection therewith or the failure of the Trustee to make such preference
payment, or to pay the amount of such avoided payment to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in such notice
in accordance with the preceding paragraph.
After the Insurer has made payment with respect to an Obligation, it
shall be subrogated to all of the rights of the Trust thereon or in relation
thereto to the extent of such payment, including but not limited to the rights
to commence or participate in an adversary proceeding. When the Insurer has made
any Accelerated Payment, and until the full amount of such payment has been
recovered, the Insurer shall be vested with all of the Trust's options, rights,
votes, powers and the like under all the legal proceedings by which each
Obligation has been authorized, issued or secured, including, the governing
statutes, resolutions and ordinances of the issuer of the Obligation, and any
trust indenture, mortgage, lease agreement or other contract relating to the
Obligation or its security. The Insurer shall not be liable to the Trust for any
loss or damage resulting from the exercise or failure to exercise, in its sole
discretion, any of such options, votes, rights, powers and the like it may have
as holder or registered owner of an Obligation with respect to which it has made
any payment. The Trustee shall execute and deliver instruments and do whatever
else may be required to secure the foregoing rights of the Insurer, and will do
nothing to prejudice them.
The obligations of the Insurer hereunder cannot be accelerated except
at the sole option of the Insurer.
The term "Depositor" shall mean Van Kampen American Capital Distributors,
Inc. and its successors or any successor Depositor.
The term "Trust" shall mean the Van Kampen American Capital Insured
Income Trust, Series 71, created pursuant to a trust agreement which
incorporates by reference the Standard Terms and Conditions of Trust, effective
April 3, 1990, among the Depositor, the Trustee and American Portfolio
Evaluation Services, as evaluator.
The term "Trustee" shall mean The Bank of New York, or any successor
trustee or co-trustee.
Any service of process on the Insurer may be made to the Insurer,
Attention: General Counsel, at its office located at 885 Third Avenue, New York,
New York 10022, and such service or process shall be valid and binding.
This policy shall only apply to Obligations held in and owned by the
Trust and held or owned by the Depository on behalf of the Trust and shall not
apply to any Obligations not deposited therein by the Depositor. This policy
shall continue in force only with respect to Obligations held in and owned by
the Trust, and, subject to the provisions of this paragraph, the Insurer shall
not have any liability under this policy with respect to any Obligations which
do not constitute part of the Trust. This policy is non-cancellable during the
term hereof for any reason, but shall terminate as to any Obligation which is
not longer held by the Trust and has been redeemed from or sold by the Trustee
or the Trust on the date of such redemption or on the settlement date of such
sale, and the Insurer shall not have any liability under this policy as to any
such Obligation thereafter. Notwithstanding the foregoing provisions of this
paragraph, the termination of this policy as to any Obligation shall not affect
the obligations of the Insurer regarding any other Obligation in the Trust. This
policy shall terminate as to all Obligations on the date on which the last of
the Obligations mature, are redeemed or are sold by the Trust.
The premium on this policy is not refundable for any reason, including
the payment prior to maturity of the Obligations.
This policy is issued only to the Trust and is nontransferable.
This policy shall be governed by and construed under the laws of the
State of New York. Any provision of this policy which is in conflict with the
laws of the State of New York is hereby amended to conform with the minimum
requirements of such laws. THIS POLICY AND THE OBLIGATIONS OF THE INSURER
HEREUNDER ARE NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE FUND SPECIFIED IN
ARTICLE SEVENTY-SIX OF THE NEW YORK INSURANCE LAW.
No provision affecting this policy shall exist, or waiver of any
condition be valid, unless expressed in writing, signed by the Insurer and the
Trustee, and added hereto. Each of the conditions of this policy is hereby made
severable, and waiver of one condition is not a waiver of any other condition.
No suit or action on this policy for the recovery of any amount shall
be sustained in any court of law or equity unless all of the conditions of this
policy shall have been complied with (unless specifically waived by the Insurer
in writing) and unless commenced within two years after an event giving rise to
the Insurer's obligation to pay the Insured Amounts.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this policy to be executed
on its behalf this 20th day of March, 1998.
CAPITAL MARKETS ASSURANCE CORPORATION
By
Name: Thomas D. Lamb
Title: Senior Vice President
<PAGE>
A-1
EXHIBIT A
To Unit Investment Trust
Insurance Policy No. SB13050
SCHEDULE OF BONDS FOR
VAN KAMPEN AMERICAN CAPITAL INSURED
INCOME TRUST, SERIES 71
<TABLE>
<CAPTION>
CUSIP PAR ISSUER COUPON MATURITY DATE OF ANNUAL INITIAL
NO. VALUE DATE ISSUANCE PREMIUM PREMIUM
OF BONDS RATE DUE
<S> <C> <C> <C> <C> <C> <C> <C>
017364AG5 $1,000,000 Allegheny Generating 6.875% 09/01/2023 09/01/93 0.160% $184.11
Company
912920AC9 $1,000,000 U.S. West 6.875% 09/15/2033 09/15/93 0.150% $172.60
Communication Inc.
TOTAL $356.71
</TABLE>
<PAGE>
EXHIBIT B
To Unit Investment Trust
Insurance Policy No. SB13050
Capital Markets Assurance Corporation
885 Third Avenue
New York, New York 10022
Attention: ____________________
NOTICE FOR PAYMENT UNDER
UNIT INVESTMENT TRUST
INSURANCE POLICY NO. SB13050
The undersigned individual, a duly authorized officer of The Bank of
New York (the "Trustee") hereby certifies to Capital Markets Assurance
Corporation ("CapMAC"), with reference to insurance policy No. SB13050 issued
by CapMAC, as follows:
(1) The Trustee has not received by _____ (insert due date of
scheduled payment) an amount of the [principal] or [interest] payment
due on (insert description of bond) (the "Obligation") on such date and
has been notified by the bond trustee for the Obligation (or such other
party that would have knowledge or nonpayment) that it will not receive
such payment or such bond trustee will not confirm to the Trustee that
the full payment has been or is that day being made, and the amount
necessary for the Trustee to have to equal the full amount of such
[principal] or [interest] that is due on the Obligation is $__________
(the "Shortfall");
(2) The Trustee is making a claim for the Shortfall to be
applied to the payment in full of such [principal] or [interest]
payments that are due;
(3) The Trustee hereby directs CapMAC to make payment of
the Shortfall to the following account: ______;
(4) The Trustee or a depository (the "Depository") on behalf
of the Trustee is the registered owner of the Obligation or coupons and
holds evidence of its right to receive payment of the Shortfall, and
the Trustee hereby represents and surrenders or will cause the
Depository to surrender to CapMAC such Obligation relating to the
Shortfall, or presents other proof of ownership of the Obligation to
CapMAC, which shall be acceptable to CapMAC in its sole judgment; and
(5) The Trustee hereby certifies that the Obligation or
coupon for which the Shortfall is being claimed are the same as
described in Exhibit A to the above-referenced policy, are free and
clear of any claims or encumbrances created by or on behalf of the
Trustee, and are uncancelled.
<PAGE>
IN WITNESS WHEREOF, this Notice for Payment has been executed this
______ day of __________, 19__.
By
Name:_________________________________________________
Title:________________________________________________
EXHIBIT 1.5
Dated: June 1, 1992
March 20, 1998
MASTER AGREEMENT AMONG UNDERWRITERS
FOR UNIT INVESTMENT TRUSTS SPONSORED BY
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Gentlemen:
1. The Trust. We understand that you, Van Kampen American Capital
Distributors, Inc. (the "Sponsor"), are entering into this agreement (the
"Agreement") in counterparts with us and other firms who may be underwriters for
issues of various series of unit investment trusts for which you will act as
Sponsor. This Agreement shall apply to any offering after May 1, 1992 of units
of fractional undivided interest in such various series unit investment trusts
in which we elect to act as an underwriter (underwriters with respect to each
such trust being hereinafter called "Underwriters") after receipt of a notice
from you stating the name and size of the trust and that our participation as an
Underwriter in the proposed offering shall be subject to the provisions of this
Agreement. The issuer of the units of fractional undivided interests in a series
of a unit investment trust offered in any offering of units made pursuant to
this Agreement is hereinafter referred to as the "Trust" and the reference to
"Trust" in this Agreement applies only to such Trust, and such units of such
Trust offered are hereinafter called the "Units". Each Trust is or will be
registered as a "unit investment trust" under the Investment Company Act of 1940
(the "1940 Act") by appropriate filings with the Securities and Exchange
Commission (the "Commission"). Additionally, each Trust is or will be registered
with the Commission under the Securities Act of 1933 (the "1933 Act") on Form
S-6 or its successor forms, including a proposed form of prospectus (the
"Preliminary Prospectus").
The registration statement as finally amended and revised at the time
it becomes effective is herein referred to as the "Registration Statement" and
the related prospectus is herein referred to as the "Prospectus", except that if
the prospectus filed by the Trust pursuant to Rule 424(b) under the 1933 Act
shall differ from the prospectus on file at the time the Registration Statement
shall become effective, the term "Prospectus" shall refer to the prospectus
filed pursuant to Rule 424(b) from and after the date on which it shall have
been filed.
The following provisions of this Agreement shall apply separately to
each individual offering of Units by a Trust.
We understand that as of the date upon which we have agreed to
underwrite Units of the Trust the Commission shall not have issued any order
preventing or restraining the use of any Preliminary Prospectus and, further,
that each Preliminary Prospectus shall conform in all material respects to the
requirements of the 1933 Act and the Rules and Regulations thereunder and, as of
its date, shall not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not misleading;
and when the Registration Statement becomes effective, it and the Prospectus,
and any amendments or supplements thereto, will contain all statements that are
required to be stated therein in accordance with the 1933 Act and the Rules and
Regulations thereunder and will in all material respects conform to the
requirements of the 1933 Act and the Rules and Regulations thereunder, and
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that you make no
representation or warranty as to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement, in reliance upon and in conformity with, written
information furnished to you by or on behalf of any Underwriter specifically for
use in the preparation thereof.
2. Designation and Authority of Representative. You are hereby
authorized to act as our representative (the "Representative") in connection
with all matters to which this Agreement relates and to take the action provided
herein to be taken by you as you may otherwise deem necessary or advisable. We
understand that we have no obligations under this Agreement with respect to any
Trust in which we choose not to participate as an Underwriter.
You will be under no liability to us for any act or omission except for
obligations expressly assumed by you herein and no obligations on your part will
be implied or inferred herefrom. The rights and liabilities of the respective
parties hereto are several and not joint, and nothing herein or hereunder will
constitute then a partnership, association or separate entity.
3. Profit or Loss in Acquisition of Securities. It is understood
that the acquisition of securities (the "Securities") for deposit in the
portfolio of the Trust shall be at your cost and risk. We acknowledge that you
will share with us any net deposit profits in the amounts and to the extent, if
any, indicated under "Sponsor and Underwriter Compensation" in the Prospectus.
For the purposes of determining the number of Units underwritten, we understand
that we will be credited for that number of Units set forth opposite our name in
the section entitled "Underwriting" in the prospectus.
We agree that you shall have no liability (as Representative or
otherwise) with respect to the issue form, validity, legality, enforceability,
value of, or title to the Securities, except for the exercise of due care in
determining the genuineness of such Securities and the conformance thereof with
the descriptions and qualifications appearing in the Prospectus.
4. Purchase of Units. Promptly after you make a determination to
offer Units of a Trust and you inquire as to whether we desire to participate in
such offering, we will advise you promptly as to the number of Units which we
will purchase or of our decision not to participate in such offering. Such
advice may be written or oral. The delivery to the Sponsor of a completed
Schedule A to this Agreement shall constitute adequate written advice. Oral
advice shall be binding but shall be promptly confirmed in writing by us by
means of telegraph, telegram or other form of wire or facsimile transmission.
Such written confirmation shall contain the information requested by Schedule A
to this Agreement. You may rely on and we hereby commit on the terms and
conditions of this Agreement to purchase and pay for the number of Units of the
Trust set forth in such advice (the "Unit Commitment"). Our Unit Commitment may
be increased only by mutual agreement between us and you at any time prior to
the date as of which the Trust Agreement for the Trust is executed (the "Date of
Deposit"). We agree that you in your sole discretion reserve the right to
decrease our Unit Commitment at any time prior to the Date of Deposit and if you
so elect to make such a decrease, you will notify us of such an election by
telephone and promptly confirm the same in writing.
The price to be paid for such Units shall be the Public Offering Price
per Unit (as defined in the Prospectus) as first determined on the Date of
Deposit or such later determination on such Date of Deposit as you shall advise
us, less the sum per Unit indicated under "Sponsor and Underwriter Compensation"
in the Prospectus. Further, each Underwriter who underwrites that number of
Units indicated under "Sponsor and Underwriter Compensation" in the Prospectus
will receive from the Sponsor that additional compensation indicated under such
section of the Prospectus for each Unit it underwrites, providing the Trust size
is in excess of that number of Units, if any, indicated under such section of
the Prospectus. At the Date of Deposit, we will become the owner of the Units
and be entitled to the benefits (except for interest, if any, accruing from the
Date of Deposit to the First Settlement Date) as well as the risks inherent
therein. We acknowledge that those persons, if any, named in the Prospectus
under "Sponsor and Underwriter Compensation" are Managing or Co-Managing
Underwriters of the Trust, as indicated therein, and we acknowledge that those
persons specifically named therein will receive as additional compensation those
respective per Unit amounts set forth in such section of the Prospectus.
You are authorized to retain custody of our Units until the
Registration Statement relating thereto has become effective under the 1933 Act
and you shall have received payment from us for such Units.
You are authorized to file an amendment to said Registration Statement
describing the Securities and furnishing information based thereon or relating
thereto and any further amendments or supplements to the Registration Statement
or Prospectus which you may deem necessary or advisable. We will furnish to you
upon your request such information as will be required to insure that the
Registration Statement and Prospectus are current insofar as they relate to us
and we thereafter continue to furnish you with such information as may be
necessary to keep current and correct the information previously supplied.
We understand that the Trust will also take action with respect to the
offering and sale of Units in accordance with the Blue Sky or securities laws of
certain states in which it is proposed that the Units may be offered and sold.
5. Public Offering. You agree that you will advise us promptly when
the Registration Statement has become effective, and we agree that when we are
advised that the Units are released for public offering, we will make a public
offering thereof by means of the Prospectus under the 1933 Act, as amended,
which describes the deposit of Securities and related information. The Public
Offering Price and the terms and conditions of the public offering shall be as
set forth in the Prospectus and shall rely with respect to the offering price of
the Securities upon the determination of the Evaluator named in the Prospectus.
Public advertisement of the offering, if any, shall be made by you on behalf of
the Underwriters on such date as you shall determine. We agree that before we
use any Trust advertising material which we have created, we will obtain your
prior approval to use such advertising materials.
6. Public Offering Price. We agree that each day while this
Agreement is in effect and the evaluation of the Trust is made by the Evaluator
named in the Prospectus, we will contact you for such evaluation and of the
resultant Public Offering Price for the purpose of the offering and sale of the
respective Units to the public. We agree as required by Section 22(d) of the
1940 Act to offer and sell our Units at the current Public Offering Price
described in the Prospectus.
7. Permitted Transactions. It is agreed that part or all of the
Units purchased by us may be sold to dealers, or other entities with whom we can
legally grant a concession or agency commission, only at the then effective
Public Offering Price, less the concession described in the Prospectus.
From time to time prior to the termination of this Agreement, at your
Request, we will advise you of the number of our Units which remain unsold and,
at your request, we agree to deliver to you any of such unsold Units to be sold
for our account to retail accounts or, less the concession or agency commission
then effective, to dealers or others.
If prior to the termination of this Agreement, or such earlier date as
you may determine and advise us thereof in writing, you shall purchase or
contract to purchase any of our Units or any Units issued in exchange therefor,
in the open market or otherwise, or if any such Units shall be tendered to the
Trustee for redemption because not effectively placed for investment by us, we
agree to repurchase such Units at a price equal to the total cost of such
purchase, including accrued interest and commissions, if any, and transfer taxes
on redelivery. Regardless of the amount paid on the repurchase of any such
Units, it is agreed that they may be resold by us only at the then effective
Public Offering Price.
Until the termination of this Agreement, we agree that we will make no
purchase of Units other than (i) purchases provided for in this Agreement, (ii)
purchases approved by you and (iii) purchases as broker in executing unsolicited
orders.
8. Compliance With Commission Order. We hereby agree as follows: (a)
we will refund all sales charges to purchasers of Units from us or any dealer
participating in the distribution of Units who purchased such Units from us if,
within ninety days from the time that the Registration Statement of the
respective Units under the 1933 Act shall have become effective, (i) the net
worth of the trust shall be reduced to less than 20% of the principal amount of
Securities originally deposited therein or (ii) the Trust shall have been
terminated; (b) you may instruct the Trustee on the Date of Deposit that, in the
event that redemption by any Underwriters of Units constituting part of any
unsold allotment of Units shall result in the Trust having a net worth of less
than 40% of the principal amount of Securities originally deposited therein, the
Trustee shall terminate the Trust in the manner provided in the Trust Indenture
and Agreement (as defined in the Prospectus) and distribute the Securities and
other assets of the Trust pursuant to the provisions of the Trust Indenture and
Agreement; and (c) in the event that the Trust shall have been terminated
pursuant to (b) above, we will refund any sales charges to any purchaser of such
Units who purchased from us, or purchased from a dealer participating in the
distribution of such Units who purchased such Units from us.
We authorize you to charge our account for all refunds of sales charges in
respect to our Units.
9. Substitution of Underwriters. We authorize you to arrange for the
substitution hereunder of other persons, who may include you and us, for all or
any part of the commitment of any nondefaulting Underwriter with the consent of
such Underwriter, and of any defaulting Underwriter without the consent thereof,
upon such terms and conditions as you may deem advisable, provided that the
number of Units to be purchased by us shall not be increased without our consent
and that such substitution shall not in any way affect the liability of any
defaulting Underwriter to the other Underwriters for damages from such default,
nor relieve any other Underwriter of any obligation under this Agreement. The
expenses chargeable to the account of any defaulting Underwriter and not paid
for by it or by a person substituted for such Underwriter and any additional
losses or expenses arising from such default shall be considered to be expenses
under this Agreement and shall be charged against the accounts of the
nondefaulting Underwriters in proportion to their respective commitments.
10. Termination. This Agreement shall terminate with respect to each
Trust which we have agreed to underwrite 30 days after the date on which the
public offering of the Units of such Trust is made in accordance with Section 5
hereof unless sooner terminated by you, provided that you may extend this
Agreement for not more than eleven successive periods of 30 days each upon
notice to us and each of the other Underwriters.
Notwithstanding any settlement on the termination of this Agreement, we
agree to pay our share of any amount payable on account of any claim, demand or
liability which may be asserted against the Underwriters, or any of them, based
on the claim that the Underwriters constitute an association, unincorporated
business or other separate entity and our share of any expenses incurred by you
in defending against any such claim, demand or liability. We also agree to pay
any stamp taxes which may be assessed and paid after such settlement on account
of any Units received or sold hereunder for our account.
Notwithstanding any termination of this Agreement, no sales of the
Units shall be made by us at any time except in conformity with the provisions
of Section 22(d) of the 1940 Act.
11. Default by Other Underwriters. Default by any one or more of the
other Underwriters in respect of their several obligations under this Agreement
shall neither release you nor us from any of our respective obligations
hereunder.
12. Notices. Notices hereunder shall by deemed to have been duly
given if mailed or telegraphed to us at our address set forth below, in the case
of notices to us, or to you at your address set forth at the head of this
Agreement, in the case of notices to you.
13. Net Capital. You represent that you, and we represent that we,
are in compliance with the capital requirements of Rule 15c-3-1 promulgated by
the Commission under the Securities and Exchange Act of 1934, and we may, in
accordance with and pursuant to such Rule 15c-3-1, agree to purchase the amount
of Units to be purchased by you and us, respectively, under the Agreement.
14. Miscellaneous. We confirm that we are a member in good standing
of the National Association of Securities Dealers, Inc.
We confirm that we will take reasonable steps to provide the
Preliminary Prospectus or final Prospectus to any person making written request
therefor to us and to make the Preliminary Prospectus or the final Prospectus
available to each person associated with us expected to solicit customers'
orders for the Units prior to the effective registration date and the final
Prospectus if he is expected to offer the Units after the effective date. We
understand that you will supply us upon our request with sufficient copies of
such prospectuses to comply with the foregoing.
<PAGE>
This Agreement is being executed by us and delivered to you in
duplicate. Upon your confirmation hereof and of agreements in identical form
with each of the other Underwriters, this Agreement shall constitute a valid and
binding contract between us.
Very truly yours,
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Confirmed as of the date set forth at the Indicated below our firm name and
head of this Agreement address exactly as we wish to appear
in the Prospectus
VAN KAMPEN AMERICAN CAPITAL DISTRIBUTORS, INC.
By____________________________ ____________________________________
Title__________________________ ____________________________________
------------------------------------
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, IL 60603
March 20, 1998
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Van Kampen American Capital Insured Income Trust,
Series 71
Gentlemen:
We have served as counsel for Van Kampen American Capital Distributors,
Inc. as Sponsor and Depositor of Van Kampen American Capital Insured Income
Trust, Series 71 (the "Fund"), in connection with the preparation, execution and
delivery of a Trust Agreement dated March 20, 1998, between Van Kampen American
Capital Distributors, Inc., as Depositor, American Portfolio Evaluation
Services, a division of Van Kampen American Capital Investment Advisory Corp.,
as Evaluator, and The Bank of New York, as Trustee, pursuant to which the
Depositor has delivered to and deposited the Bonds listed in Schedule A to the
Trust Agreement with the Trustee and pursuant to which the Trustee has issued to
or on the order of the Depositor a certificate or certificates representing
Units of fractional undivided interest in and ownership of the Fund created
under said Trust Agreement.
In connection therewith we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the execution
and issuance of certificates evidencing the Units of the Fund have been duly
authorized; and
2. The certificates evidencing the Units of the Fund when duly
executed and delivered by the Depositor and the Trustee in accordance with the
aforementioned Trust Agreement, will constitute valid and binding obligations of
the Fund and the Depositor in accordance with the terms thereof.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-47923) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
MJK/md
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
March 20, 1998
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York
Unit Investment Trust Division
101 Barclay Street
New York, New York 10286
Re: Van Kampen American Capital Insured Income Trust,
Series 71
Gentlemen:
We have acted as counsel for Van Kampen American Capital Distributors,
Inc., Depositor of Van Kampen American Capital Insured Income Trust, Series 71
(the "Trust"), in connection with the issuance of Units of fractional undivided
interest in the Trust, under a Trust Agreement dated March 20, 1998 (the
"Indenture") among Van Kampen American Capital Distributors, Inc., as Depositor,
American Portfolio Evaluation Services, a division of Van Kampen American
Capital Investment Advisory Corp., as Evaluator, and The Bank of New York, as
Trustee.
In this connection, we have examined the Registration Statement, the
Prospectus, the Indenture, and such other instruments and documents as we have
deemed pertinent.
The assets of the Trust will consist of a portfolio of
intermediate-term and long-term corporate debt obligations issued after July 18,
1984 of United States corporate issuers (the "Corporate Bonds"), municipal
issuers (the "Taxable Municipal Bonds") and "zero coupon" U.S. Treasury bonds
(the "Treasury Bonds") (collectively, the "Obligations") as set forth in the
Prospectus. For purposes of the opinions set forth below, we have assumed that
the Obligations are debt and that interest on each of the Obligations (including
the Taxable Municipal Bonds, if any) is includable in gross income for federal
income tax purposes (i.e., the Taxable Municipal Bonds are not tax-exempt).
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) The Trust is not an association taxable as a corporation
for Federal income tax purposes but will be governed by the provisions
of Subpart E, subchapter J (relating to trusts) of chapter 1, Internal
Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata
share of each asset of the Trust for Federal income tax purposes. Under
subpart E, subchapter J of chapter 1 of the Code, income of the Trust
will be treated as income of each Unitholder. Each Unitholder will be
considered to have received his pro rata share of income derived from
each Trust asset when such income is considered to be received by the
Trust. Each Unitholder will also be required to include in taxable
income for Federal income tax purposes, original issue discount with
respect to his interest in any Obligation held by the Trust at the same
time and in the same manner as though the Unitholder were the direct
owner of such interest. Original issue discount will be treated as zero
with respect to Corporate Bonds and the Taxable Municipal Bonds if it
is "de minimis" within the meaning of Section 1273 of the Code and,
based upon a Treasury Regulation (the "Regulation") which was issued on
December 28, 1992 regarding the stripped bond rules of the Code,
original issue discount with respect to a Treasury Bond will be treated
as zero if it is "de minimis" as determined thereunder. If a Corporate
Bond is a "high-yield discount obligation" within the meaning of
Section 163(e)(5) of the Code, certain special rules may apply. A
Unitholder may elect to include in taxable income for Federal income
tax purposes, market discount as it accrues with respect to his
interest in any Corporate Bond or Taxable Municipal Bond held by the
Trust which he is considered as having acquired with market discount at
the same time and in the same manner as though the Unitholder were the
direct owner of such interest.
(iii) The price a Unitholder pays for his Units, generally
including sales charges, is allocated among his pro rata portion of
each Obligation held by the Trust (in proportion to the fair market
values thereof on the valuation date closest to the date the Unitholder
purchases his Units), in order to determine his tax basis for his pro
rata portion of each Obligation held by the Trust. The Treasury Bonds
are treated as bonds that were originally issued at an 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. Under the special rules
relating to stripped bonds, original issue discount applicable to the
Treasury Bonds 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 greater than or equal to the "de minimis"
amount described below. To the extent the amount of such discount is
less than the respective "de minimis" amount, such discount shall be
treated as zero. In general, original issue discount accrues daily
under a constant interest rate method which takes into account the
semi-annual compounding of accrued interest. In the case of the
Treasury Bonds, this method will generally result in an increasing
amount of income to the Unitholders each year.
(iv) Each Unitholder will have a taxable event when an
Obligation of the Trust is disposed of (whether by sale, exchange,
liquidation, redemption, payment at maturity, or otherwise) or when the
Unitholder redeems or sells his Units. A Unitholder's tax basis in his
Unit will equal his tax basis in his pro rata portion of all of the
assets of the Trust. Such basis is determined (before the adjustments
described below) by apportioning the tax basis for the Units among each
of the Trust assets according to value as of the valuation date nearest
the date of acquisition of the Units. Unitholders must reduce the tax
basis of their Units for their share of accrued interest received, if
any, on Obligations delivered after the date the Unitholders pay for
their Units to the extent that such interest accrued on such
Obligations before the date the Trust acquired ownership of the
Obligations (and the amount of this reduction may exceed the amount of
accrued interest paid to the sellers) and, consequently, such
Unitholders may have an increase in taxable gain or reduction in
capital loss upon the disposition of such Units. Gain or loss upon the
sale or redemption of Units is measured by comparing the proceeds of
such sale or redemption with the adjusted basis of the Units. If the
Trustee disposes of Obligations (whether by sale, exchange, payment on
maturity, redemption or otherwise), gain or loss is recognized to the
Unitholder (subject to various non-recognition provisions of the Code).
The amount of any such gain or loss is measured by comparing the
Unitholder's pro rata share of the total proceeds from such disposition
with his basis for his fractional interest in the asset disposed of.
The basis of each Unit and of each Obligation which was issued with
original issue discount (including the Treasury Bonds) (or which has
market discount) must be increased by the amount of accrued original
issue discount (and market discount, if the Unitholder elects to
include market discount in income as it accrues) and the basis of each
Unit and of each Obligation which was purchased by a Trust at a premium
must be reduced by the annual amortization of bond premium which the
Unitholder has properly elected to amortize under Section 171 of the
Code. The tax basis reduction requirements of the Code relating to
amortization of bond premium may, under some circumstances, result in
the Unitholder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to or less than his original cost.
Each Unitholder's pro rata share of each expense paid by the Trust is
deductible by the Unitholder to the same extent as though the expense had been
paid directly by him. It should be noted that as a result of the Tax Reform Act
of 1986, certain miscellaneous itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will be deductible by
an individual only to the extent they exceed 2% of such individual's adjusted
gross income (similar limitations also apply to estates and trusts.) Unitholders
may be required to treat some or all of the expenses of the Trust as
miscellaneous itemized deductions subject to this limitation.
The Code provides a complex set of rules governing the accrual of
original issue discount, including special rules relating to "stripped" debt
instruments such as the Treasury Bonds. These rules provide that original issue
discount generally accrues on the basis of a constant compound interest rate
over the term of the Obligations. Special rules apply if the purchase price of
an Obligation exceeds its original issue price plus the amount of original issue
discount which would have previously accrued, based upon its issue price (its
"adjusted issue price"). Similarly, these special rules would apply to a
Unitholder if the tax basis of his pro rata portion of an Obligation issued with
original issue discount exceeds his pro rata portion of its adjusted issue
price. In addition, as discussed above, the Regulation provides that the amount
of original issue discount on a stripped bond is considered zero if the actual
amount of original issue discount on such stripped bond as determined under
Section 1286 of the Code is less than a "de minimis" amount, which, the
Regulation provides, is the product of (i) 0.25 percent of the stated redemption
price at maturity and (ii) the number of full years from the date the stripped
bond is purchased (determined separately for each new purchaser thereof) to the
final maturity date of the bond.
It is possible that a Corporate Bond that has been issued at an
original issue discount may be characterized as a "high-yield discount
obligation" within the meaning of Section 163(e)(5) of the Code. To the extent
that such an obligation is issued at a yield in excess of six percentage points
over the applicable Federal rate, a portion of the original issue discount on
such obligation will be characterized as a distribution on stock (e.g.,
dividends) for purposes of the dividends received deduction which is available
to certain corporations with respect to certain dividends received by such
corporations.
If a Unitholder's tax basis in his pro rata portion of any Corporate
Bond or Taxable Municipal Bond held by a Trust is less than his allocable
portion of such Bond's stated redemption price at maturity (or, if issued with
original issue discount, his 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. To the extent the amount of such
discount is less than the respective "de minimis" amount, such discount shall be
treated as zero. 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 in paragraph (iii).
Accrued market discount is generally includable in taxable income of
the Unitholders as ordinary income for federal tax purposes upon the receipt of
serial principal payments on Corporate Bonds and Taxable Municipal Bonds held by
the Trust, on the sale, maturity or disposition of such Bonds by the Trust and
on the sale of a Unitholder's 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 to purchase or carry his Units will be reduced by such accrued market
discount. In general, the portion of any interest which was not currently
deductible would ultimately be deductible when the accrued market discount is
included in income.
The tax basis of a Unitholder with respect to his interest in an
Obligation is increased by the amount of original issue discount (and market
discount, if the Unitholder elects to include market discount, if any, on the
Obligations held by the Trust in income as it accrues) thereon properly included
in the Unitholder's gross income as determined for Federal income tax purposes
and reduced by the amount of any amortized premium which the Unitholder has
properly elected to amortize under Section 171 of the Code. A Unitholder's tax
basis in his Units will equal his tax basis in his pro rata portion of all of
the assets of the Trust.
A Unitholder will recognize taxable gain (or loss) when all or part of
the pro rata interest in an Obligation is disposed of for an amount greater (or
less) than his tax basis therefor in a taxable transaction, subject to various
non-recognition provisions of the Code.
As previously discussed, gain attributable to any Corporate Bond or
Taxable Municipal Bond deemed to have been acquired by the Unitholder 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. The tax basis reduction requirements of the Code relating to
amortization of bond premium may, under certain 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.
If a 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 Corporate Bonds and Taxable Municipal Bonds
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.
In addition, it should be noted that capital gains may be
recharacterized as ordinary income in the case of certain financial transactions
that are "conversion transactions" effective for transactions entered into after
April 30, 1993.
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
held by the Trust or the sale of his Units provided that all of the following
conditions are met:
(i) the interest income or gain is not effectively connected
with the conduct by the foreign investor of a trade or business within
the United States;
(ii) if the interest is United States source income (which is
the case for most securities issued by United States issuers), the
Obligation is issued after July 18, 1984 (which is the case for each
Obligation held by the Trust), 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.
It should be noted that the Revenue Reconciliation Act of 1993,
includes a provision which eliminates the exemption from United States taxation,
including withholding taxes, for certain "contingent interest." This 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.
The scope of this opinion is expressly limited to the matters set forth
herein, and, except as expressly set forth above, we express no opinion with
respect to any other taxes, including foreign, state or local taxes or
collateral tax consequences with respect to the purchase, ownership and
disposition of Units.
Very truly yours
CHAPMAN AND CUTLER
MJK/md
Van Kampen American Capital Insured
Income Trust, Series 71
The Bank of New York, Trustee
March 20, 1998
Page 1
EXHIBIT 3.3
WINSTON & STRAWN
200 PARK AVENUE
NEW YORK, NY 10166-4193
March 20, 1998
Van Kampen American Capital Insured
Income Trust, Series 71
c/o The Bank of New York,
As Trustee
101 Barclay Street, 17 West
New York, New York 10286
Dear Sirs:
We have acted as special counsel for the Van Kampen American Capital
Insured Income Trust, Series 71, (individually the "Trust" and in the aggregate
the "Trusts" or the "Fund") for purposes of determining the applicability of
certain New York taxes under the circumstances hereinafter described.
The Fund is created pursuant to a Trust Agreement (the "Indenture"),
dated as of today (the "Date of Deposit") among Van Kampen American Capital
Distributors, Inc. (the "Depositor"), American Portfolio Evaluation Services, a
division of Van Kampen American Capital Investment Advisory Corp., an affiliate
of the Depositor, as Evaluator, and The Bank of New York as trustee (the
"Trustee"). As described in the prospectus relating to the Fund dated today to
be filed as an amendment to a registration statement heretofore filed with the
Securities and Exchange Commission (File number 333-47923) under the Securities
Act of 1933, as amended (the "Prospectus" and the "Registration Statement"), the
objectives of the Fund are the generation of a high level of current income and
the conservation of capital through a diversified investment in a fixed
portfolio primarily consisting of long-term corporate debt securities. It is
noted that no opinion is expressed herein with regard to the Federal tax aspects
of the bonds, the Fund, units of the Fund (the "Units"), or any interest, gains
or losses in respect thereof.
As more fully set forth in the Indenture and in the Prospectus, the
activities of the Trustee will include the following:
<PAGE>
On the Date of Deposit, the Depositor will deposit with the Trustee the
total principal amount of interest bearing obligations and/or contracts for the
purchase thereof together with an irrevocable letter of credit in the amount
required for the purchase price and accrued interest, if any, along with the
policy purchased by the Depositor evidencing insurance guaranteeing timely
payment of principal and interest on some of the obligations comprising the
corpus of the Trusts as more fully set forth in the Prospectus and the
Registration Statement. All other obligations included in the deposit described
above will be covered by insurance obtained by the issuer of such obligations or
by a prior owner, which may be the Depositor prior to the Date of Deposit,
guaranteeing timely payment of principal and interest, or will be U.S. Treasury
obligations.
We understand that all insurance policies described in the preceding
paragraph, whether purchased by the Depositor, a prior owner or the issuer,
provide, or will provide, that the amount paid by the insurer in respect of any
bond may not exceed the amount of principal and interest due on the bond and
such payment will in no event relieve the issuer from its continuing obligation
to pay such defaulted principal and interest in accordance with the terms of the
obligation.
The Trustee will not participate in the selection of the obligations to
be deposited in the Trusts, and, upon the receipt thereof, will deliver to the
Depositor a registered certificate for the number of Units representing the
entire capital of the Fund as more fully set forth in the Prospectus and the
Registration Statement. The Units, which are represented by certificates
("Certificates"), will be offered to the public upon the effectiveness of the
Registration Statement.
The duties of the Trustee, which are ministerial in nature, will
consist primarily of crediting the appropriate accounts with interest received
by the Fund and with the proceeds from the disposition of obligations held in
the Fund and the distribution of such interest and proceeds to the Unit holders.
The Trustee will also maintain records of the registered holders of Certificates
representing an interest in the Fund and administer the redemption of Units by
such Certificate holders and may perform certain administrative functions with
respect to an automatic reinvestment option and a conversion option.
Generally, obligations held in the Fund may be removed therefrom by the
Trustee only upon redemption prior to their stated maturity, at the direction of
the Depositor in the event of an advance refunding or upon the occurrence of
certain other specified events which adversely affect the sound investment
character of the Fund, such as default by the issuer in payment of interest or
principal on the obligations, and no provision for payment is made therefor
either pursuant to the portfolio insurance or otherwise, and the Sponsor fails
to instruct the Trustee, within thirty (30) days after notification, to hold
such obligation.
Prior to the termination of the Fund, the Trustee is empowered to sell
Bonds, on a list furnished by the Sponsor, only for the purpose of redeeming
Units tendered to it and of paying expenses for which funds are not available.
The Trustee does not have the power to vary the investment of any Unit holder in
the Fund, and under no circumstances may the proceeds of sale of any obligations
held by the Fund be used to purchase new obligations to be held therein.
Article 9-A of the New York Tax Law imposes a franchise tax on business
corporations, and, for purposes of that Article, Section 208(l) defines the term
"corporation" to include, among other things, "any business conducted by a
trustee or trustees wherein interest or ownership is evidenced by certificate or
other written instrument."
The Regulations promulgated under Section 208 provide as follows:
Any business conducted by a trustee or trustees in which interest or
ownership is evidenced by certificate or other written instrument includes, but
is not limited to, an association commonly referred to as a "business trust" or
"Massachusetts trust". In determining whether a trustee or trustees are
conducting a business, the form of the agreement is of significance but is not
controlling. The actual activities of the trustee or trustees, not their
purposes and powers, will be regarded as decisive factors in determining whether
a trust is subject to tax under article 9-A. The mere investment funds and the
collection of income therefrom, with incidental replacement of securities and
reinvestment of Funds, does not constitute the conduct of a business in the case
of a business conducted by a trustee or trustees. 20 NYCRR 1-2.3(b)(2) (July 11,
1990).
New York cases dealing with the question of whether a trust will be
subject to the franchise tax have also delineated the general rule that where a
trustee merely invests funds and collects and distributes the income therefrom,
the trust is not engaged in business and is not subject to the franchise tax.
Burrell v. Lynch, 274 A.D. 347, 84 N.Y.S.2d 171 (3rd Dept. 1948), order
resettled, 274 A.D. 1083, 85 N.Y.S.2d 705 (3d Dept. 1949).
In an Opinion of the Attorney General of the State of New York, 47
N.Y. Att'y. Gen. Rep. 213 (Nov. 24, 1942), it was held that where the trustee of
an unincorporated investment trust was without authority to reinvest amounts
received upon the sales of securities and could dispose of securities making up
the trust only upon the happening of certain specified events or the existence
of certain specified conditions, the trust was not subject to the franchise tax.
In the instant situation, the Trustee is not empowered to, and we
assume will not, sell obligations contained in the corpus of the Fund and
reinvest the proceeds therefrom. Further, the power to sell such obligations is
limited to circumstances in which the creditworthiness or soundness of the
obligation is in question or in which cash is needed to pay redeeming Unit
holders or to pay expenses, or where the Fund is liquidated subsequent to the
termination of the Indenture. Only in circumstances in which the issuer of an
obligation attempts to refinance it can the Trustee exchange an obligation for a
new security. In substance, the Trustee will merely collect and distribute
income and will not reinvest any income or proceeds, and the Trustee has no
power to vary the investment of any Unit holder in the Fund.
Under Subpart E of Part I, Subchapter J of Chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"), the grantor of a trust will be
deemed to be the owner of the trust under certain circumstances, and therefore
taxable on his proportionate interest in the income thereof. Where this Federal
tax rule applies, the income attributed to the grantor will also be income to
him for New York income tax purposes. See TSB-M-78(9)(c), New York Department of
Taxation and Finance, June 23, 1978.
By letter, dated today, Messrs. Chapman and Cutler, counsel for the
Depositor, rendered their opinion that each Unit holder will be considered as
owning a share of each asset of the Fund in the proportion that the number of
Units held by such holder bears to the total number of Units outstanding and the
income of the Fund will be treated as the income of each Unit holder in said
proportion pursuant to Subpart E of Part I, Subchapter J of Chapter 1 of the
Code.
Based on the foregoing and on the opinion of Messrs. Chapman and
Cutler, counsel for the Depositor, dated today, upon which we specifically rely,
we are of the opinion that under existing laws, rulings, and court decisions
interpreting the laws of the State and City of New York:
1. The Fund will not constitute an association taxable as a
corporation under New York law, and, accordingly, will not be subject
to tax on its income under the New York State franchise tax or the New
York City general corporation tax;
2. The income of the Fund will be treated as the income of the Unit
holders under the income tax laws of the State and City of New York; and
<PAGE>
3. Unit holders who are not residents of the State of New
York are not subject to the income tax law thereof with respect to any
interest or gain derived from the Fund or any gain from the sale or
other disposition of the Units, except to the extent that such interest
or gain is from property employed in a business, trade, profession or
occupation carried on in the State of New York.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Units and to the use of our name and the
reference to our firm in the Registration Statement and in the Prospectus.
Very truly yours,
WINSTON & STRAWN
MNS:md
Exhibit 4.1
Interactive Data
14 West Street
New York, NY 10005
March 19, 1998
Van Kampen American Capital Distributors, Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Re: Van Kampen American Capital Insured Income Trust, Series 71
(A Unit Investment Trust) Registered Under the Securities Act of 1933
FILE NO. 333-47923
Gentlemen:
We have examined the Registration Statement for the above captioned
Fund. We hereby consent to the reference in the Prospectus and Registration
Statement for the above captioned Fund to Interactive Data Corporation, as the
Evaluator, and to the use of the Obligations prepared by us which are referred
to in such Prospectus and Statement.
You are authorized to file copies of this letter with the Securities
and Exchange Commission.
Very truly yours,
James Perry
Vice President
EXHIBIT 4.2
Standard & Poor's Ratings Services,
A Division of McGraw-Hill, Inc.
25 Broadway
New York, New York 10004-1064
Mr. Mark Kneedy
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Re: Van Kampen American Capital Insured Income Trust,
Series 71
Dear Mr. Kneedy:
Pursuant to your request for a Standard & Poor's rating on the units of
the above-captioned trust, SEC #333-47923, we have reviewed the information
presented to us and have assigned a `AAA' rating to the units of the trust and a
`AAA' rating to the securities contained in the trust for as long as they remain
in the trust. The ratings are direct reflections, of the portfolio of the
trusts, which will be composed solely of securities covered by bond insurance
policies that insure against default in the payment of principal and interest on
the securities so long as they remain in the trusts. Since such policies have
been issued by one or more insurance companies which have been assigned a `AAA'
claims paying ability rating by S&P, S&P has assigned a `AAA' rating to the
units of the trusts and to the securities contained in the trust for as long as
they remain in the trusts.
Standard & Poor's will maintain surveillance on the "AAA" rating until
April 20, 1999. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the Trust.
You have permission to use the name of Standard & Poor's Corporation
and the above-assigned ratings in connection with your dissemination of
information relating to these units, provided that it is understood that the
ratings are not "market" ratings nor recommendations to buy, hold, or sell the
units of the trust or the securities contained in the trust. Further, it should
be understood the rating on the units does not take into account the extent to
which fund expenses or portfolio asset sales for less than the fund's purchase
price will reduce payment to the unit holders of the interest and principal
required to be paid on the portfolio assets. S&P reserves the right to advise
its own clients, subscribers, and the public of the ratings. S&P relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings. S&P
does not independently verify the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Corporation in connection with the rating assigned to the units in the
registration statement or prospectus relating to the units or the trusts.
However, this letter should not be construed as a consent by us, within the
meaning of Section 7 of the Securities Act of 1933, to the use of the name of
Standard & Poor's Corporation in connection with the ratings assigned to the
securities contained in the trust. You are hereby authorized to file a copy of
this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final prospectus as
soon as it becomes available. Should we not receive them within a reasonable
time after the closing or should they not conform to the representations made to
us, we reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford Bragg
EXHIBIT 4.3
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We have issued our report dated March 20, 1998 on the statement of
condition and related securities portfolio of Van Kampen American Capital
Insured Income Trust, Series 71 as of March 20, 1998 contained in the
Registration Statement on Form S-6 and Prospectus. We consent to the use of our
report in the Registration Statement and Prospectus and to the use of our name
as it appears under the caption "Other Matters-Independent Certified Public
Accountants."
GRANT THORNTON LLP
Chicago, Illinois
March 20, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This report reflects the current time period taken from 487 on February 6,1998
it is unaudited
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> VIIT
<CAPTION>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-20-1998
<PERIOD-END> MAR-20-1998
<INVESTMENTS-AT-COST> 8,575,203
<INVESTMENTS-AT-VALUE> 8,575,203
<RECEIVABLES> 106,958
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,682,161
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106,958
<TOTAL-LIABILITIES> 106,958
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,575,203
<SHARES-COMMON-STOCK> 9,017
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
