Van Kampen American Capital
Prospectus Part I
Insured Municipals Income Trust, Series 400
- --------------------------------------------------------------------------------
Insured Municipals Income Trust, Series 400 (the "Trust") (included in
Insured Municipals Income Trust and Investor's Quality Tax-Exempt Trust,
Multi-Series 303 (the "Fund")) consists of interest-bearing obligations issued
by or on behalf of municipalities and other governmental authorities, the
interest on which is, in the opinion of bond counsel to the issuer, exempt from
all Federal income taxes under existing law (the "Bonds"). The objective of the
Trust is Federal tax-exempt income and conservation of capital through an
investment in a diversified portfolio of tax-exempt bonds. The Units of the
Trust are rated "AAA" by Standard & Poor's. The Trust is referred to herein as
the "IM-IT Trust" or "Insured Trust".
The Trust consists of 12 issues of Bonds. Two of the Bonds are general
obligations of the governmental entities issuing them and are backed by the
taxing power thereof. The remaining issues are payable from the income of a
specific project or authority and are not supported by the issuer's power to
levy taxes. These issues are divided by purpose of issues (and percentage of
principal amount) as follows: Health Care, 3 (31%); Higher Education, 3 (22%);
General Obligation, 2 (19%); General Purpose, 1 (11%); Certificate of
Participation, 1 (7%); Waste Disposal, 1 (5%) and Public Building, 1 (5%).
Approximately 28% of the principal amount of Bonds are issued by issuers located
in the State of Michigan. The dollar weighted average maturity of the Bonds is
28 years.
Monthly Semi-Annual
------------- ------------
Estimated Current Return: 4.64% 4.69%
Estimated Long Term Return: 4.69% 4.74%
CUSIP: 45809C-66-3 45809C-67-1
Estimated Current Return shows the estimated cash to be received each year
from the Bonds (net of estimated annual expenses) divided by the Public Offering
Price (including the sales charge).
Estimated Long-Term Return shows the estimated return over the estimated life
of the Trust. This is based on an average of the yields to maturity (or an
earlier call date) of the Bonds adjusted to reflect the sales charge and
estimated expenses. The average yield for the portfolio is derived by weighting
each Bond's yield by its value and the time remaining to the call or maturity
date, depending on how the Bond is priced. Unlike Estimated Current Return,
Estimated Long-Term Return accounts for maturities, discounts and premiums of
the Bonds.
No return calculation can predict your actual return because returns vary
with purchase price, sales charges, the length of the time Units are held and
changes in portfolio composition, interest income and expenses. The estimated
returns are designed to show a comparison rather than a prediction of returns. A
yield calculation, which is more comparable to a calculation of an individual
bond, may be higher or lower than these estimated returns which are more
comparable to return calculations of other investment products.
July 10, 1998
THIS PROSPECTUS PART I MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART II.
BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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.
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
Initial Date of Deposit: July 10, 1998
Principal Amount of Bonds: $ 9,040,000
Principal Amount of Bonds per Unit (1): $ 1,002.11
Number of Units: 9,021
- --------------------------------------------------------------------------------
PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
Aggregate Offering Price of Bonds $ 8,579,014
Aggregate Offering Price of Bonds per Unit $ 951.00
Plus Sales Charge per Unit $ 49.00
Public Offering Price per Unit (2) $ 1,000.00
Redemption Price per Unit $ 943.66
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL INCOME PER UNIT
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Estimated Interest Income $ 48.43 $ 48.43
Less Estimated Expenses (4) $ 1.99 $ 1.53
Less Estimated Insurance Expenses $ -- $ --
Estimated Net Interest Income $ 46.44 $ 46.90
- --------------------------------------------------------------------------------
ESTIMATED DISTRIBUTIONS
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------------- -----------------
Initial Distribution $ 3.22 $ 18.88
on August 25, 1998 on December 25, 1998
Normal Distribution (3) $ 3.87 $ 23.45
Record Dates 10th day of December 10 and
each month June 10
Distribution Dates 25th day of December 25 and
each month June 25
- --------------------------------------------------------------------------------
EXPENSES
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Sales Charge (% of Public Offering Price) 4.90% 4.90%
Estimated Annual Expenses per Unit
Trustee's Fee (5) (6) $ 0.91 $ 0.51
Evaluator's Supervisory Fee $ 0.25 $ 0.25
Evaluator's Evaluation Fee (5) $ 0.30 $ 0.30
Other Operating Expenses $ 0.67 $ 0.61
----------- -----------
Total Annual Expenses per Unit $ 2.13 $ 1.67
=========== ===========
(1) Because certain of the Bonds 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
Trust termination will be equal to the Principal Amount of Bonds per Unit.
(2) After the First Settlement Date (July 15, 1998), Unitholders will pay
accrued interest from such date to the settlement date less distributions
from the Interest Account after the First Settlement Date.
(3) This is based on estimated cash flows per Unit which will vary with changes
in expenses, interest rates and maturity, call, exchange or sale of the
Bonds. Estimated cash flows are set forth in the Information Supplement or
are available upon request.
(4) Excludes insurance expenses.
(5) This fee is assessed per $1,000 principal amount of Bonds. Other fees are
assessed per Unit.
(6) During the first year the Trustee will reduce its fee by approximately $.14
per Unit (which is the estimated interest to be earned prior to the expected
delivery dates for the "when, as and if issued" Bonds). Should the interest
exceed this amount, the Trustee will reduce its fee up to its annual fee.
After the first year, the Trustee's fee will be the amount indicated above.
Estimated interest income will increase to $48.57. Estimated General
Expenses will increase to $2.13 and $1.67 under the monthly and semi-annual
distribution plans, respectively. Estimated Net Interest Income will remain
as shown.
<TABLE>
PORTFOLIO
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Offering
Price to
Aggregate Name of Issuer, Title, Interest Rate and Redemption IM-IT
Principal Maturity Date of Bonds(1)(2) Rating(3) Feature(4) Trust (2)
- --------------- --------------------------------------------------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
$ 850,000 District of Columbia, Revenue Refunding Bonds (Howard
University) MBIA Insured 2008 @ 102
#5.00% Due 10/01/2020................................ AAA 2019 @ 100 S.F. $ 829,761
375,000 Board of Trustees of Western Michigan University, General
Revenue and Refunding Bonds, Series 1997 (FGIC Insured) 2007 @ 100
#5.125% Due 11/15/2022............................... AAA 2018 @ 100 S.F. 372,476
715,000 Coldwater, Michigan, Community Schools, Refunding General
Obligation Bonds (MBIA Insured) 2007 @ 100
#5.125% Due 05/01/2023............................... AAA 2018 @ 100 S.F. 710,109
635,000 Moffat County, Colorado, Certificate of Participation (Public
Safety Center Project) Series 1998 (FSA Insured) 2008 @ 101
#5.125% Due 06/01/2023##............................. AAA 2014 @ 100 S.F. 631,527
420,000 Metropolitan Pier and Exposition Authority, Illinois,
Dedicated State Tax, Revenue Refunding Capital Appreciation
Bonds (McCormick Project) MBIA Insured
#0.00% Due 06/15/2025................................ AAA 103,690
1,000,000 District of Columbia, Revenue Bonds (American Association for
the Advancement of Science Issue) Series 1997
(AMBAC Assurance Insured) 2008 @ 102
#5.125% Due 01/01/2027............................... AAA 2017 @ 100 S.F. 986,610
1,000,000 Springport, Michigan, Public Schools General Obligation Bonds
(MBIA Insured) 2007 @ 100
#5.15% Due 05/01/2027................................ AAA 2023 @ 100 S.F. 994,550
450,000 Detroit, Michigan, Sewage Disposal Revenue Bonds, Series A
(MBIA Insured) 2007 @ 101
#5.00% Due 07/01/2027................................ AAA 2023 @ 100 S.F. 438,188
765,000 Wisconsin, Health and Educational Facilities Authority,
Revenue Refunding Bonds (Agnesian Healthcare Inc.)
MBIA Insured 2008 @ 101
#5.00% Due 07/01/2027................................ AAA 2024 @ 100 S.F. 739,395
1,000,000 Iowa, Finance Authority, Hospital Facility Revenue Bonds (Iowa
Health System) Series A (MBIA Insured)
#5.125% Due 01/01/2028............................... AAA 2008 @ 102 984,870
800,000 Massachusetts, Health and Educational Facilities Authority,
Revenue Bonds (Bentley College) Series J (MBIA Insured) 2008 @ 101
#5.125% Due 07/01/2028............................... AAA 2024 @ 100 S.F. 792,528
1,030,000 Hills, Iowa, Revenue Refunding Bonds (Mercy Hospital, Iowa
City) FSA Insured 2008 @ 101
#5.00% Due 08/15/2028##.............................. AAA 2019 @ 100 S.F. 995,310
- --------------- ------------
$ 9,040,000 $ 8,579,014
=============== ============
</TABLE>
- --------------------------------------------------------------------------------
All of the Bonds are insured either by one of the Preinsured Bond Insurers as
indicated in the Bond name or by a Portfolio Insurer under a portfolio insurance
policy. See "Insurance on the Bonds in the Insured Trusts" in Prospectus Part
II.
For an explanation of the footnotes used on this page, see "Notes to Portfolio".
Notes to Portfolio
(1) The Bonds 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. Contracts to
acquire the Bonds were entered into during the period from July 7, 1998 to
July 9, 1998.
(2) Other information regarding the Bonds is as follows:
Cost to Profit (Loss)
Sponsor to Sponsor
--------------- ---------------
$ 8,517,716 $ 61,298
- -----------
The breakdown of the Preinsured Bond Insurers is as follows: AMBAC
Assurance 18%, Financial Guaranty 4%, MBIA 66% and FSA 12%.
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain Bonds. The cost of any such contracts and the
corresponding gain or loss is included in the Cost to Sponsor. Bonds marked by
"##" following the maturity date have been purchased on a "when, as and if
issued" or "delayed delivery" basis. Interest on these Bonds begins accruing to
the benefit of Unitholders on their respective dates of delivery. Delivery is
expected to take place at various dates after the First Settlement Date. "#"
prior to the coupon rate indicates that the Bond was issued at an original issue
discount. See "The Trusts--Risk Factors" in Prospectus Part II. The tax effect
of Bonds issued at an original issue discount is described in "Federal Tax
Status" in Prospectus Part II.
(3) All ratings are by Standard & Poor's unless otherwise indicated. "*"
indicates that the rating of the Bond is by Moody's. "o" indicates that the
rating is contingent upon receipt by the rating agency of a policy of
insurance obtained by the issuer of the bonds. "N/R" indicates that the
rating service did not provide a rating for that Bond. For a brief
description of the ratings see "Description of Ratings" in the Information
Supplement.
(4) This is the year in which each Bond is initially or currently callable and
the call price for that year. Each Bond 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 Bonds. Certain Bonds may be subject to redemption without premium
prior to the date shown pursuant to extraordinary optional or mandatory
redemptions if certain events occur. See "The Trusts--Risk Factors" in
Prospectus Part II.
Underwriting. The Underwriters named below have purchased Units in the
following amounts from the Sponsor. For additional information regarding the
Underwriters, including information relating to compensation and benefits
received by the Underwriters, see "Public Offering--Sponsor and Underwriter
Compensation" in Prospectus Part II.
<TABLE>
<CAPTION>
NAME ADDRESS Units
------
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 5,921
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 500
R. Seelaus & Co., Inc. The Atrium @ 47 Maple Street, Summit, New Jersey 07901 350
Southwest Securities Inc. 1201 Elm Street, Suite 4300, Dallas, Texas 75270 300
William R. Hough & Company 100 Second Avenue South, 8th Floor, St. Petersburg, Florida 33701 250
Peacock, Hislop, Staley, & Given, Inc. 122 North Kirkwood Road, St. Louis, Missouri 63122 250
Roosevelt & Cross Inc. 20 Exchange Place, New York, New York 10005 250
Advest, Inc. 90 State House Square, Hartford, Connecticut 06103 100
Robert W. Baird & Co. Inc. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 100
CIBC Oppenheimer World Financial Center, 8th Floor, New York, New York 10281 100
Fahnestock & Co., Inc. 110 Wall Street, 8th Floor, New York, New York 10005 100
Fidelity Capital Markets 164 Northern Avenue, Boston, Massachusetts 02210 100
Gruntal & Co., L.L.C. 14 Wall Street, New York, New York 10005 100
J.J.B. Hilliard, W.L. Lyons, Inc. 501 South Fourth Street, Louisville, Kentucky 40202 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 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
Stifel, Nicolaus & Company, Incorporated 500 North Broadway, St. Louis, Missouri 63102 100
-----
9,021
=====
</TABLE>
Letter of Intent. A purchaser desiring to purchase during a 13 month period
$500,000 or more of any combination of series of Van Kampen American Capital
unit investment 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 unit investment 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 purchaser
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 under a Letter of Intent each purchase of units of Van Kampen American
Capital unit investment trusts must equal or exceed $100,000.
Tax Status. Investors should be aware that legislation is currently pending
under which net capital gain realized from property (with certain exclusions)
held for more than one year (rather than more than 18 months) would be taxed at
the maximum marginal stated tax rate of 20% (10% for certain taxpayers) provided
by the 1997 Act. Such legislation is proposed to be effective retroactively for
amounts properly taken into account on or after January 1, 1998. For a
discussion of the Federal tax status of income earned on Units, see "Federal Tax
Status" in Prospectus Part II.
Report of Certified Public Accountants
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Insured Municipals Income Trust, Series 400 (included in
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 303):
We have audited the accompanying statement of condition and the portfolio
of Insured Municipals Income Trust, Series 400 (included in Insured Municipals
Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 303) as of
July 10, 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 tax-exempt
bonds 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 Insured Municipals Income
Trust, Series 400 (included in Insured Municipals Income Trust and Investors'
Quality Tax-Exempt Trust, Multi-Series 303) as of July 10, 1998, in conformity
with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
July 10, 1998
Statement of Condition
As of July 10, 1998
INVESTMENT IN BONDS
Contracts to purchase Bonds (1)(2) $ 8,579,014
Accrued interest to the First Settlement Date (1)(2) 60,662
----------------
Total $ 8,639,676
================
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) $ 60,662
Interest of Unitholders--
Cost to investors 9,021,000
Less: Gross underwriting commission 441,986
----------------
Net interest to Unitholders (1)(2) 8,579,014
----------------
Total $ 8,639,676
================
- --------------------------------------------------------------------------------
(1) The value of the Bonds is determined by Interactive Data Corporation on the
bases set forth under "Public Offering--Offering Price" in Prospectus Part
II. The contracts to purchase Bonds are collateralized by an irrevocable
letter of credit in an amount sufficient to satisfy such contracts.
(2) The Trustee will advance the amount of the net interest accrued to the First
Settlement Date to the Trust for distribution to the Sponsor as the
Unitholder of record as of such date.
PROSPECTUS
PART I
July 10, 1998
Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 303
Insured Municipals Income Trust, Series 400
------ A Wealth of Knowledge oA Knowledge of Wealthsm ------
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
This Prospectus Part I may not be distributed unless accompanied by Part II.
Both parts of this Prospectus should be retained for future reference.
Van Kampen American Capital
Prospectus Part I
Maryland Investors' Quality Tax-Exempt Trust, Series 85
- --------------------------------------------------------------------------------
Maryland Investors' Quality Tax-Exempt Trust, Series 85 (the "Trust")
(included in Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 303 (the "Fund")) consists of interest-bearing obligations
issued by or on behalf of municipalities and other governmental authorities, the
interest on which is, in the opinion of bond counsel to the issuer, exempt from
all Federal income taxes under existing law and exempt to the extent described
herein from Maryland state and local taxes when held by residents of Maryland
(the "Bonds"). The objective of the Trust is Federal and Maryland tax-exempt
income and conservation of capital through an investment in a diversified
portfolio of tax-exempt bonds. The Trust is referred to herein as the "State
Trust" or "Quality Trust."
The Trust consists of 9 issues of Bonds. One of the Bonds is a general
obligation of the governmental entity issuing it and is backed by the taxing
power thereof. The remaining issues are payable from the income of a specific
project or authority and are not supported by the issuer's power to levy taxes.
These issues are divided by purpose of issues (and percentage of principal
amount) as follows: Health Care, 3 (29%); Public Building, 2 (22%); Retail
Electric/Gas/Telephone, 1 (13%); Transportation, 1 (12%); Water and Sewer, 1
(12%) and General Obligation, 1 (12%). The dollar weighted average maturity of
the Bonds is 28 years.
Monthly Semi-Annual
------------------ ------------------
Estimated Current Return: 4.51% 4.56%
Estimated Long Term Return: 4.54% 4.59%
CUSIP: 574080-14-9 574080-15-6
Estimated Current Return shows the estimated cash to be received each year
from the Bonds (net of estimated annual expenses) divided by the Public Offering
Price (including the sales charge).
Estimated Long-Term Return shows the estimated return over the estimed life
of the Trust. This is based on an average of the yields to maturity (or an
earlier call date) of the Bonds adjusted to reflect the sales charge and
estimated expenses. The average yield for the portfolio is derived by weighting
each Bond's yield by its value and the time remaining to the call or maturity
date, depending on how the Bond is priced. Unlike Estimated Current Return,
Estimated Long-Term Return accounts for maturities, discounts and premiums of
the Bonds.
No return calculation can predict your actual return because returns vary
with purchase price, sales charges, the length of time Units are held and
changes in portfolio composition, interest income and expenses. The estimated
returns are designed to show a comparison rather than a prediction of returns. A
yield calculation, which is more comparable to a calculation on an individual
bond, may be higher or lower than these estimated returns which are more
comparable to return calculations of other investment products.
July 10, 1998
THIS PROSPECTUS PART I MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART II.
BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
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.
Summary of Essential Financial Information
Initial Date of Deposit: July 10, 1998
Principal Amount of Bonds: $ 2,025,000
Principal Amount of Bonds per Unit (1): $ 980.63
Number of Units: 2,065
- --------------------------------------------------------------------------------
Public Offering Price
- --------------------------------------------------------------------------------
Aggregate Offering Price of Bonds $ 1,963,816
Aggregate Offering Price of Bonds per Unit $ 951.00
Plus Sales Charge per Unit $ 48.99
Public Offering Price per Unit (2) $ 999.99
Redemption Price per Unit $ 943.78
- --------------------------------------------------------------------------------
Estimated Annual Income Per Unit
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Estimated Interest Income $ 47.62 $ 47.62
Less Estimated Expenses $ 2.51 $ 2.02
Estimated Net Interest Income $ 45.11 $ 45.60
- --------------------------------------------------------------------------------
Estimated Distributions
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------------- ------------------
Initial Distribution $ 3.13 on $ 14.56 on
August 25, 1998 November 25, 1998
Normal Distribution (3) $ 3.75 $ 22.80
Record Dates 10th day of November 10 and
each month May 10
Distribution Dates 25th day of November 25 and
each month May 25
- --------------------------------------------------------------------------------
Expenses
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Sales Charge (% of Public Offering Price) 4.90% 4.90%
Estimated Annual Expenses per Unit
Trustee's Fee (4) $ 0.91 $ 0.51
Evaluator's Supervisory Fee $ 0.25 $ 0.25
Evaluator's Evaluation Fee (4) $ 0.30 $ 0.30
Other Operating Expenses $ 1.05 $ 0.96
----------- -----------
Total Annual Expenses per Unit $ 2.51 $ 2.02
=========== ===========
(1) Because certain of the Bonds 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
Trust termination will be equal to the Principal Amount of Bonds per Unit.
(2) After the First Settlement Date (July 15, 1998), Unitholders will pay
accrued interest from such date to the settlement date less distributions
from the Interest Account after the First Settlement Date.
(3) This is based on estimated cash flows per Unit which will vary with changes
in expenses, interest rates and maturity, call, exchange or sale of the
Bonds. Estimated cash flows are set forth in the Information Supplement or
are available upon request.
(4) This fee is assessed per $1,000 principal amount of Bonds. Other fees are
assessed per Unit.
<TABLE>
<CAPTION>
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
Offering
Price To
Rating(3) Maryland
Aggregate Name of Issuer, Title, Interest Rate and Standard Redemption Quality
Principal Maturity Date of Bonds (1)(2) & Poors Moody's Feature(4) Trust(2)
- ------------ ------------------------------------------------------ ---------- --------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
$ 250,000 Ocean City, Maryland, General Obligation Bonds (MBIA Insured)
#5.05% Due 12/01/2017............................. AAA Aaa 2007 @ 101 $ 251,697
75,000 Maryland, Health and Higher Education Authority, Revenue Bonds,
Johns Hopkins Hospital
#0.00% Due 07/01/2019............................. AA- Aa3 2016 @ 80.41 S.F. 26,983
100,000 Baltimore, Maryland, Convention Center, Revenue Refunding
Bonds (MBIAInsured) 2008 @ 102
#5.00% Due 09/01/2019............................. AAA Aaa 2016 @ 100 S.F. 99,978
350,000 Maryland, Community Development Administration, Department of
Housing and Community Development, Infrastructure Financing
Revenue Bonds, Series B (MBIA Insured) 2008 @ 101
5.20% Due 06/01/2028.............................. N/R Aaa 2018 @ 100 S.F. 352,310
250,000 Baltimore, Maryland, Project Revenue Refunding Bonds,
Wastewater Project, Series B (FGIC Insured)
#5.00% Due 07/01/2028............................. AAA Aaa 2008 @ 101 247,427
300,000 Maryland, Health and Higher Educational Facilities Authority,
Revenue Bonds, Calvert Memorial Hospital
#5.00% Due 07/01/2028............................. A A2 2008 @ 102 294,411
250,000 Puerto Rico Commonwealth, Highway and Transportation
Authority, Transportation Revenue Bonds, Series A
(AMBAC Assurance Insured) 2008 @ 101
#5.00% Due 07/01/2028............................. AAA Aaa 2019 @ 100 S.F. 247,428
250,000 Puerto Rico, Electric Power Authority, Power Revenue Bonds,
Series DD (MBIA Insured) 2008 @ 101.50
#5.00% Due 07/01/2028............................. AAA Aaa 2020 @ 100 S.F. 247,428
200,000 Maryland, Health and Higher Educational Facilities Authority,
Revenue Bonds, Johns Hopkins Medicine (MBIA Insured) 2008 @ 101
#5.00% Due 07/01/2033............................. AAA Aaa 2030 @ 100 S.F. 196,154
- ----------- ----------
$ 2,025,000 $1,963,816
=========== ==========
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to Portfolio".
Notes to Portfolio
(1) The Bonds 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. Contracts to
acquire the Bonds were entered into during the period from July 7, 1998 to
July 9, 1998.
(2) Other information regarding the Bonds is as follows:
Cost to Profit (Loss)
Sponsor to Sponsor
--------------- ---------------
$ 1,948,500 $ 15,316
- -----------
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain Bonds. The cost of any such contracts and the
corresponding gain or loss is included in the Cost to Sponsor. Bonds marked by
"##" following the maturity date have been purchased on a "when, as and if
issued" or "delayed delivery" basis. Interest on these Bonds begins accruing to
the benefit of Unitholders on their respective dates of delivery. Delivery is
expected to take place at various dates after the First Settlement Date. "#"
prior to the coupon rate indicates that the Bond was issued at an original issue
discount. See "The Trusts--Risk Factors" in Prospectus Part II. The tax effect
of Bonds issued at an original issue discount is described in "Federal Tax
Status" in Prospectus Part II.
(3) All ratings are by Standard & Poor's unless otherwise indicated. "*"
indicates that the rating of the Bond is by Moody's. "o" indicates that the
rating is contingent upon receipt by the rating agency of a policy of
insurance obtained by the issuer of the bonds. "N/R" indicates that the
rating service did not provide a rating for that Bond. For a brief
description of the ratings see "Description of Ratings" in the Information
Supplement.
(4) This is the year in which each Bond is initially or currently callable and
the call price for that year. Each Bond 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 Bonds. Certain Bonds may be subject to redemption without premium
prior to the date shown pursuant to extraordinary optional or mandatory
redemptions if certain events occur. See "The Trusts--Risk Factors" in
Prospectus Part II.
Maryland Risk Factors. The financial condition of the State of Maryland is
affected by various national, economic, social and environmental policies and
conditions. Additionally, Constitutional and statutory limitations imposed on
the State and its local governments concerning taxes, bond indebtedness and
other matters may constrain the revenue-generating capacity of the State and its
local governments and, therefore, the ability of the issuers of the Bonds to
satisfy their obligations.
The economic vitality of the State and its various regions and, therefore,
the ability of the State and its local governments to satisfy the Bonds, are
affected by numerous factors. The State's economic base is diversified,
consisting of manufacturing, construction and service industries, supplemented
by rural areas with selective commercial agriculture. The State has a relatively
high wage labor market which has resulted in the State's business sector
becoming more vulnerable to competitive pressures.
The State is a party to numerous lawsuits in which an adverse final decision
could materially affect the State's governmental operations and consequently its
ability to pay debt service on its obligations.
The State of Maryland currently maintains a "triple A" bond rating from
Standard & Poor's and Moody's on its general obligation indebtedness. Further
information concerning Maryland risk factors may be obtained upon request to the
Sponsor as described in "Additional Information" appearing in Prospectus Part
II.
Tax Status. Investors should be aware that legislation is currently pending
under which net capital gain realized from property (with certain exclusions)
held for more than one year (rather than more than 18 months) would be taxed at
the maximum marginal stated tax rate of 20% (10% for certain taxpayers) provided
by the 1997 Act. Such legislation is proposed to be effective retroactively for
amounts properly taken into account on or after January 1, 1998. For a
discussion of the Federal tax status of income earned on Maryland Quality Trust
Units, see "Federal Tax Status" in Prospectus Part II.
In the opinion of Weinberg & Green LLC, special counsel to the Fund for
Maryland tax matters, under existing Maryland income tax law applicable to
taxpayers whose income is subject to Maryland income taxation:
(1) For Maryland State and local income tax purposes, the Maryland Quality
Trust will not be recognized as an association taxable as a corporation, but
rather as a fiduciary whose income will not be subject to Maryland State and
local income taxation.
(2) To the extent that interest derived from the Maryland Quality Trust by a
Unitholder with respect to the obligations of the State of Maryland, the
Government of Puerto Rico and their political subdivisions is excludable from
Federal gross income, such interest will not be subject to Maryland State or
local income taxes. Interest paid to a "financial institution" will be subject
to the Maryland State franchise tax on financial institutions.
(3) In the case of taxpayers who are individuals, Maryland presently imposes
an income tax on items of tax preference with reference to such items as defined
in the Internal Revenue Code, as amended from time to time, for purposes of
calculating the federal alternative minimum tax. Interest paid on certain
private activity bonds constitutes a tax preference item for the purpose of
calculating the federal alternative minimum tax. Accordingly, if the Maryland
Quality Trust holds such bonds, 50% of the interest on such bonds in excess of a
threshold amount is taxable in Maryland.
(4) Capital gain, including gain realized by a Unitholder from the
redemption, sale or other disposition of a Unit, will be included in the
Maryland taxable base of Unitholders for Maryland State and local income
taxation purposes. However, Maryland defines the taxable net income of
individuals as Federal adjusted gross income with certain modifications.
Likewise, the Maryland taxable net income of corporations is Federal taxable
income with certain modifications. There is available to Maryland income
taxpayers a modification which allows those taxpayers to subtract from the
Maryland taxable base the gain included in Federal adjusted gross income or
Federal taxable income, as the case may be, which is realized from the
disposition of obligations issued by the State of Maryland or its political
subdivisions by the Maryland Quality Trust. Consequently, by making that
modification, a Unitholder who is entitled to make the subtraction modification
will not be subject to Maryland State or local income tax with respect to gain
realized upon the disposition of obligations issued by the State of Maryland or
its political subdivisions by the Maryland Quality Trust. Profit realized by a
"financial institution" from the sale or exchange of Bonds will be subject to
the Maryland Franchise Tax.
These opinions relate only to the treatment of the Maryland Quality Trust and
the Units under the Maryland State and local income tax laws and Maryland
franchise tax laws. Unitholders should consult tax counsel as to other Maryland
tax consequences not specifically considered in these opinions. For example, no
opinion is expressed as to the treatment of the Units under the Maryland
inheritance and estate tax laws.
Underwriting. The Underwriters named below have purchased Units in the
following amounts from the Sponsor. For additional information regarding the
Underwriters, including information relating to compensation and benefits
received by the Underwriters, see "Public Offering--Sponsor and Underwriter
Compensation" in Prospectus Part II.
<TABLE>
<CAPTION>
NAME ADDRESS Units
-----
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,515
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 250
Gruntal & Co., L.L.C. 14 Wall Street, New York, New York 10005 100
Smith Barney Inc. 388 Greenwich Street, 23rd Floor, New York, New York 10013 100
Wheat First Butcher Singer River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
-----
2,065
=====
</TABLE>
Letter of Intent. A purchaser desiring to purchase during a 13 month period
$500,000 or more of any combination of series of Van Kampen American Capital
unit investment 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 unit investment 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 purchaser
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 under a Letter of Intent each purchase of units of Van Kampen American
Capital unit investment trusts must equal or exceed $100,000.
Report of Certified Public Accountants
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Maryland Investors' Quality Tax-Exempt Trust, Series 85
(included in Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 303):
We have audited the accompanying statement of condition and the portfolio of
Maryland Investors' Quality Tax-Exempt Trust, Series 85 (included in Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
303) as of July 10, 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 tax-exempt
bonds 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 Maryland Investors' Quality
Tax-Exempt Trust, Series 85 (included in Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust, Multi-Series 303) as of July 10, 1998, in
conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
July 10, 1998
Statement of Condition
As of July 10, 1998
INVESTMENT IN BONDS
Contracts to purchase Bonds (1)(2) $ 1,963,816
Accrued interest to the First Settlement Date (1)(2) 10,351
------------------
Total $ 1,974,167
==================
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) $ 10,351
Interest of Unitholders--
Cost to investors 2,064,979
Less: Gross underwriting commission 101,163
------------------
Net interest to Unitholders (1)(2) 1,963,816
------------------
Total $ 1,974,167
==================
- --------------------------------------------------------------------------------
(1) The value of the Bonds is determined by Interactive Data Corporation on the
bases set forth under "Public Offering--Offering Price" in Prospectus Part
II. The contracts to purchase Bonds are collateralized by an irrevocable
letter of credit in an amount sufficient to satisfy such contracts.
(2) The Trustee will advance the amount of the net interest accrued to the First
Settlement Date to the Trust for distribution to the Sponsor as the
Unitholder of record as of such date.
PROSPECTUS
PART I
July 10, 1998
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust, Multi-Series 303
Maryland Investors' Quality Tax-Exempt Trust, Series 85
------ A Wealth of Knowledge oA Knowledge of Wealthsm ------
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
This Prospectus Part I may not be distributed unless accompanied by Part II.
Both parts of this Prospectus should be retained for future reference.
February 1998
VAN KAMPEN AMERICAN CAPITAL
PROSPECTUS PART II
INSURED MUNICIPALS INCOME TRUST, INSURED MULTI-SERIES AND
INSURED MUNICIPALS INCOME TRUST AND INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES
- --------------------------------------------------------------------------------
THE FUND. The objectives of the Fund are Federal and, in the case of a State
Trust, state tax-exempt income and conservation of capital through an investment
in a diversified portfolio of tax-exempt bonds. The Fund consists of the
underlying separate unit investment trusts set forth in Prospectus Part I. The
Bonds are interest-bearing obligations issued by or on behalf of municipalities
and other governmental authorities, the interest on which is exempt from all
Federal income taxes under existing law in the opinion of bond counsel to the
issuer. In addition, the interest income of each State Trust is, in the opinion
of bond counsel to the issuer, exempt to the extent indicated from state and
local taxes, when held by residents of the state where the issuers of the Bonds
are located. Except in specific instances as noted in Prospectus Part I, the
information contained in this Prospectus Part II shall apply to each Trust in
its entirety.
"AAA" RATING FOR THE INSURED TRUSTS. Insurance guaranteeing the payments of
principal and interest, when due, on the Bonds in each Insured Trust has been
obtained from a municipal bond insurance company. See "Insurance on the Bonds in
the Insured Trusts". Insurance relates only to the Bonds and not to the Units or
to the market value thereof. As a result of such insurance, the Units of each
Insured Trust have received a rating of "AAA" by Standard & Poor's, A Division
of the McGraw-Hill Companies ("Standard & Poor's"). Units of the Trusts are not
insured by the FDIC, are not deposits or other obligations of, or guaranteed by,
any government agency and are subject to investment risk, including possible
loss of the principal amount invested.
PUBLIC OFFERING PRICE. The Public Offering Price of Units during the initial
offering period includes the aggregate offering price of the Bonds, the
applicable sales charge, cash, if any, in the Principal Account of the Trust,
and accrued interest, if any. Sales charges for the Trusts are set forth under
"Public Offering--General." During the initial offering period, the sales charge
is reduced for sales involving at least 100 Units.
ESTIMATED CURRENT AND LONG-TERM RETURNS. The Estimated Current Returns and
Estimated Long-Term Returns to Unitholders are described on the cover of
Prospectus Part I. See "Estimated Current and Long-Term Returns."
DISTRIBUTION OPTIONS. Unitholders may elect to receive distributions on a
monthly or semi-annual basis. See "Rights of Unitholders--Distributions of
Interest and Principal". Those indicating no choice will be deemed to have
chosen the monthly distribution plan.
MARKET FOR UNITS. Although not obligated to do so, the Sponsor intends to,
and certain of the other Underwriters may, maintain a secondary market for the
Units. If a secondary market is not available, a Unitholder will always be able
to redeem his Units through the Trustee on any business day. See "Rights of
Unitholders--Redemption of Units" and "Public Offering--Market for Units".
REINVESTMENT OPTION. Unitholders may reinvest their distributions into Van
Kampen American Capital or Morgan Stanley mutual funds. See "Rights of
Unitholders--Reinvestment Option". Unitholders may also have the option of
exchanging their investment for units of other Van Kampen American Capital unit
investment trusts at a reduced sales charge. Unitholders may obtain a prospectus
for such trusts from the Sponsor.
RISK FACTORS. An investment in Units should be made with an understanding of
certain risks, including, among other factors, the inability of the issuer or an
insurer, if any, to pay the principal of or interest on a bond when due,
volatile interest rates, early call provisions, and changes to the tax status of
the Bonds. See "The Trusts--Risk Factors".
THIS PROSPECTUS PART II MAY NOT BE DISTRIBUTED UNLESS ACCOMPANIED BY PART I.
BOTH PARTS OF THIS PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE.
An Information Supplement has been filed with the Securities and Exchange
Commission ("SEC") and can be obtained without charge by calling (800) 856-8487
or is available along with other related materials at the SEC's Internet site
(http://www.sec.gov). This Prospectus incorporates by reference the entire
Information Supplement.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE TRUSTS
- --------------------------------------------------------------------------------
THE FUND. This series of the Insured Municipals Income Trust or the
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust (the
"Fund"), consists of the underlying separate unit investment trusts described in
Prospectus Part I. The Fund was created under the laws of the State of New York
pursuant to a Trust Indenture and Agreement (the "Trust Agreement"), dated the
date of Prospectus Part I (the "Date of Deposit") among 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 Fund consists of separate portfolios of interest-bearing
obligations issued by or on behalf of states and territories of the United
States, and political subdivisions and authorities thereof, the interest on
which is, in the opinion of recognized bond counsel to the issuing authorities,
excludable from gross income for Federal income tax purposes under existing law.
All issuers of Bonds in a State Trust are located in the state for which the
Trust is named or in United States territories or possessions and their public
authorities; consequently, in the opinion of recognized bond counsel to the Bond
issuers, the interest earned on the Bonds is exempt to the extent indicated in
Prospectus Part I from state and local taxes. Further, in the opinion of bond
counsel to the respective issuers, the interest income of each Bond in a U.S.
Territorial IM-IT Trust is exempt from state, Commonwealth of Puerto Rico and
local income taxation. With the exception of New York and Pennsylvania Trusts,
Units of a State Trust may be purchased only by residents of the state for which
the Trust is named. Units of a New York Trust may be purchased by residents of
New York, Connecticut and Florida. Units of a Pennsylvania Trust may be
purchased by residents of Pennsylvania, Connecticut, Florida, Maryland, New
York, Ohio and West Virginia. State Trusts, other than State Intermediate
Laddered Maturity Trusts or State Intermediate Trusts, are referred to herein as
"Long-Term State Trusts".
On the Date of Deposit, the Sponsor deposited with the Trustee the
aggregate principal amount of Bonds indicated in the "Summary of Essential
Financial Information" in Prospectus Part I. The Bonds initially consist of
delivery statements relating to contracts for their purchase and cash, cash
equivalents and/or irrevocable letters of credit issued by a financial
institution. Thereafter, the Trustee, in exchange for the Bonds, delivered to
the Sponsor evidence of ownership of the number of Units indicated under
"Summary of Essential Financial Information" in Prospectus Part I.
The portfolio of any IM-IT, IM-IT Discount, U.S. Territorial IM-IT,
Long-Term State or National Quality Trust consists of Bonds maturing
approximately 15 to 40 years from the Date of Deposit. The approximate range of
maturities from the Date of Deposit for Bonds in any IM-IT Limited Maturity
Trust, IM-IT Intermediate Trust, State Intermediate Laddered Maturity Trust and
IM-IT Short Intermediate Trust is 12 to 15 years, 5 to 15 years, 5 to 10 years
and 3 to 7 years, respectively. The portfolio of any State Intermediate Laddered
Maturity Trust is structured so that approximately 20% of the Bonds will mature
each year, beginning in approximately the fifth year of the Trust, entitling
each Unitholder to a return of principal. This return of principal may offer
Unitholders the opportunity to respond to changing economic conditions and to
specific financial needs that may arise between the fifth and tenth years of the
Trust. However, the flexibility provided by the return of principal may also
eliminate a Unitholder's ability to reinvest at a rate as high as the yield on
the Bonds which matured.
Each Unit initially offered represents a fractional undivided interest
in the principal and net income of a Trust. To the extent that any Units are
redeemed by the Trustee, the fractional undivided interest in a Trust
represented by each Unit will increase, although the actual interest in the
Trust will remain unchanged. Units will remain outstanding until redeemed by
Unitholders or until the termination of the Trust Agreement.
OBJECTIVES AND BOND SELECTION. The objectives of the Fund are income
exempt from Federal income taxation and, in the case of a State Trust, Federal
and state income taxation and conservation of capital through an investment in
diversified portfolios of Federal and state tax-exempt obligations. A State
Intermediate Laddered Maturity Trust has additional objectives of providing
protection against changes in interest rates and investment flexibility through
an investment in a laddered portfolio of intermediate-term interest-bearing
obligations with maturities ranging from approximately 5 to 10 years in which
roughly 20% of the Bonds mature each year beginning in approximately the fifth
year of the Trust. There is, of course, no guarantee that the Trusts will
achieve their objectives. The Fund may be an appropriate investment vehicle for
investors who desire to participate in a portfolio of tax-exempt fixed income
bonds with greater diversification than they might be able to acquire
individually. Insurance guaranteeing the timely payment, when due, of all
principal and interest on the Bonds in each Insured Trust has been obtained from
a municipal bond insurance company. For information relating to insurance on the
Bonds, see "Insurance on the Bonds in the Insured Trusts". In addition, these
bonds are often not available in small amounts.
In selecting Bonds for the Trusts, the Sponsor considered the following
factors, among others: (a) either the Standard & Poor's rating of the Bonds was
not less than "BBB-" for Insured Trusts and "A-" for Quality Trusts, or the
Moody's Investors Service, Inc. ("Moody's") rating of the Bonds was not less
than "Baa" for Insured Trusts and "A" for the Quality Trusts, including
provisional or conditional ratings, respectively, (or, if not rated, the Bonds
had credit characteristics sufficiently similar to the credit characteristics of
interest-bearing tax-exempt bonds that were so rated as to be acceptable for
acquisition by the Fund in the opinion of the Sponsor), (b) the prices of the
Bonds relative to other bonds of comparable quality and maturity, (c) the
diversification of Bonds as to purpose of issue and location of issuer and (d)
with respect to the Insured Trusts, the availability and cost of insurance.
After the Date of Deposit, a Bond may cease to be rated or its rating may be
reduced below the minimum required as of the Date of Deposit. Neither event
requires elimination of a Bond from a Trust but may be considered in the
Sponsor's determination as to whether or not to direct the Trustee to dispose of
the Bond (see "Fund Administration--Portfolio Administration").
RISK FACTORS. The Trusts include certain types of bonds as described on
the cover of Prospectus Part I. An investment in Units should be made with an
understanding of the characteristics of and risks associated with such bonds.
The following is a brief summary of certain of these risks. Additional
information is included in Prospectus Part I and in the Information Supplement.
See "Additional Information". Neither the Sponsor nor the Trustee are liable for
any default, failure or defect in any of the Bonds.
Certain of the Bonds may be general obligations of a governmental
entity that are backed by the taxing power of the entity. All other Bonds are
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. Revenue bonds, on the other hand, are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source. There are, of course, variations in the security of the
different Bonds, both within a particular classification and between
classifications, depending on numerous factors.
Mortgage loan obligations may be FHA insured or may be single family
mortgage revenue bonds issued for the purpose of acquiring from originating
financial institutions notes secured by mortgages on residences located within
the issuer's boundaries and owned by persons of low or moderate income. Mortgage
loans are generally partially or completely prepaid prior to their final
maturities as a result of events such as sale of the mortgaged premises,
default, condemnation or casualty loss. A substantial portion of these bonds
will probably be redeemed prior to their scheduled maturities or even prior to
their ordinary call dates. Additionally, unusually high rates of default on the
underlying mortgage loans may reduce revenues available for the payment of
principal of or interest on mortgage revenue bonds.
Health care revenue bonds have ratings issued for health care
facilities that 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, competition with other health
care facilities, efforts by insurers and governmental agencies to limit rates
and legislation establishing state rate-setting agencies.
Public utility bond issuers sell wholesale and retail electric power
and gas. General problems of these issuers include difficulty in financing large
construction programs in an inflationary period, costs and delays attributable
to environmental considerations, the difficulty of the capital market in
absorbing utility debt, difficulty in obtaining fuel at reasonable prices, the
effect of energy conservation and government regulations.
Water and/or sewerage revenue bonds are generally payable from user
fees. The problems of these issuers include the ability to obtain rate
increases, population decline resulting in decreased user fees, financing,
environmental considerations, discovering fresh water and the impact of
"no-growth" zoning ordinances.
Industrial revenue bonds ("IRBs") have generally been issued under bond
resolutions under which the revenues and receipts payable have been assigned and
pledged to purchasers. In some cases, a mortgage on the underlying project may
have been granted as security for the IRBs. Regardless of the structure, payment
of IRBs is solely dependent upon the creditworthiness of the corporate operator
of the project or corporate guarantor which may be affected by such things as
cyclicality of revenues and earnings, regulatory and environmental restrictions,
litigation resulting from accidents, extensive competition and financial
deterioration resulting from a corporate restructuring.
Lease bonds are secured by lease payments of a governmental entity and
are often in the form of certificates of participation. Although the lease bonds
do not constitute general obligations of the municipality for which the
municipality's taxing power is pledged, a lease bond is ordinarily backed by the
municipality's covenant to appropriate for and make the payments due under the
lease bond. However, certain lease bonds contain "non-appropriation" clauses
which provide that the municipality has no obligation to make lease payments in
future years unless money is appropriated for such purpose on a yearly basis. A
governmental entity that enters into such a lease agreement cannot obligate
future governments to appropriate for and make lease payments but covenants to
take such action as is necessary to include any lease payments due in its
budgets and to make the appropriations therefor. A governmental entity's failure
to appropriate for and to make payments under its lease bond could result in
insufficient funds available for payment of the bonds secured thereby. Although
"non-appropriation" lease bonds are secured by the leased property, disposition
of the property in the event of foreclosure might prove difficult.
Education bond issuers govern the operation of schools, colleges and
universities and revenues are derived mainly from ad valorem taxes or from
tuition, dormitory revenues, grants and endowments. General problems relating to
school bonds include litigation contesting the financing of public education, a
declining percentage of the population consisting of "college" age individuals,
inability to raise tuitions and fees sufficiently and government legislation or
regulations which may adversely affect the revenues or costs of the issuers.
Transportation bonds are payable from revenues derived from the
ownership and operation of facilities such as airports, bridges, turnpikes, port
authorities, convention centers and arenas. Airport operating income may be
affected by the ability of the airlines to meet their obligations under use
agreements. Payment on bonds related to other facilities 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 Bonds are payable from revenues derived from the operation of
resource recovery facilities which are designed to process solid waste, generate
steam and convert steam to electricity. Resource recovery bonds may be subject
to extraordinary optional redemption at par upon the occurrence of circumstances
such as destruction or condemnation of a project, void or unenforceable
contracts, changes in the economic availability of raw materials, and operating
supplies or facilities, or other unavoidable changes adversely affecting the
operation of a project.
Certain Bonds may have been acquired at a market discount from par
value at maturity. The interest rates on these bonds are lower than current
market interest rates for newly issued bonds of comparable rating and type.
Generally, if interest rates for newly issued comparable bonds increase, the
market discount of previously issued bonds will increase, and if interest rates
for newly issued comparable bonds decline, the market discount of previously
issued bonds will decrease. The value of bonds purchased at a market discount
will generally increase in value faster than bonds purchased at a market premium
if interest rates decrease. Conversely, if interest rates increase, the value of
bonds purchased at a market discount will generally decrease faster than bonds
purchased at a market premium. In addition, if interest rates rise, the
prepayment risk of higher yielding, premium bonds and the prepayment benefit for
lower yielding, discount bonds will be reduced. A bond purchased at a market
discount and held to maturity will have a larger portion of its total return in
the form of taxable income and capital gain and less in the form of tax-exempt
interest income than a comparable bond newly issued at current market rates. See
"Federal Tax Status." Market discount attributable to interest changes does not
indicate a lack of market confidence in the issue.
Certain Bonds may be "original issue discount" bonds which were issued
with interest rates less than rates offered by comparable bonds and were
originally sold at a discount from their par value. These bonds may include
"zero coupon" bonds which are described below. In a stable interest rate
envronment, the market value of an original issue discount bond would tend to
increase more slowly in the early years and in greater increments as the bond
approached maturity. These bonds may be subject to redemption at prices based on
the issue price plus the amount of original issue discount accreted to
redemption plus some premium, if applicable. Under these call provisions, these
bonds may be called prior to maturity at a price less than par value. See
"Federal Tax Status" for a discussion of the tax consequenses of owning these
bonds.
Certain Bonds may be "zero coupon" bonds. Zero coupon bonds are
purchased at a deep discount because the buyer receives only the right to
receive a final payment at the maturity of the bond and does not receive any
periodic interest payments. The effect of owning these 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 the bond. This implicit reinvestment of
earnings at the same rate eliminates the risk of being unable to reinvest income
at a rate as high as the implicit yield on the discount bond, but at the same
time eliminates the 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 bonds of
comparable quality which pay interest.
Certain Bonds may have been purchased on a "when, as and if issued" or
"delayed delivery" basis. The delivery of these Bonds may be delayed or may not
occur. Interest on these Bonds begins accruing to the benefit of Unitholders on
their respective dates of delivery. To the extent any Bonds are actually
delivered to a Trust after the expected dates of delivery, Unitholders who
purchase their Units prior to the actual delivery date would be required to
adjust their tax basis in their Units for a portion of the interest accruing on
those Bonds during the interval between their purchase of Units and the actual
delivery of the Bonds. As a result of any adjustment, the Estimated Current
Return during the first year would be slightly lower than stated herein.
Unitholders will be "at risk" with respect to all Bonds (i.e., may derive either
gain or loss from fluctuations in the value of the Bonds) from the date they
order Units.
Certain Bonds may be 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 bond 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 bond price is at a premium over par than when it is at a discount from
par. The exercise of redemption or call provisions generally will result in the
distribution of principal and may result in a reduction in the amount of
subsequent interest distributions; it may also affect the current return on
Units. See "Portfolio" in Prospectus Part I for a list of the sinking fund and
call provisions, if any, with respect to the Bonds. The Sponsor is unable to
predict all of the circumstances which may result in redemption of a Bond.
To the best knowledge of the Sponsor, there is no litigation pending as
of the Date of Deposit in respect of any Bonds which might reasonably be
expected to have a material adverse effect upon the Trusts. At any time after
the Date of Deposit, litigation may be initiated on a variety of grounds with
respect to the Bonds. Such litigation may affect the validity of the Bonds or
the tax-free nature of interest payments. While the outcome of litigation can
never be predicted, the Fund has received or will receive opinions of bond
counsel to the issuers of each Bond on the date of issuance to the effect that
the Bonds have been validly issued and interest payments are exempt from Federal
income tax. In addition, other factors may arise from time to time which
potentially may impair the ability of issuers to meet obligations undertaken
with respect to the Bonds.
Like other investment companies, financial and business organizations
and individuals around the world, the Trusts could be adversely affected if the
computer systems used by the Sponsor, Evaluator or Trustee or other service
providers to the Trusts do not properly process and calculate date-related
information and data from and after January 1, 2000. This is commonly known as
the "Year 2000 Problem." While the Sponsor, Evaluator and Trustee are taking
steps that they believe are reasonably designed to address the Year 2000
Problem, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Trusts. The Year 2000 Problem may impact certain
issuers of the Bonds to varying degrees, however, the Sponsor is unable to
predict what impact, if any, the Year 2000 Problem will have on any issuer.
ESTIMATED CURRENT AND LONG-TERM RETURNS
- --------------------------------------------------------------------------------
The Estimated Current Returns and the Estimated Long-Term Returns as of
the Date of Deposit are set forth on the cover of the Prospectus Part I.
Estimated Current Return is 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
Trust and with the principal prepayment, redemption, maturity, exchange or sale
of Bonds. The Public Offering Price will vary with changes in the price of the
Bonds. Accordingly, there is no assurance that the present Estimated Current
Return will be realized in the future. Estimated Long-Term Return is 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 the Bonds and (2) takes into account the expenses and
sales charge associated with Units. Since the value and estimated retirements of
the Bonds and the expenses of a Trust will change, there is no assurance that
the present Estimated Long-Term Return will be realized in the future. The
Estimated Current Return and Estimated Long-Term Return are expected to differ
because the calculation of 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.
In order to acquire certain Bonds, it may be necessary for the Sponsor
or Trustee to pay amounts covering accrued interest on the Bonds which exceed
the amounts which will be made available through cash furnished by the Sponsor
on the Date of Deposit. This 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 excess and will be reimbursed when funds become available
from interest payments on the related Bonds. Also, since interest on any "when,
as and if issued" Bonds does not begin accruing as tax-exempt interest income to
the benefit of Unitholders until the date of delivery, the Trustee may reduce
its fee and pay Trust expenses in order to maintain or approach the same
estimated net annual interest income during the first year of the Trust's
operations as described under "Summary of Essential Financial Information" in
Prospectus Part I.
PUBLIC OFFERING
- --------------------------------------------------------------------------------
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 Bonds, the sales charge described below, cash, if any, in
the Principal Account and accrued interest, if any. After the initial public
offering period, the secondary market public offering price is based on the bid
prices of the Bonds, the sales charge described below, cash, if any, in the
Principal Account and accrued interest, if any. The minimum purchase in the
primary and secondary market is one Unit.
The initial offering period sales charges are as follows:
<TABLE>
<CAPTION>
INITIAL OFFERING PERIOD SALES CHARGE
AS PERCENT OF
--------------------------------------
PUBLIC OFFERING OFFERING PRICE
TRUST PRICE OF BONDS
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
IM-IT, U.S. Territorial IM-IT, Long-Term State and National
Quality Trusts 4.900% 5.152%
IM-IT Limited Maturity Trusts 4.300 4.493
IM-IT Discount Trusts 4.000 4.167
IM-IT Intermediate Trusts 3.900 4.058
State Intermediate Laddered Maturity Trusts 3.000 3.093
IM-IT Short Intermediate Trusts 2.000 2.041
</TABLE>
The sales charge applicable to quantity purchases during the initial
offering period is reduced as follows:
<TABLE>
<CAPTION>
SALES CHARGE REDUCTION PER UNIT
-----------------------------------------------------------------------------------
IM-IT, U.S.
TERRITORIAL IM-IT,
LONG-TERM STATE
AGGREGATE NUMBER OF AND NATIONAL IM-IT SHORT IM-IT
UNITS PURCHASED* QUALITY TRUSTS INTERMEDIATE TRUST DISCOUNT TRUST OTHER TRUSTS
- ----------------------------- -------------------- -------------------- ---------------- -------------
<S> <C> <C> <C> <C>
100-249 Units $ 4.00 $ 2.00 $ 2.00 $ 4.00
250-499 Units $ 6.00 $ 3.00 $ 4.00 $ 6.00
500-999 Units $ 14.00 $ 4.00 $ 6.00 $ 9.00
1,000 or more Units $ 19.00 $ 6.00 $ 8.00 $ 11.00
- -----------------------------
</TABLE>
* 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
will be adjusted to take into consideration purchase orders stated in dollars
which cannot be completely fulfilled due to the Trusts' requirement that only
whole Units be issued.
The secondary market sales charge is computed as described in the
following table based upon the estimated long-term return life of a Trust's
portfolio:
<TABLE>
<CAPTION>
YEARS TO MATURITY SALES CHARGE YEARS TO MATURITY SALES CHARGE YEARS TO MATURITY SALES CHARGE
----------------- ------------ ----------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
1 1.010% 8 3.627% 15 5.042%
2 1.523 9 4.167 16 5.152
3 2.041 10 4.384 17 5.263
4 2.302 11 4.603 18 5.374
5 2.564 12 4.712 19 5.485
6 2.828 13 4.822 20 5.597
7 3.093 14 4.932 21 to 30 5.708
</TABLE>
For purposes of computation of the estimated long-term return life,
Bonds will be deemed to mature on their expressed maturity dates unless: (a) the
Bonds have been called for redemption or are subject to redemption at an earlier
call date, in which case this call date will be deemed to be the maturity date;
or (b) the Bonds are subject to a "mandatory tender", in which case the
mandatory tender will be deemed to be the maturity date. The sales charges in
the above table are expressed as a percentage of the aggregate bid prices of the
Bonds. Expressed as a percent of the Public Offering Price, the sales charge on
a Trust consisting entirely of Bonds with 15 years to maturity would be 4.80%.
The sales charges in the table above do not apply to IM-IT Discount Trusts. The
applicable secondary market sales charges for an IM-IT Discount Trust are set
forth in the applicable Prospectus Part I.
Any reduced sales charge is the responsibility of the selling
Underwriter, broker, dealer or agent. The Sponsor will, however, increase the
concession or agency commission for quantity purchases. The reduced sales charge
structure in the initial offering period sales charge table above 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 day 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 Units for one
or more trust, estate or fiduciary accounts.
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.
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.
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 initial
offering period sales charge 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 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 Units will vary from the
amounts stated under "Summary of Essential Financial Information" in Prospectus
Part I in accordance with fluctuations in the prices of the Bonds. The price of
Units on the Date of Deposit was determined by adding the applicable sales
charge to the aggregate offering price of the Bonds and dividing the sum by the
number of Units outstanding. This price determination was made on the basis of
an evaluation of the Bonds prepared by Interactive Data Corporation, a firm
regularly engaged in the business of evaluating, quoting or appraising
comparable securities. During the initial offering period, the Evaluator will
value the Bonds as of the Evaluation Time on days the New York Stock Exchange is
open for business and will adjust the Public Offering Price of Units
accordingly. This Public Offering Price will be effective for all orders
received at or prior to the Evaluation Time on each such day. The "Evaluation
Time" is the close of trading on the New York Stock Exchange on each day that
the Exchange is open for trading. 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. The secondary market Public Offering Price per Unit will
be equal to the aggregate bid price of the Bonds plus the applicable secondary
market sales charge and dividing the sum by the number of Units outstanding. For
secondary market purposes, this computation will be made by the Evaluator as of
the Evaluation Time for each day on which any Unit is tendered for redemption
and as necessary. The offering price of Bonds may be expected to average
approximately 0.5%-1% more than the bid price.
The aggregate price of the Bonds is determined on the basis of bid
prices or offering prices, as is appropriate, (a) on the basis of current market
prices obtained from dealers or brokers who customarily deal in bonds comparable
to those held by the Fund; (b) if these prices are not available, on the basis
of current market prices for comparable bonds; (c) by causing the value of the
Bonds to be determined by others engaged in the practice of evaluation, quoting
or appraising comparable bonds; or (d) by any combination of the above. Market
prices of the Bonds will generally fluctuate with changes in market interest
rates. Unless Bonds are in default in payment of principal or interest or in
significant risk of default, the Evaluator will not attribute any value to the
insurance obtained by an Insured Trust, if any.
The Evaluator will consider in its evaluation of Bonds which are in
default in payment of principal or interest or, in the Sponsor's opinion, in
significant risk of default (the "Defaulted Bonds") the value of any insurance
guaranteeing interest and principal payments. The value of the insurance will be
equal to the difference between (i) the market value of Defaulted Bonds assuming
the exercise of the right to obtain Permanent Insurance (less the insurance
premiums and related expenses attributable to the purchase of Permanent
Insurance) and (ii) the market value of Defaulted Bonds not covered by Permanent
Insurance. In addition, the Evaluator will consider the ability of a Portfolio
Insurer to meet its commitments under any insurance policy, including
commitments to issue Permanent Insurance. No value has been ascribed to
insurance obtained by an Insured Trust, if any, as of the date of this
Prospectus.
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.
ACCRUED INTEREST. Accrued interest is an accumulation of unpaid
interest on securities which generally is paid semi-annually, although each
Trust accrues interest daily. Because of this, a Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling after the First Settlement Date, the proportionate
share of accrued interest to the settlement date is added to the Public Offering
Price of Units. Unitholders will receive the amount of accrued interest paid on
their Units on the next distribution date. In an effort to reduce the accrued
interest which would 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 accrued interest 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 after the First Settlement Date. Because of the varying
interest payment dates of the Bonds, 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.
UNIT DISTRIBUTION. Units will be distributed to the public by
Underwriters, broker-dealers and others at the Public Offering Price, plus
accrued interest. The Sponsor intends to qualify 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 for any single transaction as described in the following table,
provided that the Units are acquired from the Sponsor.
<TABLE>
<CAPTION>
IM-IT, U.S.
TERRITORIAL
IM-IT, LONG- IM-IT STATE
IM-IT TERM STATE AND IM-IT SHORT IM-IT LIMITED INTERMEDIATE
DISCOUNT NATIONAL INTERMEDIATE INTERMEDIATE MATURITY LADDERED
TRUST QUALITY TRUSTS TRUST TRUST TRUST MATURITY TRUST
----------- -------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 - 99 Units $ 18.00 $ 30.00 $ 10.00 $ 25.00 $ 27.00 $ 20.00
100 - 249 Units $ 19.00 $ 32.00 $ 11.00 $ 28.00 $ 30.00 $ 21.00
250 - 499 Units $ 20.00 $ 34.00 $ 11.00 $ 27.00 $ 30.00 $ 21.00
500 - 999 Units $ 20.00 $ 35.00 $ 12.00 $ 30.00 $ 32.00 $ 23.00
1,000 - 1,499 Units $ 20.00 $ 34.00 $ 12.00 $ 29.00 $ 29.00 $ 22.00
1,500 or more Units $ 20.00 $ 34.00 $ 12.00 $ 29.00 $ 29.00 $ 22.00
</TABLE>
The increased concession or agency commission is a result of the
discount given to purchasers for quantity purchases. See "Public
Offering--General". In addition to the concessions and agency commissions
described in the table, volume concessions or agency commissions of an
additional $5.00 per Unit of an IM-IT, a U.S. Territorial IM-IT, a Long-Term
State or a National Quality Trust and $2.00 per Unit of all other Trusts will be
given to any broker/dealer or agent (other than Underwriters) who purchases from
the Sponsor at least 250 Units of such Trust during the initial offering period.
These additional concessions will be allowed at the time of purchase, provided,
however, the additional concession applicable to initial purchases totaling less
than 250 Units will be paid retroactively at the end of the initial offering
period. The breakpoint concessions or agency commissions 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 requirement that only whole
Units be issued. Certain commercial banks may be making Units available to their
customers on an agency basis. A portion of the sales charge paid by these
customers (equal to the agency commission referred to above) is retained by or
remitted to the banks. Any discount provided to investors will be borne by the
selling dealer or agent. For secondary market transactions, the concession or
agency commission will amount to 70% of the applicable sales charge. The Sponsor
reserves the right to reject, in whole or in part, any order for the purchase of
Units and to change the amount of the concession or agency commission to dealers
and others from time to time.
SPONSOR AND UNDERWRITER COMPENSATION. The Underwriters will receive a
gross sales commission equal to the sales charge applicable to the transaction
involved. "Public Offering--General". The Sponsor will receive from the
Underwriters the excess of this gross sales commission over the amounts set
forth in the following table, as of the Date of Deposit. For a list of the
Underwriters that have purchased Units from the Sponsor, see "Underwriting" in
Prospectus Part I.
<TABLE>
<CAPTION>
IM-IT, U.S.
TERRITORIAL
IM-IT, LONG- IM-IT STATE
IM-IT TERM STATE AND IM-IT SHORT IM-IT LIMITED INTERMEDIATE
DISCOUNT NATIONAL INTERMEDIATE INTERMEDIATE MATURITY LADDERED
TRUST QUALITY TRUSTS TRUST TRUST TRUST MATURITY TRUST
----------- -------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1 - 99 Units $ 20.00 $ 35.00 $ 12.00 $ 27.00 $ 29.00 $ 22.00
100 - 249 Units $ 21.00 $ 37.00 $ 13.00 $ 30.00 $ 32.00 $ 23.00
250 - 499 Units $ 22.00 $ 39.00 $ 13.50 $ 29.50 $ 32.00 $ 23.00
500 - 999 Units $ 22.00 $ 40.00 $ 14.00 $ 32.50 $ 34.50 $ 25.00
1,000 - 1,499 Units $ 22.00 $ 39.00 $ 14.00 $ 31.00 $ 31.00 $ 24.00
1,500 or more Units $ 22.00 $ 39.00 $ 14.00 $ 31.00 $ 31.00 $ 24.00
</TABLE>
A. G. Edwards & Sons, Inc. which acts as a Managing Underwriter of
Units of the various series of the IM-IT or National Quality Trust, will receive
from the Sponsor reimbursement for certain costs and further compensation in the
amount of $5.00 for each Unit of the IM-IT or National Quality Trust it
underwrites. In addition, the Sponsor will receive from the Managing
Underwriters of any National Quality, (who underwrite 15% of the Trust involved
or 1,000 Units of such Trust, whichever is greater) the excess of such gross
sales commission over $38.00 per Unit of any such Trust, as of the Date of
Deposit. Also, any such Managing Underwriter that sells a total of 25% or 1,500
Units, whichever is greater, of any individual series of such Trusts will
receive an additional $2.00 per each such Unit. In connection with quantity
sales to purchasers of any Pennsylvania IM-IT Trust the Underwriters will
receive from the Sponsor commissions totalling $35.00 per Unit for any single
transaction of 100 to 249 Units, $36.00 per Unit for any single transaction of
250 to 499 units, $37.00 per Unit for any single transaction of 500 to 999 Units
and $38.00 per Unit for any single transaction of 1,000 or more Units. In
addition, any Underwriter that sells a total of 25% or 1,500 Units, whichever is
greater, of any Pennsylvania IM-IT Trust will receive an additional $2.00 per
each such Unit. In addition, the Sponsor has entered into agreements with
Advest, Inc. ("Advest") and Gruntal & Co., Inc. ("Gruntal") whereby Advest and
Gruntal will receive an additional $2.00 per Unit in connection with a minimum
commitment of 1,500 Units of any New York IM-IT Trust. In addition, the Sponsor
and J. J. B. Hilliard, W. L. Lyons, Inc. ("Hilliard, Lyons") have entered into
an agreement under which Hilliard, Lyons may receive an additional $2.00 for
each Unit of the Kentucky Quality Trust which it underwrites, provided it
underwrites a minimum of 400 Units of such Trust. 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. The
breakpoints listed herein will also be 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.
In addition, the Sponsor and certain Underwriters will realize a profit
or loss, as a result of the difference between the price paid for the Bonds by
the Sponsor and the cost of the Bonds to a Trust. See "Portfolio" and "Notes to
Portfolio" in Prospectus Part I. Underwriters may also realize profits or losses
with respect to Bonds 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 the underwriting syndicates from
which the Bonds in the Trusts were acquired. Underwriters may further realize
profit or loss during the initial offering period as a result of possible
fluctuations in the market value of the Bonds 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 commissions that are available
to the Underwriter. In addition to any other benefits Underwriters may realize
from the sale of Units, the Sponsor will share on a pro rata basis among senior
Underwriters (those who underwrite at least 250 Units) 50% of any gain (less
deductions for accrued interest and certain costs) represented by the difference
between the cost of the Bonds to the Sponsor and the evaluation of the Bonds on
the Date of Deposit. The Sponsor and certain of the other Underwriters will also
realize profits or losses in the amount of any difference between the price at
which Units are purchased and the price at which Units are resold in connection
with maintaining a secondary market for Units and will also realize profits or
losses resulting from a redemption of repurchased Units at a price above or
below the purchase price.
Underwriters and broker-dealers of the Trusts, 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 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 such firms may be eligible to win
other nominal awards for certain sales efforts, or under which the Sponsor will
reallow to any such firms 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 persons 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 firms for certain services or activities which are primarily intended
to result in sales of Units of the Trusts. Such payments are made by the Sponsor
out of its own assets, and not out of the assets of the Trusts. These programs
will not change the price Unitholders pay for their Units or the amount that the
Trusts 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.
MARKET FOR UNITS. Although not obligated to do so, the Sponsor intends
to, and certain of the other Underwriters may, maintain a market for Units and
offer to purchase Units at prices, subject to change at any time, based upon the
aggregate bid prices of the Bonds plus accrued interest and 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 Underwriters may either discontinue all purchases of Units or
discontinue purchases of Units at these prices. If a market is not maintained
and the Unitholder cannot find another purchaser, a Unitholder will be able to
dispose of Units by tendering them to the Trustee for redemption at the
Redemption Price. 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 any price in excess of
the Redemption Price and, if so, the amount thereof. The Trustee will 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 the Units not later than the day on which the Units would
otherwise have been redeemed by the Trustee.
RIGHTS OF UNITHOLDERS
- --------------------------------------------------------------------------------
DISTRIBUTIONS OF INTEREST AND PRINCIPAL. Interest received by a Trust,
pro rated on an annual basis, will be distributed monthly unless a Unitholder
elects to receive semi-annual distributions. The amount and time of the first
distribution is described in Prospectus Part I under "Summary of Essential
Financial Information". The plan of distribution selected by a Unitholder will
remain in effect until changed. Unitholders who purchase Units in the secondary
market will receive distributions in accordance with the election of the prior
owner. Unitholders may change their distribution plan by indicating the change
on a card which may be obtained from the Trustee and return the card to the
Trustee with their certificates and other documentation required by the Trustee.
Certificates should be sent by registered or certified mail to avoid their being
lost or stolen. If the card and certificate are properly presented to the
Trustee, the change will become effective on the first day after the next
semi-annual record date and will remain effective until changed.
Interest received by a Trust, including that part of the proceeds of
any disposition of Bonds which represents accrued interest, is credited by the
Trustee to the Interest Account. Other receipts are credited to the Principal
Account. 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, interest received will be distributed on
each distribution date to Unitholders of record as of the preceding record date.
All distributions will be net of estimated expenses. Funds in the Principal
Account will be distributed on each semi-annual distribution date to Unitholders
of record as of the preceding semi-annual record date. The Trustee is not
required to pay interest on funds held in the Principal or Interest Account (but
may itself earn interest thereon and therefore benefits from the use of these
funds) nor to make a distribution from the Principal Account unless the amount
available for distribution therein 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 monthly distribution date to Unitholders of record
on the related monthly record date.
Because interest payments are not received by a Trust at a constant
rate throughout the year, interest distributions may be more or less than the
amount credited to the Interest Account as of the record date. For the purpose
of minimizing fluctuations in interest distributions, the Trustee is authorized
to advance amounts necessary to provide interest distributions of approximately
equal amounts. The Trustee is reimbursed for these advances from funds in the
Interest Account on the next 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 the purchase, under the applicable plan of
distribution.
REINVESTMENT OPTION. Unitholders may elect to have distributions 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 (the "Reinvestment Funds"). Each Reinvestment Fund has
investment objectives that differ from those of the Trusts. The prospectus
relating to each Reinvestment Fund describes its investment policies and the
procedures to follow to begin reinvestment. A Unitholder may obtain a prospectus
for the Reinvestment Funds from Van Kampen American Capital Distributors, Inc.
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181.
After becoming a participant in a reinvestment plan, each Trust
distribution will automatically be applied on the applicable distribution date
to purchase shares of the applicable Reinvestment Fund at a net asset value
computed 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. Confirmations
of all reinvestments will be mailed to the Unitholder by the Reinvestment Fund.
A participant may elect to terminate his or her reinvestment plan and receive
future distributions in cash by notifying the Trustee in writing at least five
days before the next distribution date. Each Reinvestment Fund, its sponsor and
investment adviser have the right to terminate its reinvestment plan at any
time. Unitholders of New York Trusts who are New York residents may elect to
have distributions reinvested in shares of First Investors New York Insured Tax
Free Fund, Inc. subject to a sales charge of $1.50 per $100 reinvested (paid to
First Investors Management Company, Inc.).
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, such as in connection with lost, stolen or destroyed certificates)
and by payment of applicable governmental charges, if any. Redemption of Units
cannot occur until certificates representing the Units or satisfactory indemnity
have been received by the Trustee. No later than seven calendar days following
satisfactory tender, the Unitholder will receive an amount for each Unit equal
to the Redemption Price per Unit next computed after receipt by the Trustee of
the 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
the Evaluation Time on days of trading on the New York Stock Exchange, the date
of tender is the next day on which that Exchange is open and the Units will be
deemed to have been tendered to the Trustee on that day for redemption at the
Redemption Price.
Under Internal Revenue Service regulations, the Trustee is required to
withhold a specified percentage of a Unit redemption if the Trustee has not
received the Unitholder's tax identification number as required by such
regulations. Any amount 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, the Unitholder should provide a tax identification number
to the Trustee in order to avoid this possible "back-up withholding".
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 Bonds as
of the Evaluation Time on days of trading on the New York Stock Exchange on the
date any such determination is made. The Evaluator determines the Redemption
Price per Unit on days Units are tendered for redemption. The Redemption Price
per Unit is the pro rata share of each Unit on the basis of (i) the cash on hand
in the Trust or moneys in the process of being collected, (ii) the value of the
Bonds based on the bid prices of the Bonds, except for cases in which the value
of insurance has been included, (iii) accrued interest, less (a) amounts
representing taxes or other governmental charges and (b) the accrued Trust
expenses. The Evaluator may determine the value of the Bonds 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 on the Bonds in an Insured Trust unless the Bonds are in default in
payment of principal or interest or in significant risk of default. For a
description of the situations in which the Evaluator may value the insurance
obtained by the Insured Trusts, see "Public Offering--Offering Price". 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. Units so redeemed shall be
cancelled.
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 Bonds
represented by the Units redeemed. The Trustee may sell Bonds to cover
redemptions. When Bonds are sold, the size and diversity of the Trust will be
reduced. Sales may be required at a time when Bonds would not otherwise be sold
and might result in lower prices than might otherwise be realized.
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 SEC determines that
trading on that Exchange is restricted or an emergency exists, as a result of
which disposal or evaluation of the Bonds is not reasonably practicable, or for
other periods as the SEC may by order permit. Under certain extreme
circumstances the Sponsor may apply to the SEC for an order permitting a full or
partial suspension of the right of Unitholders to redeem their Units.
CERTIFICATES. Ownership of Units is evidenced by certificates unless a
Unitholder makes a written request to the Trustee that ownership be in book
entry form. Units are transferable by making a written request to the Trustee
and, in the case of Units in certificate form, by presentation and surrender of
the certificate to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. A Unitholder must sign the written
request, or certificate transfer instrument, exactly as his name appears on the
records of the Trustee and on the face of any certificate with the signature
guaranteed by a participant in the Securities Transfer Agents Medallion Program
("STAMP") or a signature guaranty program accepted by the Trustee. 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, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate re-issued or
transferred and to pay any governmental charge that may be imposed in connection
with each 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.
REPORTS PROVIDED. Unitholders will receive a statement of interest and
other receipts received for each distribution. For as long as the Sponsor deems
it to be in the best interest of Unitholders, the accounts of each Trust will be
audited annually by independent certified public accountants and the report of
the accountants will be furnished to Unitholders upon request. Within a
reasonable period of time after the end of each year, the Trustee will furnish
to each person who was a registered Unitholder during that year a statement
describing the interest and principal received on the Bonds, actual Trust
distributions, Trust expenses, a list of the Bonds and other Trust information.
Unitholders will be furnished the Evaluator's evaluations of the Bonds upon
request.
INSURANCE ON THE BONDS IN THE INSURED TRUSTS
- --------------------------------------------------------------------------------
Insurance has been obtained guaranteeing prompt payment of interest and
principal, when due, in respect of the Bonds in each Insured Trust. An insurance
policy obtained by an Insured Trust, if any, is non-cancellable and will
continue in force so long as the Trust is in existence, the respective Portfolio
Insurer is still in business and the Bonds described in the policy continue to
be held by the Trust. Any portfolio insurance premium for an Insured Trust is
paid by the Trust on a monthly basis. The premium for any Preinsured Bond
insurance has been paid by the issuer, by a prior owner of the Bonds or the
Sponsor and any policy is non-cancellable and will continue in force so long as
the Bonds so insured are outstanding and the Preinsured Bond Insurer remains in
business. The Portfolio Insurers and the Preinsured Bond Insurers are described
in "Portfolio" and the notes thereto in Prospectus Part I. The Portfolio
Insurers are either AMBAC Assurance Corporation or Financial Guaranty Insurance
Company. More detailed information regarding insurance on the Bonds and the
Preinsured Bond and Portfolio Insurers is included in the Information
Supplement. See "Additional Information".
The portfolio insurance obtained by an Insured Trust, if any,
guarantees the timely payment of principal and interest on the Bonds when they
fall due. For this purpose, "when due" generally means the stated payment or
maturity date for the payment of principal and interest. However, in the event
(a) an issuer defaults in the payment of principal or interest, (b) an issuer
enters into a bankruptcy proceeding or (c) the maturity of the Bond is
accelerated, the affected Portfolio Insurer has the option to pay the
outstanding principal amount of the Bond plus accrued interest to the date of
payment and thereby retire the Bond from the Trust prior to the Bond's stated
maturity date. The insurance does not guarantee the market value of the Bonds or
the value of the Units. The Trustee, upon the sale of a Bond covered under a
portfolio insurance policy has the right to obtain permanent insurance with
respect to the Bond (i.e., insurance to maturity of the Bond regardless of the
identity of the holder) (the "Permanent Insurance") upon the payment of a single
predetermined insurance premium and expenses from the proceeds of the sale of
the Bond. It is expected that the Trustee would exercise the right to obtain
Permanent Insurance only if upon exercise the Trust would receive net proceeds
in excess of the sale proceeds if the Bonds were sold on an uninsured basis.
The following summary information relating to the listed insurance
companies has been obtained from publicly available information:
<TABLE>
<CAPTION>
FINANCIAL INFORMATION (IN MILLIONS OF DOLLARS)
-------------------------------------------------
ADMITTED POLICYHOLDERS'
NAME ASSETS SURPLUS
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AMBAC Assurance Corporation (at 6/30/97) $ 2,736 $ 1,548
Capital Markets Assurance Corporation (at 9/30/97) 351 192
Financial Guaranty Insurance Company (at 9/30/97) 2,531 1,247
Financial Security Assurance, Inc. (at 9/30/97) 1,404 517
MBIA Insurance Corporation (at 9/30/97) 5,100 1,700
</TABLE>
Because the Bonds are insured by Portfolio Insurers or Preinsured Bond
Insurers as to the timely payment of principal and interest, when due, and on
the basis of the various reinsurance agreements in effect, Standard & Poor's has
assigned to the Units of each Insured Trust its "AAA" investment rating. This
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
"Description of Ratings" in the Information Supplement. This rating 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 Trust or of the Units.
Each Portfolio Insurer is subject to regulation by the department of
insurance in the state in which it is qualified to do business. Such regulation,
however, is no guarantee that each Portfolio Insurer will be able to perform on
its contract of insurance in the event a claim should be made. At the date
hereof, it is reported that no claims have been submitted or are expected to be
submitted to any of the Portfolio Insurers which would materially impair the
ability of any such company to meet its commitment pursuant to any contract of
insurance. The information relating to each Portfolio Insurer has been furnished
by such companies. The financial information with respect to each Portfolio
Insurer 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.
FUND ADMINISTRATION
- --------------------------------------------------------------------------------
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 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 Fund 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 March 31, 1997, the Sponsor and its Van Kampen American Capital
affiliates managed or supervised approximately $58.45 billion of investment
products, of which over $10.85 billion is invested in municipal bonds. The
Sponsor and its Van Kampen American Capital affiliates managed $47 billion of
assets, consisting of $29.23 billion for 59 open-end mutual funds (of which 46
are distributed by Van Kampen American Capital Distributors, Inc.) $13.4 billion
for 37 closed-end funds and $4.97 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 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 SEC, (ii) terminate the Trust Agreement and
liquidate the Fund as provided therein or (iii) continue to act as Trustee
without terminating the Trust Agreement.
TRUSTEE. The Trustee is The Bank of New York, a trust company organized
under the laws of New York. The Bank of New York has its unit investment trust
division offices at 101 Barclay Street, New York, New York 10286, telephone
(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. Additional
information regarding the Trustee is set forth in the Information Supplement,
including the Trustee's qualifications and duties, its ability to resign, the
effect of a merger involving the Trustee and the Sponsor's ability to remove and
replace the Trustee. See "Additional Information".
PORTFOLIO ADMINISTRATION. The Trusts are not managed funds and, except
as provided in the Trust Agreement, Bonds generally will not be sold or
replaced. The Sponsor may, however, direct that Bonds be sold in certain limited
situations to protect to the Trust based on advice from the Evaluator. These
situations may include default in interest or principal payments on the Bonds or
other obligations of an issuer, an advanced refunding or institution of certain
legal proceedings. In addition, the Trustee may sell Bonds designated by the
Evaluator for purposes of redeeming Units or payment of expenses. The Evaluator
will consider a variety of factors in designating Bonds to be sold including
interest rates, market value and marketability. Except in limited circumstances,
the Trustee must reject any offer by an issuer to issue bonds in exchange or
substitution for the Bonds (such as a refunding or refinancing plan). The
Trustee will promptly notify Unitholders of any exchange or substitution. The
Information Supplement contains a more detailed description of circumstances in
which Bonds may be sold or replaced. See "Additional Information".
REPLACEMENT BONDS. No assurance can be given that a Trust will retain
its present size or composition because Bonds may be sold, redeemed or mature
from time to time and the proceeds will be distributed to Unitholders and will
not be reinvested. In the event of a failure to deliver any Bond that has been
purchased under a contract ("Failed Bonds"), the Sponsor is authorized under the
Trust Agreement to direct the Trustee to acquire other bonds ("Replacement
Bonds") to make up the original portfolio of a Trust. Replacement Bonds 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 Bonds. The Replacement Bonds must
be substantially identical to the Failed Bonds in terms of (i) the exemption
from federal and state taxation, (ii) maturity, (iii) yield to maturity and
current return, (iv) Standard & Poor's or Moody's ratings, and (v) insurance in
an Insured Trust. The Trustee shall notify all Unitholders of a Trust within
five days after the acquisition of a Replacement Bond and shall make a pro rata
distribution of the amount, if any, by which the cost of the Failed Bond
exceeded the cost of the Replacement Bond plus accrued interest. If Failed Bonds
are not replaced, the Sponsor will refund the sales charge attributable to the
Failed Bonds to all Unitholders of the Trust and distribute the principal and
accrued interest (at the coupon rate of the Failed Bonds to the date of removal
from the Trust) attributable to the Failed Bonds within 30 days after removal.
All interest paid to a Unitholder which accrued after the expected date of
settlement for Units will be paid by the Sponsor and accordingly will not be
treated as tax-exempt income. If Failed Bonds are not replaced, the Estimated
Net Annual Interest Income per Unit would be reduced and the Estimated Current
Return and Estimated Long-Term Return might be lowered. Unitholders may not be
able to reinvest their proceeds in other securities at a yield equal to or in
excess of the yield of the Failed Bonds.
AMENDMENT OF TRUST AGREEMENT. The Sponsor and the Trustee may amend the
Trust Agreement without the consent of Unitholders to correct any provision
which may be defective or to make other provisions that will not adversely
affect the interest of the Unitholders (as determined in good faith by the
Sponsor and the Trustee). The Trust Agreement may not be amended to increase the
number of Units or to permit the acquisition of Bonds in addition to or in
substitution for any of the Bonds initially deposited in the Trust, except for
the substitution of certain refunding Bonds. The Trustee will notify Unitholders
of any amendment.
TERMINATION OF TRUST AGREEMENT. A Trust will terminate upon the
redemption, sale or other disposition of the last Bond held in the Trust. A
Trust may also be terminated at any time by consent of Unitholders of 51% of the
Units then outstanding or by the Trustee when the value of the Trust is less
than 20% of the original principal amount of Bonds. The Trustee will notify each
Unitholder of any termination within a reasonable time and will then liquidate
any remaining Bonds. The sale of Bonds upon termination may result in a lower
amount than might otherwise be realized if sale were not required at that time.
For this reason, among others, the amount realized by a Unitholder upon
termination may be less than the principal amount of Bonds per Unit or value at
the time of purchase. The Trustee will distribute to each Unitholder his share
of the balance of the Interest and Principal Accounts after deduction of costs,
expenses or indemnities. The Unitholder will receive a final distribution
statement with this distribution. When the Trustee in its sole discretion
determines that any amounts held in reserve are no longer necessary, it will
distribute these amounts to Unitholders. The Information Supplement contains
further information regarding termination of a Trust.
See "Additional Information".
LIMITATION ON LIABILITIES. The Sponsor, Evaluator and Trustee shall be
under no liability to Unitholders for taking any action or for refraining from
taking any action in good faith pursuant to the Trust Agreement, or for errors
in judgment, but shall be liable only for their own willful misfeasance, bad
faith or gross negligence (negligence in the case of the Trustee) in the
performance of their duties or by reason of their reckless disregard of their
obligations and duties hereunder. The Trustee shall not be liable for
depreciation or loss incurred by reason of the sale by the Trustee of any of the
Bonds. 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 is not liable
for any taxes or governmental charges imposed on the Bonds, on it as Trustee
under the Trust Agreement or on the Fund 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 and Sponsor may rely on any evaluation furnished by the Evaluator and
have no responsibility for the accuracy thereof. Determinations by the Evaluator
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.
FEDERAL TAX STATUS
- --------------------------------------------------------------------------------
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal gross
income were rendered by bond counsel to the respective issuing authorities. In
addition, with respect to State Trusts, where applicable, bond counsel to the
issuing authorities rendered opinions as to the exemption of interest on such
Bonds when held by residents of the State in which the issuers of such Bonds are
located from state income taxes and certain state or local intangibles and local
income taxes. Neither the Sponsor nor Chapman and Cutler have made any review of
the Trust proceedings relating to the issuance of the Bonds or of the basis of
such opinions. If the interest on a Bond should be determined to be taxable, the
Bond would generally have to be sold at a substantial discount. In addition,
investors could be required to pay income tax on interest received prior to the
date on which interest is determined to be taxable. Gain realized on the sale or
redemption of the Bonds by the Trustee or of a Unit by a Unitholder is
includible in gross income for Federal income tax purposes and may be includible
in gross income for state tax purposes. Such gain does not include any amounts
received in respect of accrued interest or accrued original issue discount, if
any. If a Bond is acquired with accrued interest, that portion of the price paid
for the accrued interest is added to the tax basis of the Bond. When this
accrued interest is received, it is treated as a return of capital and reduces
the tax basis of the Bond. If a Bond is purchased for a premium, the amount of
the premium is added to the tax basis of the Bond. Bond premium is amortized
over the remaining term of the Bond, and the tax basis of the Bond is reduced
each tax year by the amount of the premium amortized in that tax year. For
purposes of the following opinions, it is assumed that each asset of the Trust
is debt, the interest on which is excluded for Federal income tax purposes.
In the opinion of Chapman and Cutler, counsel for the Sponsor, under
existing law as of the date of this Prospectus:
(1) Each Trust is not an association taxable as a corporation for Federal
income tax purposes and interest and accrued original issue discount on
Bonds which is excludable from gross income under the Internal Revenue
Code of 1986 (the "Code") will retain its status for Federal income tax
purposes, when received by a Trust and when distributed to Unitholders;
however such interest may be taken into account in computing the
alternative minimum tax, an additional tax on branches of foreign
corporations and the environmental tax (the "Superfund Tax"), as noted
below;
(2) Each Unitholder is considered to be the owner of a pro rata portion of
each asset of the respective Trust under subpart E, subchapter J of
chapter 1 of the Code and will have a taxable event when such Trust
disposes of a Bond, or when the Unitholder redeems or sells his Units.
If the Unitholder disposes of a Unit, he is deemed thereby to have
disposed of his entire pro rata interest in all assets of the Trust
involved including his pro rata portion of all the Bonds represented by
a Unit. Legislative proposals have been made that would treat certain
transactions designed to reduce or eliminate risk of loss and
opportunities for gain as constructive sales for purposes of recognition
of gain (but not loss). Unitholders should consult their own tax
advisors with regard to any such constructive sale rules. Unitholders
must reduce the tax basis of their Units for their share of accrued
interest received by the respective Trust, if any, on Bonds delivered
after the Unitholders pay for their Units to the extent that such
interest accrued on such Bonds before the date the Trust acquired
ownership of the Bonds (and the amount of this reduction may exceed the
amount of accrued interest paid to the seller) 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 Bonds (whether by sale, 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 the Unitholder's basis for
his or her fractional interest in the asset disposed of. In the case of
a Unitholder who purchases Units, such basis (before adjustment for
accrued original issue discount and amortized bond premium, if any) is
determined by apportioning the cost of the Units among each of the Trust
assets ratably according to value as of the valuation date nearest the
date of acquisition of the Units. It should be noted that certain
legislative proposals have been made which could affect the calculation
of basis for Unitholders holding securities that are substantially
identical to the Bonds. Unitholders should consult their own tax
advisors with regard to the calculation of basis. 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 less than or equal to his original cost;
(3) Any proceeds paid under an insurance policy or policies dated the Date
of Deposit, issued to an Insured Trust with respect to the Bonds which
represent maturing interest on defaulted obligations held by the Trustee
will be excludable from Federal gross income if, and to the same extent
as, such interest would have been so excludable if paid in the normal
course by the issuer of the defaulted obligations provided that, at the
time such policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the obligations, rather than the insurer, will pay
debt service on the obligations; and
(4) Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted Bonds held by the Trustee
will be excludable from Federal gross income if, and to the same extent
as, such interest would have been excludable if paid in the normal
course by the issuer of the defaulted Bonds provided that, at the time
such policies are purchased, the amounts paid for such policies are
reasonable, customary and consistent with the reasonable expectation
that the issuer of the Bonds, rather than the insurer, will pay debt
service on the Bonds.
Sections 1288 and 1272 of the Code provide a complex set of rules
governing the accrual of original issue discount. These rules provide that
original issue discount accrues either on the basis of a constant compound
interest rate or ratably over the term of the Bond, depending on the date the
Bond was issued. In addition, special rules apply if the purchase price of a
Bond exceeds the original issue price plus the amount of original issue discount
which would have previously accrued based upon its issue price (its "adjusted
issue price") to prior owners. If a Bond is acquired with accrued interest, that
portion of the price paid for the accrued interest is added to the tax basis of
the Bond. When this accrued interest is received, it is treated as a return of
capital and reduces the tax basis of the Bond. If a Bond is purchased for a
premium, the amount of the premium is added to the tax basis of the Bond. Bond
premium is amortized over the remaining term of the Bond, and the tax basis of
the Bond is reduced each tax year by the amount of the premium amortized in that
tax year. The application of these rules will also vary depending on the value
of the Bond on the date a Unitholder acquires his Units and the price the
Unitholder pays for his Units. Unitholders should consult with their tax
advisers regarding these rules and their application.
"The Revenue Reconciliation Act of 1993" (the "Tax Act") subjects
tax-exempt bonds to the market discount rules of the Code effective for bonds
purchased after April 30, 1993. In general, market discount is the amount (if
any) by which the stated redemption price at maturity exceeds an investor's
purchase price (except to the extent that such difference, if any, is
attributable to original issue discount not yet accrued), subject to a statutory
de minimis rule. Market discount can arise based on the price a Trust pays for
Bonds or the price a Unitholder pays for his or her Units. Under the Tax Act,
accretion of market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that accretes while
a Trust holds a Bond would be recognized as ordinary income by the Unitholders
when principal payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or her
Units, unless a Unitholder elects to include market discount in taxable income
as it accrues. The market discount rules are complex and Unitholders should
consult their tax advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and
the Superfund Tax for taxable years beginning after December 31, 1986 depends
upon the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the Superfund
Tax of a corporation (other than an S Corporation, Regulated Investment Company,
Real Estate Investment Trust, or REMIC) is an amount equal to 75% of the excess
of such corporation's "adjusted current earnings" over an amount equal to its
alternative minimum taxable income (before such adjustment item and the
alternative tax net operating loss deduction). "Adjusted current earnings"
includes all tax exempt interest, including interest on all of the Bonds in the
Fund. Under current Code provisions, the Superfund Tax does not apply to tax
years beginning on or after January 1, 1996. Legislative proposals have been
introduced which would extend the Superfund Tax. Under the provisions of Section
884 of the Code, a branch profits tax is levied on the "effectively connected
earnings and profits" of certain foreign corporations which include tax-exempt
interest such as interest on the Bonds in the Trust. Unitholders should consult
their tax advisers with respect to the particular tax consequences to them
including the corporate alternative minimum tax, the Superfund Tax and the
branch profits tax imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the
Code, interest on indebtedness incurred or continued to purchase or carry Units
of a Trust is not deductible for Federal income tax purposes. The Internal
Revenue Service has taken the position that such indebtedness need not be
directly traceable to the purchase or carrying of Units (however, these rules
generally do not apply to interest paid on indebtedness incurred to purchase or
improve a personal residence). Also, under Section 265 of the Code, certain
financial institutions that acquire Units would generally not be able to deduct
any of the interest expense attributable to ownership of such Units. Legislative
proposals have been made that would extend the financial institution rules to
all corporations. Investors with questions regarding these issues should consult
their tax advisers.
In the case of certain of the Bonds in the Fund, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user" of
the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or related
person, will not be excludible from Federal gross income, although interest on
such Bonds received by others would be excludible from Federal gross income.
"Substantial user" and "related person" are defined under the Code and U.S.
Treasury Regulations. Any person who believes that he or she may be a
"substantial user" or a "related person" as so defined should contact his or her
tax adviser.
In the opinion of special counsel to the Fund for New York tax matters,
under existing law, the Fund and each Trust are not associations taxable as
corporations and the income of each Trust will be treated as the income of the
Unitholders under the income tax laws of the State and City of New York.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, state or other tax purposes are the opinions of counsel and
are to be so construed.
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal gross
income are rendered by bond counsel to the respective issuing authorities.
Neither the Sponsor nor Chapman and Cutler has made any special review for the
Fund of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%, effective for long-term capital gains realized
in taxable years beginning on or after January 1, 1993. For taxpayers other than
corporations, net capital gains (which are defined as net long-term capital gain
over net short-term capital loss for a taxable year) are subject to a maximum
marginal stated tax rate of 28%. However, it should be noted that legislative
proposals are introduced from time to time that affect tax rates and could
affect relative differences at which ordinary income and capital gains are
taxed. Under the Code, taxpayers must disclose to the Internal Revenue Service
the amount of tax-exempt interest earned during the year. For purposes of
computing the alternative minimum tax for individuals and corporations and the
Superfund Tax for corporations, interest on certain private activity bonds
(which includes most industrial and housing revenue bonds) issued on or after
August 8, 1996 is included as an item of tax preference. Except as otherwise
noted in Prospectus Part I, the Trusts do not include any such private activity
bonds issued on or after that date.
Section 86 of the Code provides that 50% of Social Security benefits
are includible in gross income to the extent that the sum of "modified adjusted
gross income" plus 50% of the Social Security benefits received exceeds a "base
amount". The base amount is $25,000 for unmarried taxpayers, $32,000 for married
taxpayers filing a joint return and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Modified adjusted gross income is adjusted gross income determined without
regard to certain otherwise allowable deductions and exclusions from gross
income and by including tax-exempt interest. To the extent that Social Security
benefits are includible in gross income, they will be treated as any other item
of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in gross
income to the extent that the sum of "modified adjusted gross income" plus 50%
of Social Security benefits received exceeds an "adjusted base amount." The
adjusted base amount is $34,000 for unmarried taxpayers, $44,000 for married
taxpayers filing a joint return, and zero for married taxpayers who do not live
apart at all times during the taxable year and who file separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his Social Security benefits in
gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits in
gross income.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers who
may be deemed to have incurred (or continued) indebtedness to purchase or carry
tax-exempt obligations. Prospective investors should consult their tax advisors
as to the applicability of any collateral consequences.
For a discussion of the state tax status of income earned on Units of a
Trust and recent changes in Federal tax law, see Prospectus Part I. Except as
noted therein, the exemption of interest on state and local obligations for
Federal income tax purposes discussed above does not necessarily result in
exemption under the income or other tax laws of any state or city. The laws of
the several states vary with respect to the taxation of such obligations.
EXPENSES
- -------------------------------------------------------------------------------
The Sponsor will not receive any fees in connection with its activities
relating to the Fund. However, American Portfolio Evaluation Services, a
division of Van Kampen American Capital Investment Advisory Corp., which is an
affiliate of the Sponsor, will receive the annual supervisory fee indicated
under "Summary of Essential Financial Information" in Prospectus Part I for
providing portfolio supervisory services for the Fund. In addition, the
Evaluator will receive the annual evaluation fee indicated under "Summary of
Essential Financial Information" in Prospectus Part I for evaluating each
Trust's portfolio. These fees may exceed the actual costs of providing these
services for a Trust but the total amount received by the Evaluator for
providing these services to all Van Kampen American Capital unit investment
trusts will not exceed the total cost of providing the services in any calendar
year. For its services the Trustee will receive the fee indicated under "Summary
of Essential Financial Information" in Prospectus Part I (which may be reduced
as described therein). Part of the Trustee's compensation for its services is
expected to result from the use of the funds being held in the Principal and
Interest Accounts for future distributions, payment of expenses and redemptions
since these Accounts are non-interest bearing to Unitholders. These fees are
based on the outstanding principal amount of Bonds and Units on the Date of
Deposit for the first year and as of the close of business on January 1 for each
year thereafter.
Premiums for any portfolio insurance are obligations of each Insured
Trust and are payable monthly by the Trustee on behalf of the Trust. As Bonds in
an Insured Trust are redeemed by their respective issuers or are sold by the
Trustee, the amount of the premium will be reduced in respect of those Bonds. If
the Trustee exercises the right to obtain permanent insurance, the premiums
payable for such permanent insurance will be paid solely from the proceeds of
the sale of the related Bonds.
The following additional charges are or may be incurred by the Trusts:
(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 Trusts 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 Fund without negligence,
bad faith or willful misconduct on its part, (f) any special custodial fees
payable in connection with the sale of any of the Bonds in a Trust, (g)
expenditures incurred in contacting Unitholders upon termination of the Trusts
and (h) costs incurred to reimburse the Trustee for advancing funds to the
Trusts 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 Trusts. When such fees and expenses are
paid by or owing to the Trustee, they are secured by a lien on the portfolio of
the applicable Trust. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by a Trust, the Trustee has the
power to sell Bonds to pay such amounts.
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 Fund. The Trustee also may withdraw from these Accounts such amounts, if
any, as it deems necessary to establish a reserve for any governmental charges
payable out of the Fund. Amounts so withdrawn shall not be considered a part of
the Fund's assets until such time as the Trustee shall return all or any part of
such amounts to the appropriate Accounts. All costs and expenses incurred in
creating and establishing the Fund, including the cost of the initial
preparation, printing and execution of the Trust Agreement and the certificates,
legal and accounting expenses, advertising and selling expenses, expenses of the
Trustee, initial evaluation fees and other out-of-pocket expenses have been
borne by the Sponsor at no cost to the Fund.
ADDITIONAL INFORMATION
- -------------------------------------------------------------------------------
This Prospectus does not contain all the information set forth in the
Registration Statement filed by the Fund with the SEC. The Information
Supplement, which has been filed with the SEC, includes more detailed
information concerning the Bonds, investment risks and general information about
the Fund. This Prospectus incorporates by reference the entire Information
Supplement. The Information Supplement may be obtained by contacting the Trustee
or is available along with other related materials at the SEC's Internet site
(http://www.sec.gov).
OTHER MATTERS
- -------------------------------------------------------------------------------
LEGAL MATTERS. The legality of the Units offered hereby and certain
matters relating to Federal tax law have 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 to the Trustee and Special counsel to the
Fund for New York tax matters. Special counsel to the Fund for certain state tax
matters are named under "Tax Status" appearing in Prospectus Part I.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The statement of condition
and the related portfolio at the Date of Deposit included in Prospectus Part I
have been audited by Grant Thornton LLP, independent certified public
accountants, as set forth in their report in Prospectus Part I, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
TABLE OF CONTENTS
TITLE PAGE
The Trusts 2
The Fund 2
Objectives and Bond Selection 2
Risk Factors 3
Estimated Current and Long-Term Returns 5
Public Offering 6
General 6
Offering Price 7
Accrued Interest 8
Unit Distribution 8
Sponsor and Underwriter Compensation 9
Market for Units 10
Rights of Unitholders 11
Distributions of Interest and Principal 11
Reinvestment Option 11
Redemption of Units 11
Certificates 12
Reports Provided 12
Insurance on the Bonds in the Insured Trusts 13
Fund Administration 14
Sponsor 14
Trustee 14
Portfolio Administration 14
Replacement Bonds 15
Amendment of Trust Agreement 15
Termination of Trust Agreement 15
Limitation on Liabilities 15
Federal Tax Status 16
Expenses 18
Additional Information 19
Other Matters 19
Legal Matters 19
Independent Certified Public Accountants 19
- ------------
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.
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
PART II
- -------------------------------------------------------------------------------
FEBRUARY 1998
INSURED MUNICIPALS INCOME TRUST, INSURED MULTI-SERIES
AND
INSURED MUNICIPALS INCOME TRUST
AND INVESTORS' QUALITY TAX- EXEMPT TRUST, MULTI-SERIES
------ 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
Van Kampen American Capital
Information Supplement
Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 303
- --------------------------------------------------------------------------------
This Information Supplement provides additional information concerning the
risks and operations of the Fund which is not described in the Prospectus for
the Fund. This Information Supplement should be read in conjunction with the
Fund's prospectus. This Information Supplement is not a prospectus (but is
incorporated into the Prospectus by reference), does not include all of the
information that an investor should consider before investing in a Trust and may
not be used to offer or sell Units without the Prospectus. Copies of the
Prospectus can be obtained by contacting the Sponsor at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181 or by contacting your broker. This Information
Supplement is dated as of the date of Prospectus Part I and all capitalized
terms have been defined in the Prospectus.
Table of Contents
Page
Municipal Bond Risk Factors............................................ 2
Insurance on the Bonds in the Insured Trusts........................... 6
Portfolio Administration............................................... 12
Trustee Information.................................................... 13
Termination of the Trust Agreement..................................... 14
Description of Ratings................................................. 14
Equivalent Taxable Estimated Current Return Tables..................... 16
Maryland Risk Factors.................................................. 18
Estimated Cash Flows to Unitholders.................................... 21
Municipal Bond Risk Factors
The Trusts include certain types of bonds described below. Accordingly, an
investment in a Trust should be made with an understanding of the
characteristics of and risks associated with such bonds. The types of bonds
included in each Trust are described on the cover of the related Prospectus Part
I. Neither the Sponsor nor the Trustee shall be liable in any way for any
default, failure or defect in any of the Bonds.
Certain of the Bonds may be general obligations of a governmental entity that
are backed by the taxing power of such entity. All other Bonds in the Trusts are
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. Revenue bonds, on the other hand, are payable
only from the revenues derived from a particular facility or class of facilities
or, in some cases, from the proceeds of a special excise tax or other specific
revenue source. There are, of course, variations in the security of the
different Bonds in the Fund, both within a particular classification and between
classifications, depending on numerous factors.
Certain of the Bonds may be obligations which derive their payments from
mortgage loans. Certain of such housing bonds may be FHA insured or may be
single family mortgage revenue bonds issued for the purpose of acquiring from
originating financial institutions notes secured by mortgages on residences
located within the issuer's boundaries and owned by persons of low or moderate
income. Mortgage loans are generally partially or completely prepaid prior to
their final maturities as a result of events such as sale of the mortgaged
premises, default, condemnation or casualty loss. Because these bonds are
subject to extraordinary mandatory redemption in whole or in part from such
prepayments of mortgage loans, a substantial portion of such bonds will probably
be redeemed prior to their scheduled maturities or even prior to their ordinary
call dates. Extraordinary mandatory redemption without premium could also result
from the failure of the originating financial institutions to make mortgage
loans in sufficient amounts within a specified time period. Additionally,
unusually high rates of default on the underlying mortgage loans may reduce
revenues available for the payment of principal of or interest on such mortgage
revenue bonds. These bonds were issued under Section 103A of the Internal
Revenue Code, which Section contains certain requirements relating to the use of
the proceeds of such bonds in order for the interest on such bonds to retain its
tax-exempt status. In each case the issuer of the bonds has covenanted to comply
with applicable requirements and bond counsel to such issuer has issued an
opinion that the interest on the bonds is exempt from Federal income tax under
existing laws and regulations. Certain issuers of housing bonds have considered
various ways to redeem bonds they have issued prior to the stated first
redemption dates for such bonds. In connection with the housing bonds held by
the Fund, the Sponsor at the Date of Deposit is not aware that any of the
respective issuers of such bonds are actively considering the redemption of such
bonds prior to their respective stated initial call dates.
Certain of the Bonds may be health care revenue bonds. 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.
Certain of the Bonds may be obligations of public utility issuers, including
those selling wholesale and retail electric power and gas. 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. 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 Bonds to make payments of principal
and/or interest on such Bonds.
Certain of the Bonds may be obligations of issuers whose revenues are derived
from the sale of water and/or sewerage services. Such bonds are generally
payable from user fees. The problems of such issuers include the ability to
obtain timely and adequate rate increases, population decline resulting in
decreased user fees, the difficulty of financing large construction programs,
the limitations on operations and increased costs and delays attributable to
environmental considerations, the increasing difficulty of obtaining or
discovering new supplies of fresh water, the effect of conservation programs and
the impact of "no-growth" zoning ordinances.
Certain of the Bonds may be industrial revenue bonds ("IRBs"). IRBs have
generally been issued under bond resolutions pursuant to which the revenues and
receipts payable under the arrangements with the operator of a particular
project have been assigned and pledged to purchasers. In some cases, a mortgage
on the underlying project may have been granted as security for the IRBs.
Regardless of the structure, payment of IRBs is solely dependent upon the
creditworthiness of the corporate operator of the project or corporate
guarantor. Corporate operators or guarantors may be affected by many factors
which may have an adverse impact on the credit quality of the particular company
or industry. These include cyclicality of revenues and earnings, regulatory and
environmental restrictions, litigation resulting from accidents or
environmentally-caused illnesses, extensive competition and financial
deterioration resulting from a corporate restructuring pursuant to a leveraged
buy-out, takeover or otherwise. Such a restructuring may result in the operator
of a project becoming highly leveraged which may impact on such operator's
creditworthiness which in turn would have an adverse impact on the rating and/or
market value of such bonds. Further, the possibility of such a restructuring may
have an adverse impact on the market for and consequently the value of such
bonds, even though no actual takeover or other action is ever contemplated or
effected.
Certain of the Bonds may be obligations that are secured by lease payments of
a governmental entity (hereinafter called "lease obligations"). Lease
obligations are often in the form of certificates of participation. Although the
lease obligations do not constitute general obligations of the municipality for
which the municipality's taxing power is pledged, a lease obligation is
ordinarily backed by the municipality's covenant to appropriate for and make the
payments due under the lease obligation. However, certain lease obligations
contain "non-appropriation" clauses which provide that the municipality has no
obligation to make lease payments in future years unless money is appropriated
for such purpose on a yearly basis. A governmental entity that enters into such
a lease agreement cannot obligate future governments to appropriate for and make
lease payments but covenants to take such action as is necessary to include any
lease payments due in its budgets and to make the appropriations therefor. A
governmental entity's failure to appropriate for and to make payments under its
lease obligation could result in insufficient funds available for payment of the
obligations secured thereby. Although "non-appropriation" lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult.
Certain of the Bonds may be obligations of issuers which are, or which govern
the operation of, schools, colleges and universities and whose revenues are
derived mainly from ad valorem taxes or for higher education systems, from
tuition, dormitory revenues, grants and endowments. General problems relating to
school bonds include litigation contesting the state constitutionality of
financing public education in part from ad valorem taxes, thereby creating a
disparity in educational funds available to schools in wealthy areas and schools
in poor areas. Litigation or legislation on this issue may affect the sources of
funds available for the payment of school bonds in the Trusts. General problems
relating to college and university obligations include the prospect of a
declining percentage of the population consisting of "college" age individuals,
possible inability to raise tuitions and fees sufficiently to cover increased
operating costs, the uncertainty of continued receipt of Federal grants and
state funding, and government legislation or regulations which may adversely
affect the revenues or costs of such issuers.
Certain of the Bonds in certain of the Trusts 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. 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. From time to time the air transport industry has experienced
significant variations in earnings and traffic, due to increased competition,
excess capacity, increased costs, deregulation, traffic constraints and other
factors, and several airlines have experienced severe financial difficulties.
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 Bonds may be obligations which are payable from and secured by
revenues derived from the operation of resource recovery facilities. Resource
recovery facilities are designed to process solid waste, generate steam and
convert steam to electricity. Resource recovery bonds may be subject to
extraordinary optional redemption at par upon the occurrence of certain
circumstances, including but not limited to: destruction or condemnation of a
project; contracts relating to a project becoming void, unenforceable or
impossible to perform; changes in the economic availability of raw materials,
operating supplies or facilities necessary for the operation of a project or
technological or other unavoidable changes adversely affecting the operation of
a project; and administrative or judicial actions which render contracts
relating to the projects void, unenforceable or impossible to perform or impose
unreasonable burdens or excessive liabilities. The Sponsor cannot predict the
causes or likelihood of the redemption of resource recovery bonds in a Trust
prior to the stated maturity of the Bonds.
Certain of the Bonds may have been acquired at a market discount from par
value at maturity. The coupon interest rates on discount bonds at the time they
were purchased and deposited in a Trust were lower than the current market
interest rates for newly issued bonds of comparable rating and type. If such
interest rates for newly issued comparable bonds increase, the market discount
of previously issued bonds will become greater, and if such interest rates for
newly issued comparable bonds decline, the market discount of previously issued
bonds will be reduced, other things being equal. Investors should also note that
the value of bonds purchased at a market discount will increase in value faster
than bonds purchased at a market premium if interest rates decrease. Conversely,
if interest rates increase, the value of bonds purchased at a market discount
will decrease faster than bonds purchased at a market premium. In addition, if
interest rates rise, the prepayment risk of higher yielding, premium Securities
and the prepayment benefit for lower yielding, discount bonds will be reduced. A
bond purchased at a market discount and held to maturity will have a larger
portion of its total return in the form of taxable income and capital gain and
less in the form of tax-exempt interest income than a comparable bond newly
issued at current market rates. See "Federal Tax Status" in Prospectus Part II.
Market discount attributable to interest changes does not indicate a lack of
market confidence in the issue.
Certain of the Bonds may be "zero coupon" bonds. Zero coupon bonds are
purchased at a deep discount because the buyer receives only the right to
receive a final payment at the maturity of the bond and does not receive any
periodic interest payments. The effect of owning deep discount bonds which do
not make current interest payments (such as the zero coupon bonds) is that a
fixed yield is earned not only on the original investment but also, in effect,
on all discount earned during the life of such obligation. This implicit
reinvestment of earnings at the same rate eliminates the risk of being unable to
reinvest the 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.
Certain of the Bonds may have been purchased on a "when, as and if issued" or
"delayed delivery" basis. See "Notes to Portfolio" in Prospectus Part I. The
delivery of any such Bonds may be delayed or may not occur. Interest on these
Bonds begins accruing to the benefit of Unitholders on their respective dates of
delivery. To the extent any Bonds are actually delivered to the Fund after their
respective expected dates of delivery, Unitholders who purchase their Units
prior to the date such Bonds are actually delivered to the Trustee would be
required to adjust their tax basis in their Units for a portion of the interest
accruing on such Bonds during the interval between their purchase of Units and
the actual delivery of such Bonds. As a result of any such adjustment, the
Estimated Current Returns during the first year would be slightly lower than
those stated in the Prospectus which would be the returns after the first year,
assuming the portfolio of a Trust and estimated annual expenses other than that
of the Trustee (which may be reduced in the first year only) do not vary from
that set forth in Prospectus Part I. Unitholders will be "at risk" with respect
to all Bonds in the portfolios including "when, as and if issued" and "delayed
delivery" Bonds (i.e., may derive either gain or loss from fluctuations in the
evaluation of such Bonds) from the date they commit for Units.
Certain of the Bonds may be 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 bonds 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; it may also affect
the current return on Units of the Trust involved. Each Trust portfolio contains
a listing of the sinking fund and call provisions, if any, with respect to each
of the debt obligations. Extraordinary optional redemptions and mandatory
redemptions result from the happening of certain events. Generally, events that
may permit the extraordinary optional redemption of bonds or may require the
mandatory redemption of bonds include, among others: a final determination that
the interest on the bonds is taxable; the substantial damage or destruction by
fire or other casualty of the project for which the proceeds of the bonds 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 bonds 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 bonds
were used uneconomic; changes in law or an administrative or judicial decree
which renders the performance of the agreement under which the proceeds of the
bonds 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 bonds are issued on the issuer of the bonds or the user
of the proceeds of the bonds; 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 bonds; an overestimate of the costs of the
project to be financed with the proceeds of the bonds resulting in excess
proceeds of the bonds which may be applied to redeem bonds; or an underestimate
of a source of funds securing the bonds resulting in excess funds which may be
applied to redeem bonds. The issuer of certain bonds in a Trust may have sold or
reserved the right to sell, upon the satisfaction of certain conditions, to
third parties all or any portion of its rights to call bonds in accordance with
the stated redemption provisions of such bonds. In such a case the issuer no
longer has the right to call the bonds for redemption unless it reacquires the
rights from such third party. A third party pursuant to these rights may
exercise the redemption provisions with respect to a bond at a time when the
issuer of the bond might not have called a bond for redemption had it not sold
such rights. The Sponsor is unable to predict all of the circumstances which may
result in such redemption of an issue of Bonds. See also the discussion of
single family mortgage and multi-family revenue bonds above for more information
on the call provisions of such bonds.
To the best knowledge of the Sponsor, there is no litigation pending as of
the Date of Deposit in respect of any Bonds which might reasonably be expected
to have a material adverse effect upon the Fund or any of the Trusts. At any
time after the Date of Deposit, litigation may be initiated on a variety of
grounds with respect to Bonds in the Fund. Such litigation, as, for example,
suits challenging the issuance of pollution control revenue bonds under
environmental protection statutes, may affect the validity of such Bonds or the
tax-free nature of the interest thereon. While the outcome of litigation of such
nature can never be entirely predicted, the Fund has received or will receive
opinions of bond counsel to the issuing authorities of each Bond on the date of
issuance to the effect that such Bonds have been validly issued and that the
interest thereon is exempt from Federal income tax. In addition, other factors
may arise from time to time which potentially may impair the ability of issuers
to meet obligations undertaken with respect to the Bonds.
Insurance on the Bonds in the Insured Trusts
Insurance has been obtained by each Insured Trust, by the issuer of Bonds in
an Insured Trust, by a prior owner of such Bonds, or by the Sponsor prior to the
deposit of such Bonds in a Trust guaranteeing prompt payment of interest and
principal, when due, in respect of the bonds in such Trust. See Settlement of
Bonds in "The Trusts--Objectives and Bond Selection" in Prospectus Part II. The
Portfolio Insurers and the Preinsured Bond Insurers are described under
"Portfolio" and "Notes to Portfolio" in Prospectus Part I. The Portfolio
Insurers are either AMBAC Assurance Corporation or Financial Guaranty Insurance
Company. An insurance policy obtained by an Insured Trust, if any, is
non-cancellable and will continue in force so long as such Trust is in
existence, the respective Portfolio Insurer is still in business and the Bonds
described in such policy continue to be held by such Trust (see "Portfolio" for
the respective Insured Trust in Prospectus Part I). Any portfolio insurance
premium for an Insured Trust, which is an obligation of such Trust, is paid by
such Trust on a monthly basis. Non-payment of premiums on a policy obtained by
an Insured Trust will not result in the cancellation of insurance but will force
the insurer to take action against the Trustee to recover premium payments due
it. The Trustee in turn will be entitled to recover such payments from such
Trust. Premium rates for each issue of Bonds protected by a policy obtained by
an Insured Trust, if any, are fixed for the life of the Trust. The premium for
any Preinsured Bond insurance has been paid by such issuer, by a prior owner of
such Bonds or the Sponsor and any such policy or policies are non-cancellable
and will continue in force so long as the Bonds so insured are outstanding and
the respective Preinsured Bond Insurer remains in business. If the provider of
an original issuance insurance policy is unable to meet its obligations under
such policy or if the rating assigned to the claims-paying ability of any such
insurer deteriorates, the Portfolio Insurers have no obligation to insure any
issue adversely affected by either of the above described events.
The aforementioned portfolio insurance obtained by an Insured Trust, if any,
guarantees the timely payment of principal and interest on the Bonds when they
fall due. For the purposes of insurance obtained by an Insured Trust, "when due"
generally means the stated payment or maturity date for the payment of principal
and interest. However, in the event (a) an issuer of a Bond defaults in the
payment of principal or interest on such Bond, (b) such issuer enters into a
bankruptcy proceeding or (c) the maturity of such Bond is accelerated, the
affected Portfolio Insurer has the option, in its sole discretion, after
receiving notice of the earliest to occur of such a default, bankruptcy
proceeding or acceleration to pay the outstanding principal amount of such Bond
plus accrued interest to the date of such payment and thereby retire the Bond
from the affected Trust prior to such Bond's stated maturity date. The insurance
does not guarantee the market value of the Bonds or the value of the Units.
Insurance obtained by an Insured Trust, if any, is only effective as to Bonds
owned by and held in such Trust. In the event of a sale of any such Bond by the
Trustee, such insurance terminates as to such Bond on the date of sale.
Pursuant to an irrevocable commitment of the Portfolio Insurers, the Trustee,
upon the sale of a Bond covered under a portfolio insurance policy obtained by
an Insured Trust, has the right to obtain permanent insurance with respect to
such Bond (i.e., insurance to maturity of the Bond 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 Bond. Accordingly, any Bond in an Insured 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
affected Trust would receive net proceeds (sale of Bond proceeds less the
insurance premium and related expenses attributable to the Permanent Insurance)
from such sale in excess of the sale proceeds if such Bonds were sold on an
uninsured basis. The insurance premium with respect to each Bond eligible for
Permanent Insurance would be determined based upon the insurability of each Bond
as of the Date of Deposit and would not be increased or decreased for any change
in the creditworthiness of each Bond.
The Sponsor believes that the Permanent Insurance option provides an
advantage to an Insured Trust in that each Bond insured by a Trust insurance
policy may be sold out of the affected 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 Bond so sold (which is not the
case in connection with any value attributable to an Insured Trust's portfolio
insurance). See Public Offering--Offering Price" in Prospectus Part II. Because
any such insurance value may be realized in the market value of the Bond upon
the sale thereof upon exercise of the Permanent Insurance option, the Sponsor
anticipates that (a) in the event an Insured Trust were to be comprised of a
substantial percentage of Bonds in default or significant risk of default, it is
much less likely that such Trust would need at some point in time to seek a
suspension of redemptions of Units than if such Trust were to have no such
option (see "Rights of Unitholders--Redemption of Units" in Prospectus Part II)
and (b) at the time of termination of an Insured Trust, if such Trust were
holding defaulted Bonds or Bonds in significant risk of default such Trust would
not need to hold such Securities until their respective maturities in order to
realize the benefits of such Trust's portfolio insurance (see "Fund
Administration--Termination of Trust Agreement" in Prospectus Part II).
Except as indicated below, insurance obtained by an Insured 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 Bonds 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 the difference between (i) the market value of a bond
which is in default in payment of principal or interest or in significant risk
of such default assuming the exercise of the right to obtain Permanent Insurance
(less the insurance premium and related expenses attributable to the purchase of
Permanent Insurance) and (ii) the market value of such Bonds not covered by
Permanent Insurance. See "Public Offering--Offering Price" in Prospectus Part
II. It is also the present intention of the Trustee not to sell such Bonds to
effect redemptions or for any other reason but rather to retain them in the
portfolio because value attributable to the insurance cannot be realized upon
sale. See "Public Offering--Offering Price" in Prospectus Part II for a more
complete description of an Insured Trust's method of valuing defaulted Bonds and
Bonds which have a significant risk of default. Insurance obtained by the issuer
of a Bond is effective so long as such Bond is outstanding. Therefore, any such
insurance may be considered to represent an element of market value in regard to
the Bonds thus insured, but the exact effect, if any, of this insurance on such
market value cannot be predicted.
The portfolio insurance policy or policies obtained by an Insured Trust, if
any, with respect to the Bonds in such Trust were issued by one or more of the
Portfolio Insurers. Any other Preinsured Bond insurance policy (or commitment
therefor) was issued by one of the Preinsured Bond Insurers. See "The
Trusts--Objectives and Bond Selection" in Prospectus Part II.
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 IBCA, Inc. (formerly Fitch Investors Service, L.P.).
Pursuant to a reinsurance agreement, it is anticipated that CapMAC will cede all
of its net insured risks, as well as its unearned premiums and contingency
reserves, to MBIA Insurance Corporation and that MBIA Insurance Corporation will
reinsure CapMAC's net outstanding exposure. Neither MBIA 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 approximately $2,967,246,831 (unaudited) and statutory
capital of approximately $1,715,481,691 (unaudited) as of March 31, 1998.
Statutory capital consists of AMBAC Assurance's policyholders' surplus and
statutory contingency reserve. AMBAC Assurance is a wholly owned subsidiary of
AMBAC Financial Group, Inc., a 100% publicly-held company. Moody's Investors
Service, Inc. and Standard & Poor's have both assigned a triple-A claims-paying
ability rating to AMBAC Assurance.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Assurance. The address of AMBAC
Assurance's administrative offices and its telephone number are One State Street
Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Assurance has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Assurance has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not obligated
to pay the debts of or claims against MBIA. MBIA is domiciled in the State of
New York and licensed to do business in and subject to regulation under the laws
of all fifty states, the District of Columbia, the Commonwealth of the Northern
Mariana Islands, the Commonwealth of Puerto Rico, the Virgin Islands of the
United States and the Territory of Guam. MBIA has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations of
investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to maintain
contingency reserves on its liabilities in certain amounts and for certain
periods of time.
Effective February 17, 1998, MBIA, Inc. acquired all of the outstanding
stock of CapMAC, through a merger with its parent, CapMAC Holdings, Inc.
Pursuant to a reinsurance agreement, CapMAC has ceded all of its net insured
risks (including any amounts due but unpaid from third party reinsurers), as
well as its unearned premiums and contingency reserves to MBIA. MBIA, Inc. is
not obligated to pay debts of or claims against CapMAC.
As of December 31, 1997, the insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1998, MBIA had admitted assets of $5.4 billion
(unaudited), total liabilities of $3.6 billion (unaudited), and total capital
and surplus of $1.8 billion (unaudited), determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's financial statements prepared in accordance with
statutory accounting practices are available from MBIA. The address of MBIA is
113 King Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA, Inc. acquired Bond Investors Group, Inc.
On January 5, 1990, MBIA acquired all of the outstanding stock of Bond Investors
Group, Inc., the parent of Bond Investors Guaranty Insurance Company (BIG), now
known as MBIA Insurance Corp. of Illinois. Through a reinsurance agreement, BIG
has ceded all of its net insured risks, as well as its unearned premium and
contingency reserves, to MBIA and MBIA has reinsured BIG's net outstanding
exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG-1," both designated to be of the highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA" Prime Grade.
Moody's, Standard & Poor's and Fitch IBCA, Inc. (formerly Fitch Investors
Service, L.P.), all rate the claims paying ability of MBIA as "Triple A." The
Moody's Investors Service, Inc. rating of MBIA should be evaluated independently
of the Standard & Poor's rating of MBIA. No application has been made to any
other rating agency in order to obtain additional ratings on the Obligations.
The ratings reflect the respective rating agency's current assessment of the
creditworthiness of MBIA and its ability to pay claims on its policies of
insurance. Any further explanation as to the significance of the above ratings
may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Obligations and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of either or
both ratings may have an adverse effect on the market price of the Obligations.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC") is a
wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. The Corporation is a wholly-owned subsidiary of General
Electric Capital Corporation ("GE Capital"). Neither the Corporation nor GE
Capital 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. Financial Guaranty prepares financial
statements on the basis of both statutory accounting principles, and generally
accepted accounting principles. Copies of such financial statements 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 March 31, 1998, the
total policyholders' surplus and contingency reserves and the total unearned
premium reserve, respectively, of Financial Security and its consolidated
subsidiaries were, in accordance with statutory accounting principles,
approximately $808,603,000 (unaudited) and $503,683,000 (unaudited), and the
total shareholders' equity and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were, in accordance with
generally accepted accounting principles, approximately $923,047,000 (unaudited)
and $428,158,000 (unaudited). Copies of Financial Security's financial
statements may be obtained by writing to Financial Security at 350 Park Avenue,
New York, New York, 10022, Attention: Communications Department.
Its telephone number is (212) 826-0100.
Pursuant to an 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. In order to be in
an Insured Trust, Bonds must be insured by one of the Preinsured Bond Insurers
or be eligible for the insurance being obtained by such Trust. In determining
eligibility for insurance, the Preinsured Bond Insurers and the Portfolio
Insurers have applied their own standards which correspond generally to the
standards they normally use in establishing the insurability of new issues of
municipal bonds and which are not necessarily the criteria used in the selection
of Bonds by the Sponsor. To the extent the standards of the Preinsured Bond
Insurers and the Portfolio Insurers are more restrictive than those of the
Sponsor, the previously stated Trust investment criteria have been limited with
respect to the Bonds. This decision is made prior to the Date of Deposit, as
debt obligations not eligible for insurance are not deposited in an Insured
Trust. Thus, all of the Bonds in the portfolios of the Insured Trusts in the
Fund are insured either by the respective Trust or by the issuer of the Bonds,
by a prior owner of such Bonds or by the Sponsor prior to the deposit of such
Bonds in a Trust.
Because the Bonds are insured by one of the Portfolio Insurers or one of the
Preinsured Bond Insurers as to the timely payment of principal and interest,
when due, and on the basis of the various reinsurance agreements in effect,
Standard & Poor's has assigned to the Units of each Insured 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 "Description of Ratings". The obtaining of this rating by an Insured
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 such Trust or of the
Units.
An objective of portfolio insurance obtained by an Insured Trust is to obtain
a higher yield on the portfolio of such Trust than would be available if all the
Bonds 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, on the Bonds. There is, of course, no certainty that this
result will be achieved. Preinsured Bonds in an Insured Trust (all of which are
rated "AAA" by Standard & Poor's) may or may not have a higher yield than
uninsured bonds rated "AAA" by Standard & Poor's. In selecting such Bonds for an
Insured Trust, the Sponsor has applied the criteria hereinbefore described.
In the event of nonpayment of interest or principal, when due, in respect of
a Bond, AMBAC Indemnity shall make such payment not later than 30 days and
Financial Guaranty shall make such payment within one business day after the
respective insurer has been notified that such nonpayment has occurred or is
threatened (but not earlier than the date such payment is due). The insurer, as
regards any payment it may make, will succeed to the rights of the Trustee in
respect thereof. All policies issued by the Portfolio Insurers and the
Preinsured Bond Insurers are substantially identical insofar as obligations to
an Insured Trust are concerned.
The Internal Revenue Service has issued a letter ruling which holds in effect
that insurance proceeds representing maturing interest on defaulted municipal
obligations paid to holders of insured bonds, under policy provisions
substantially identical to the policies described herein, will be excludable
from Federal gross income under Section 103(a)(1) of the Internal Revenue Code
to the same extent as if such payments were made by the issuer of the municipal
obligations. Holders of Units in an Insured Trust should discuss with their tax
advisers the degree of reliance which they may place on this letter ruling.
However, Chapman and Cutler, counsel for the Sponsor, has given an opinion to
the effect such payment of proceeds would be excludable from Federal gross
income to the extent described under "Federal Tax Status" in Prospectus Part II.
Each Portfolio Insurer is subject to regulation by the department of
insurance in the state in which it is qualified to do business. Such regulation,
however, is no guarantee that each Portfolio Insurer will be able to perform on
its contract of insurance in the event a claim should be made thereunder at some
time in the future. At the date hereof, it is reported that no claims have been
submitted or are expected to be submitted to any of the Portfolio Insurers which
would materially impair the ability of any such company to meet its commitment
pursuant to any contract of bond or portfolio insurance.
The information relating to each Portfolio Insurer has been furnished by such
companies. The financial information with respect to each Portfolio Insurer
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.
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 Bonds designated by the Evaluator as the Trustee in its
sole discretion may deem necessary. The Evaluator, in designating such Bonds,
will consider a variety of factors including (a) interest rates, (b) market
value and (c) marketability. The Sponsor, in connection with the Quality Trusts,
may direct the Trustee to dispose of Bonds upon default in payment of principal
or interest, institution of certain legal proceedings, default under other
documents adversely affecting debt service, default in payment of principal or
interest or other obligations of the same issuer, decline in projected income
pledged for debt service on revenue bonds or decline in price or the occurrence
of other market or credit factors, including advance refunding (i.e., the
issuance of refunding securities and the deposit of the proceeds thereof in
trust or escrow to retire the refunded securities on their respective redemption
dates), so that in the opinion of the Sponsor the retention of such Bonds would
be detrimental to the interest of the Unitholders. In connection with the
Insured Trusts to the extent that Bonds are sold which are current in payment of
principal and interest in order to meet redemption requests and defaulted Bonds
are retained in the portfolio in order to preserve the related insurance
protection applicable to said Bonds, the overall quality of the Bonds remaining
in such Trust's portfolio will tend to diminish. Except as described in this
section and in certain other unusual circumstances for which it is determined by
the Trustee to be in the best interests of the Unitholders or if there is no
alternative, the Trustee is not empowered to sell Bonds from an Insured Trust
which are in default in payment of principal or interest or in significant risk
of such default and for which value has been attributed for the insurance
obtained by such Insured Trust. Because of restrictions on the Trustee under
certain circumstances, the Sponsor may seek a full or partial suspension of the
right of Unitholders to redeem their Units in an Insured Trust. See "Rights of
Unitholders--Redemption of Units" in Prospectus Part II. The Sponsor is
empowered, but not obligated, to direct the Trustee to dispose of Bonds 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 Bonds to issue new obligations in exchange or
substitution for any Bond 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 Bond or (2) in the written
opinion of the Sponsor the issuer will probably default with respect to such
Bond 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 Bonds originally
deposited thereunder. Within five days after the deposit of obligations in
exchange or substitution for underlying Bonds, the Trustee is required to give
notice thereof to each Unitholder of the Trust thereby affected, identifying the
Bonds eliminated and the Bonds substituted therefor. Except as stated herein and
under "Fund Administration--Replacement Bonds" in Prospectus Part II regarding
the substitution of Replacement Bonds for Failed Bonds, the acquisition by the
Fund of any securities other than the Bonds initially deposited is not
permitted.
If any default in the payment of principal or interest on any Bonds occurs
and no provision for payment is made therefor 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 Bonds within 30 days after notification by the
Trustee to the Sponsor of such default, the Trustee may in its discretion sell
the defaulted Bond and not be liable for any depreciation or loss thereby
incurred.
Trustee Information
The Trustee is The Bank of New York, a trust company organized under the laws
of New York. The Bank of New York has its unit investment trust division offices
at 101 Barclay Street, New York, New York 10286, telephone (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 Bonds for the portfolios of any of the Trusts.
In accordance with the Trust Agreement, the Trustee shall keep proper books of
record and account of all transactions at its office for the Fund. Such records
shall include the name and address of, and the certificates issued by the Fund
to, every Unitholder of the Fund. Such books and records shall be open to
inspection by any Unitholder at all reasonable times during the 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. 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 Bonds held in the Fund.
Under the Trust Agreement, the Trustee or any successor trustee may resign
and be discharged of the trusts 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 Fund
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.
Termination of the Trust Agreement
A Trust may be terminated at any time by consent of Unitholders of 51% of the
Units of such Trust then outstanding or by the Trustee when the value of such
Trust, as shown by any semi-annual evaluation, is less than 20% of the original
principal amount of Bonds. 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 such Trust
would be reduced to less than 40% of the initial principal amount of such Trust.
If a 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 each
Trust shall terminate upon the redemption, sale or other disposition of the last
Bond held in such Trust, but in no event shall it continue beyond the end of the
year preceding the fiftieth anniversary of the Trust Agreement in the case of an
IM-IT Discount, a U.S. Territorial IM-IT, a Long-Term State or a National
Quality Trust, or beyond the end of the year preceding the twentieth anniversary
of the Trust Agreement in the case of IM-IT Limited Maturity, IM-IT
Intermediate, State Intermediate Laddered Maturity and IM-IT Short Intermediate
Trusts. In the event of termination of any Trust, written notice thereof will be
sent by the Trustee to each Unitholder of such Trust at his address appearing on
the registration books of the Fund maintained by the Trustee. Within a
reasonable time thereafter the Trustee shall liquidate any Bond then held in
such Trust and shall deduct from the funds of such 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 government
charges. The sale of Bonds 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 Bonds
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 Unitholder 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.
Notwithstanding the foregoing, in connection with final distributions to
Unitholders of an Insured Trust, it should be noted that because the portfolio
insurance obtained by an Insured Trust is applicable only while Bonds so insured
are held by such Trust, the price to be received by such Trust upon the
disposition of any such Bond which is in default, by reason of nonpayment of
principal or interest, will not reflect any value based on such insurance.
Therefore, in connection with any liquidation, it shall not be necessary for the
Trustee to, and the Trustee does not currently intend to, dispose of any Bond or
Bonds if retention of such Bond or Bonds, until due, shall be deemed to be in
the best interest of Unitholders, including, but not limited to, situations in
which a Bond or Bonds so insured have deteriorated market prices resulting from
a significant risk of default. Since the Preinsured Bonds will reflect the value
of the related insurance, it is the present intention of the Sponsor not to
direct the Trustee to hold any of such Preinsured Bonds after the date of
termination. All proceeds received, less applicable expenses, from insurance on
defaulted Bonds not disposed of at the date of termination will ultimately be
distributed to Unitholders of record as of such date of termination as soon as
practicable after the date such defaulted Bond or Bonds become due and
applicable insurance proceeds have been received by the Trustee.
Description of Ratings
Standard & Poor's, A Division of the McGraw-Hill Companies. A Standard &
Poor's municipal bond rating is a current assessment of the creditworthiness of
an obligor with respect to a specific debt obligation. This assessment of
creditworthiness may take into consideration obligors such as guarantors,
insurers or lessees.
The bond rating is not a recommendation to purchase or sell a security,
inasmuch as it does not comment as to market price.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it considers
reliable. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information.
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--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
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
debt in this category than in higher rated categories.
Plus (+) or Minus (-): To provide more detailed indications of credit
quality, 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: A provisional rating ("p") assumes the successful
completion of the project being financed by the issuance of 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,
makes no comment on the likelihood of, or the risk of default upon failure of,
such completion. Accordingly, 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 rating symbols and their meanings follows:
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 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.
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.
Equivalent Taxable Estimated Current Return Tables
As of the date of the Prospectus, the following tables show the approximate
taxable estimated current returns for individuals that are equivalent to
tax-exempt estimated current returns under combined Federal and State taxes
(where applicable) using the published Federal and State tax rates (where
applicable) scheduled to be in effect in 1998. They incorporate increased tax
rates for higher income taxpayers that were included in the Revenue
Reconciliation Act of 1993. These tables illustrate approximately what you would
have to earn on taxable investments to equal the tax-exempt estimated current
return in your income tax bracket. The tables assume that Federal taxable income
is equal to State income subject to tax, and for cases in which more than one
State rate falls within a Federal bracket, the State rate corresponding to the
highest income within that Federal bracket is used. The combined State and
Federal tax rates shown reflect the fact that State tax payments are currently
deductible for Federal tax purposes. The tables do not reflect any local taxes
or any taxes other than personal income taxes. The tables do not show the
approximate taxable estimated current returns for individuals that are subject
to the alternative minimum tax. The taxable equivalent estimated current returns
may be somewhat higher than the equivalent returns indicated in the following
tables for those individuals who have adjusted gross incomes in excess of
$124,500. The tables do not reflect the effect of Federal or State limitations
(if any) on the amount of allowable itemized deductions and the deduction for
personal or dependent exemptions or any other credits. These limitations were
designed to phase out certain benefits of these deductions for higher income
taxpayers. These limitations, in effect, raise the marginal maximum Federal tax
rate to approximately 44 percent for taxpayers filing a joint return and
entitled to four personal exemptions and to approximately 41 percent for
taxpayers filing a single return entitled to only one personal exemption. These
limitations are subject to certain maximums, which depend on the number of
exemptions claimed and the total amount of taxpayer's itemized deductions. For
example, the limitation on itemized deductions will not cause a taxpayer to lose
more than 80% of his allowable itemized deductions, with certain exceptions. See
"Federal Tax Status" in Prospectus Part II for a more detailed discussion of
recent Federal tax legislation.
<TABLE>
IM-IT
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
---------------------------------- --------------------------------------------------------------------------
Single Joint Tax 4% 4 1/2% 5% 5 1/2% 6% 6 1/2% 7%
Return Return Bracket Equivalent Taxable Estimated Current Return
---------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0- 25.35 $ 0- 42.35 15.0% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
25.35- 61.40 42.35-102.30 28.0 5.56 6.25 6.94 7.64 8.33 9.03 9.72
61.40-128.10 102.30-155.95 31.0 5.80 6.52 7.25 7.97 8.70 9.42 10.14
128.10-278.45 155.95-278.45 36.0 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over 278.45 Over 278.45 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
</TABLE>
<TABLE>
MARYLAND
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
---------------------------------- --------------------------------------------------------------------------
Single Joint Tax 4% 4 1/2% 5% 5 1/2% 6% 6 1/2% 7%
Return Return Bracket Equivalent Taxable Estimated Current Return
---------------------------------- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 25.35 $ 0 - 42.35 19.1% 4.94% 5.56% 6.18% 6.80% 7.42% 8.03% 8.65%
25.35 - 61.40 42.35 - 102.30 31.5 5.84 6.57 7.30 8.03 8.76 9.49 10.22
61.40 - 128.10 102.30 - 155.95 34.4 6.10 6.86 7.62 8.38 9.15 9.91 10.67
128.10 - 278.45 155.95 - 278.45 39.1 6.57 7.39 8.21 9.03 9.85 10.67 11.49
Over 278.45 Over 278.45 42.5 6.96 7.83 8.70 9.57 10.43 11.30 12.17
</TABLE>
- -----------------
*The table does not reflect county income taxes.
A comparison of tax-free and equivalent taxable estimated current returns
with the returns on various taxable investments is one element to consider in
making an investment decision. The Sponsor may from time to time in its
advertising and sales materials compare the then current estimated returns on
the Trusts and returns over specified periods on other similar Van Kampen
American Capital sponsored unit investment trusts with inflation rates and with
returns on taxable investments such as corporate or U.S. Government bonds, bank
CDs and money market accounts or money market funds, each of which has
investment characteristics that may differ from those of the Trusts. U.S.
Government bonds, for example, are backed by the full faith and credit of the
federal government. Money market accounts and money market funds provide
stability of principal, but pay interest at rates that vary with the condition
of the short-term debt market. The investment characteristics of the Trusts are
described more fully in the Prospectus.
Maryland Risk Factors
Economic Outlook. Since 1989, Maryland has consistently ranked among the
bottom states in job creation. Employment in Maryland increased 1.1% in calendar
1996, and since late 1992, only about 160,000 new jobs have been created. During
the 1990's the weakest employment areas were banking, federal government and
manufacturing. Growth has been heavily concentrated in business and health
services, transportation, construction and trade.
The service sector accounts for 31.1% of total employment in the State, but
provided more than 62% of the new jobs during 1996. Employment in the computer
and data processing industry grew by 4.9% in 1996 and is expected to continue to
grow at a steady rate. Employment in health services increased by 3.6% annually
between 1991 and 1993 before slowing to an average annual gain of 2.0% between
1994 and 1996.
In December 1997, overall employment was estimated to have increased by 2.2%
or 48,000 new jobs during calendar 1997. Job growth in the services,
construction and retail trade sectors lead this expansion. Maryland's State
Comptroller projects that employment in Maryland will increase by 1.6% in 1998
and 1.3% in 1999.
While Maryland's overall tax burden is below the national average, the State
and local personal income tax is among the highest in the nation. Economic data
indicate that most jobs are created by small businesses, and nearly 80% of
Maryland's companies are small businesses. Since many small businesses pay the
personal income tax, higher State taxes directly reduce their profitability and
negatively affect business decisions about location, expansion and creation of
new jobs.
During 1996, the State ranked 6th in the nation in per capita income, with an
average per capita income of $27,618 as compared to the national average of
$24,426. In 1997, Maryland's General Assembly enacted new laws providing for a
personal income tax reduction. According to the State's November 1997
Comprehensive Annual Financial Report ("CAFR"), total personal income is
expected to rise by 5.4%, 5.1% and 4.8% in 1997, 1998 and 1999, respectively.
During 1995 and 1996, Maryland implemented substantial regulatory reform,
eliminated or reduced ten business taxes, and significantly increased funding
for the Sunny Day Fund and other business incentive programs to improve the
State's business climate and increase competitiveness. As a result of these
actions, the total number of jobs in Maryland is at an all time high and
unemployment remains below the national average.
Maryland's economy has been influenced recently by structural changes in the
national economy: less national defense spending and defense subcontract work;
reductions in federal employment; and corporate acquisition. Major Maryland
employment sectors, such as finance, insurance and professional service, have
restructured and downsized. Due in part to defense downsizing and international
competition, realignments in manufacturing have also affected the State's
economy.
Despite these setbacks, the State's healthy consumer confidence, a solid
economy and robust gains in the stock market have translated into steady
increases in consumer spending in Maryland. Drawn by the high per capita wealth
of the area, new retailers continue to enter this market. Employment gains are
expected to be modest during the next three years, constrained in part by a lack
of workers.
Revenue and Expenditures. Income and sales taxes comprise over 80% of the
State's general fund revenue. These taxes, along with transportation revenues,
make up over 55% of the State's total revenue. These revenue sources are highly
sensitive to economic conditions. For this reason, the State's budget is
dependent on the health of Maryland's economy.
Maryland's State Comptroller reported in the CAFR that revenues totaled
$13.476 billion for the fiscal year ending June 30, 1997. This figure represents
an increase of 5.9% over revenues for Fiscal Year 1996. Income tax, the largest
source of revenue, produced 30.3% of general governmental revenues in Fiscal
1997, compared to 29.8% in Fiscal 1996. Individual income tax revenues increased
7.6% over Fiscal 1996 due to continued gains in employment and personal income,
and corporate income tax revenues increased by 10.3% in Fiscal 1997, reflecting
strong gains in total corporate profitability.
The State's total expenditures reached $13.386 billion in Fiscal 1997. This
figure represents a $561.7 million or 4.4% increase over Fiscal 1996. Revenues
exceeded expenditures by $90.1 million, the first positive balance since 1994.
The actual fund balance for the State's general fund on June 30, 1997 was $1.059
billion, an increase of $298.7 million over the Fiscal Year 1996 general fund
balance.
Maryland's State Reserve Fund contains funds set aside to protect against
unexpected revenue declines and to finance future expenses. In addition,
Maryland law establishes a target of 5% of general fund revenues for its Revenue
Stabilization Account to protect against revenue downturns and maintain the
State's bond ratings. At the close of Fiscal Year 1997, the State Reserve Fund
balance was $865 million, up $54.9 million over Fiscal Year 1996.
Fiscal year 1998 represents the first full year of the income tax reduction
enacted in 1997. This tax cut, Maryland's first in over thirty years, will be
phased-in over fiscal years 1998-2002, reducing the State's current 5% income
tax rate by 10% overall. The first phase of the proposed income tax cut will
reduce general fund revenues by $39 million, but a proposed cigarette tax
increase will add $99 million for allocation to the Reserve Fund to help pay for
future years of this tax reduction.
Maryland's Board of Revenue Estimates expects general fund revenues, which
represent approximately 55-60% of each year's total budget, to reach $7.887
billion during Fiscal Year 1998, an increase of 3.4% or $198 million above the
last official estimate for that fiscal year in March 1997. The State projects
that it will finish Fiscal 1998 with a general fund surplus of $283 million. The
Fiscal 1998 budget estimates that $554 million or 7% of general fund revenues
will be set aside for the State Reserve Fund.
During Fiscal Year 1999, the Board projects general fund revenues of $8.095
billion, a 2.8% increase. Net of the income tax reduction, the growth in general
fund revenues is projected to equal 3.9%. Maryland's budget for Fiscal 1999
totals $16.5 billion, a 5.1% increase over Fiscal 1998. This increase includes
$100 million in reserve funding to pay for the cost of the State's scheduled 10%
income tax cut.
The State Reserve Fund is expected to increase to $695.8 million at the end
of Fiscal Year 1999. The Fiscal 1999 budget anticipates using its entire
budgetary surplus for payments to the State's Reserve Fund and for one-time
expenditures-not for ongoing expenses that would contribute to long-term
deficits. The one-time expenditures include the costs of the upcoming tax
reduction, school construction, a Med-Evac helicopter, and technology costs
incurred for Year 2000 compliance.
State Debt. The public indebtedness of the State of Maryland and its
instrumentalities is divided into three general types. The State itself issues
general obligation bonds for capital improvements and for various State
projects, for which the State ad valorem property tax is exclusively pledged for
payment. In addition, for transportation purposes the Maryland Department of
Transportation issues limited, special obligation bonds payable primarily from
specific, fixed-rate excise taxes and other revenues related mainly to highway
use. Certain authorities issue obligations payable solely from specific non-tax,
enterprise fund revenues and for which the State has no liability and has given
no moral obligation assurance.
In 1978, the Capital Debt Affordability Committee was created to study the
State's debt structure and to recommend maximum limitations on annual debt
authorizations so that the State's bond ratings can be maintained. Although the
recommendations of the Committee are not binding on Maryland's General Assembly,
the amounts of annual general obligation bond authorization effective for 1997
were within the limits established by the Committee. For Fiscal Year 1997, new
general obligation bond authorizations totaled $399,991,000 (net of
deauthorization of $12.1 million from prior projects).
During Fiscal Year 1997, the following new general obligation bonds were
issued by the State of Maryland: $170 million on October 9, 1996 and $240
million on February 26, 1997. Outstanding general obligation bonds totaled
$2.860 billion in 1996 and $3.025 billion in 1997. In addition, the State
Department of Transportation and the Maryland Transportation Authority had
$935.6 million and $391.9 million, respectively, in outstanding limited
obligation bonds at the close of Fiscal Year 1997.
General obligation bonds totaling $415 million were authorized for the Fiscal
Year 1998 budget, consistent with the State's Capital Debt Affordability
Committee. General funds in the capital budget total $78.2 million for Fiscal
1998. The use of general funds to supplement the capital budget is generally
limited to certain programs which cannot be prudently funded with tax-exempt
bonds. Federal funds in the capital budget total $17.6 million. In Fiscal 1998,
these monies will be used primarily for prison construction, developing Canal
Place in Cumberland and construction of military facilities for National Guard
units. Special funds in the capital budget total $184.6 million and consist of
dedicated revenues for improvements such as open space, agricultural land
preservation and law enforcement training facilities. Revenue bonds total $45
million in Fiscal 1998 and are designated for capital improvements to academic
facilities at the University of Maryland system and for local governments to
fund infrastructure and environmental improvements.
The Committee has authorized $430 million in new general obligation bonds for
Fiscal Year 1999. An additional $11.6 million from projects that have been
completed, canceled or rescheduled is expected to be deauthorized and used for
other purposes.
Ratings. The general obligation bonds of the State of Maryland have been
rated by Moody's Investors Service, Inc. as Aaa; by Standard & Poor's Rating
Services as AAA; and by Fitch IBCA, Inc. (formerly known as Fitch Investors
Service, L.P.) as AAA, making Maryland one of several states with three triple-A
ratings.
There can be no assurance that particular bond issues may not be adversely
affected by changes in State or local economic or political conditions.
Investors are, therefore, advised to study with care the Portfolio for the
Maryland Quality Trust appearing elsewhere in this Prospectus and consult their
own investment advisers as to the merits of particular issues in that Portfolio.
Estimated Cash Flows to Unitholders
The tables below set forth the per Unit estimated monthly and semi-annual
distributions of interest and principal to Unitholders. The tables assume no
changes in expenses, no changes in the current interest rates, no exchanges,
redemptions, sales or prepayments of the underlying Bonds 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>
IM-IT
MONTHLY
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
August 1998 $ 3.22 $ 3.22
September 1998 - September 2020 3.87 3.87
October 2020 3.75 $ 94.22 97.97
November 2020 - November 2022 3.48 3.48
December 2022 3.34 41.57 44.91
January 2023 - April 2023 3.31 3.31
May 2023 3.21 79.26 82.47
June 2023 2.90 70.39 73.29
July 2023 - June 2025 2.69 2.69
July 2025 2.69 46.56 49.25
August 2025 - December 2026 2.69 2.69
January 2027 2.56 110.85 113.41
February 2027 - April 2027 2.24 2.24
May 2027 2.10 110.85 112.95
June 2027 1.78 1.78
July 2027 1.62 134.69 136.31
August 2027 - December 2027 1.23 1.23
January 2028 1.10 110.85 111.95
February 2028 - June 2028 .78 .78
July 2028 .67 88.68 89.35
August 2028 .41 .41
September 2028 .03 114.18 114.21
</TABLE>
<TABLE>
SEMI-ANNUAL
<CAPTION>
DISTRIBUTION DATES
(Each December and Estimated Estimated Estimated
June Unless Interest Principal Total
Otherwise Specified) Distribution Distribution Distribution
------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
December 1998 $18.88 $ 18.88
June 1999 - June 2020 23.45 23.45
October 2020 $ 94.22 94.22
December 2020 22.56 22.56
June 2021 - June 2022 21.14 21.14
December 2022 21.00 41.57 62.57
May 2023 79.26 79.26
June 2023 19.59 70.39 89.98
December 2023 - June 2025 16.36 16.36
July 2025 46.56 46.56
December 2025 - December 2026 16.36 16.36
January 2027 110.85 110.85
May 2027 110.85 110.85
June 2027 13.32 13.32
July 2027 134.69 134.69
December 2027 7.91 7.91
January 2028 110.85 110.85
June 2028 5.08 5.08
July 2028 88.68 88.68
September 2028 1.14 114.18 115.32
</TABLE>
<TABLE>
MARYLAND
MONTHLY
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
August 1998 $ 3.13 $ 3.13
September 1998 - November 2009 3.75 3.75
December 2009 3.61 $121.06 124.67
January 2010 - May 2010 3.26 3.26
June 2010 3.05 169.49 172.54
July 2010 - June 2019 2.55 2.55
July 2019 2.55 36.32 38.87
August 2019 2.55 2.55
September 2019 2.49 48.43 50.92
October 2019 - June 2028 2.36 2.36
July 2028 1.74 508.47 510.21
August 2028 - June 2033 .31 .31
July 2033 .19 96.85 97.04
</TABLE>
<TABLE>
SEMI-ANNUAL
<CAPTION>
DISTRIBUTION DATES
(Each November and Estimated Estimated Estimated
May Unless Interest Principal Total
Otherwise Specified) Distribution Distribution Distribution
------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
November 1998 $14.56 $ 14.56
May 1999 - November 2009 22.80 22.80
December 2009 $121.06 121.06
May 2010 20.16 20.16
June 2010 169.49 169.49
November 2010 16.01 16.01
May 2011 - May 2019 15.51 15.51
July 2019 36.32 36.32
September 2019 48.43 48.43
November 2019 15.07 15.07
May 2020 - May 2028 14.34 14.34
July 2028 508.47 508.47
November 2028 5.46 5.46
May 2029 - May 2033 1.94 1.94
July 2033 .53 96.85 97.38
</TABLE>
