MEMORANDUM OF CHANGES
INSURED MUNICIPALS INCOME TRUST AND INVESTORS' QUALITY
TAX-EXEMPT TRUST, MULTI-SERIES 304
This Prospectus filed with Amendment No. 1 of the Registration Statement on
Form S-6 has been revised to reflect information regarding the deposit of the
Trusts. All page numbers below refer to Prospectus Part I.
Cover Page. The Trust name, Estimated Current Return, Estimated Long-Term
Return, CUSIP number and date of the prospectus have been completed.
Page 2. The "Summary of Essential Financial Information" has been completed.
Pages 3-4. The "Portfolio" and the notes thereto have been completed.
Page 6. The Underwriters have been named.
Page 7. The "Report of Independent Certified Public Accountants and
"Statement of Condition" has been completed.
Back Cover Page. The name of the Fund, Trust and date of the prospectus has
been completed.
FILE NO. 333-45165
CIK #1024820
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact Name of Trust: INSURED MUNICIPALS INCOME TRUST AND INVESTORS'
QUALITY TAX-EXEMPT TRUST, MULTI-SERIES 304
B. Name of Depositor: VAN KAMPEN FUNDS INC.
C. Complete address of Depositor's principal executive offices:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
D. Name and complete address of agents for service:
CHAPMAN AND CUTLER VAN KAMPEN FUNDS INC.
Attention: Mark J. Kneedy Attention: Don G. Powell, Chairman
111 W. Monroe Street One Parkview Plaza
Chicago, Illinois 60603 Oakbrook Terrace, Illinois 60181
E. Title of securities being registered: Units of fractional undivided
beneficial interest.
F. Approximate date of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT
/ X / Check box if it is proposed that this filing will become
- ---- effective on August 5, 1998 at 2:00 p.m. pursuant to Rule 487.
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 304
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
FORM N-8B-2 FORM S-6
ITEM NUMBER HEADING IN PROSPECTUS
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust )
(b) Title of securities issued ) Prospectus Part I Front Cover Page
2. Name and address of Depositor ) Part II-The Trusts
) Part I-Summary of Essential Financial
) Information
) Part II-Fund Administration
3. Name and address of Trustee ) Part II-The Trusts
) Part I-Summary of Essential Financial
) Information
) Part II-Trust Administration
4. Name and address of principal ) Part I-Underwriting
underwriter )
5. Organization of trust ) Part II-The Trusts
6. Execution and termination of ) Part II-The Trusts
Trust Indenture and Agreement ) Part II-Fund Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. General information regarding ) Part II-The Trusts
trust's securities and rights ) Part II-Rights of Unitholders
of security holders ) Part II-Fund Administration
11. Type of securities comprising ) Part II-The Trusts
units ) Part I-Cover Page
) Part I-Portfolio
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, charges and ) Part II-The Trust
expenses ) Part I-Summary of Essential Financial
) Information
) Part II-Expenses
) Part II-Public Offering
)
(b) Certain information regard- ) *
ing periodic payment plan )
certificates )
(c) Certain percentages ) Part I-Summary of Essential Financial
) Information
) Part II-Public Offering
(d) Certain other fees, ) Par II-Rights of Unitholders
expenses or charges ) Part II-Expenses
payable by holders )
(e) Certain profits to be ) Part II-Public Offering
received by depositor, )
principal underwriter, ) Part I-Notes to Portfolio
trustee or affiliated )
persons )
(f) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Part II-Rights of Unitholders
15. Receipt and handling of payments ) *
from purchasers )
16. Acquisition and disposition of ) Part II-The Trusts
underlying securities ) Part II-Unitholder Explanations
) Part II-Fund Administration
17. Withdrawal or redemption ) Part II-Rights of Unitholders
) Part II-Fund Administration
18. (a) Receipt and disposition )
of income ) Part II-Rights of Unitholders
(b) Reinvestment of distribu- ) Part II-Rights of Unitholders
tions )
(c) Reserves or special funds ) Part II-Rights of Unitholders
) Part II-Fund Administration
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Part II-Rights of Unitholders
) Part II-Fund Administration
20. Certain miscellaneous provisions ) Part II-Fund Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Part I-Portfolio
) Part II-Fund Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
trust indenture or agreement )
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of Depositor ) Part II-Fund Administration
26. Fees received by Depositor ) Part II-Fund Administration
27. Business of Depositor ) Part II-Fund Administration
28. Certain information as to )
officials and affiliated ) *
persons of Depositor )
29. Companies owning securities of ) *
Depositor )
30. Controlling persons of Depositor ) *
31. Compensation of Directors ) *
32. Compensation of Directors ) *
33. Compensation of Employees ) *
34. Compensation to other persons ) Part II-Public Offering
IV. DISTRIBUTION AND REDEMPTION OF SECURITIES
35. Distribution of trust's ) Part I-Cover Page
securities by states ) Part II-Public Offering
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
(b) Underwriting agreements ) Part II-Public Offering
(c) Selling agreements )
39. (a) Organization of principal )
underwriter )
) Part II-Fund Administration
(b) N.A.S.D. membership by )
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Part II-Fund Administration
underwriter )
(b) Branch offices of principal ) *
underwriter )
(c) Salesmen of principal ) *
underwriter )
42. Ownership of securities of the ) *
trust )
43. Certain brokerage commissions )
received by principal ) *
underwriter )
44. (a) Method of valuation )
) Part I-Summary of Essential Financial
) Information
) Part II-Rights of Unitholders
) Part II-Public Offering
(b) Schedule as to offering ) *
price )
(c) Variation in offering price ) Part II-Public Offering
to certain persons )
45. Suspension of redemption rights ) *
46. (a) Redemption valuation ) Part II-Rights of Unitholders
) Part II-Public Offering
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Part II-Public Offering
in underlying securities ) Part II-Fund Administration
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of ) Part II-Fund Administration
trustee )
49. Fees and expenses of trustee ) Part I-Summary of Essential Financial
) Information
) Part II-Expenses
50. Trustee's lien ) Part II-Expenses
VI. INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of trust's )
securities ) *
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agree- )
ment with respect to )
replacement or elimi- ) Part II-Fund Administration
nation of portfolio )
securities )
(b) Transactions involving )
elimination of underlying ) *
securities )
(c) Policy regarding substitu- ) Part II-Fund Administration
tion or elimination of )
underlying securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust )
) Part II-Federal Tax Status
VIII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55. )
)
56. Certain information regarding ) *
)
57. Periodic payment certificates )
58. )
59. Financial statements (Instruc- ) Part I-Statement of Condition
tions 1(c) to Form S-6) )
- ----------------------------------
* Inapplicable, omitted, answer negative or not required
VAN KAMPEN
PROSPECTUS PART I
NEW YORK INSURED MUNICIPALS INCOME TRUST, SERIES 146
- --------------------------------------------------------------------------------
New York Insured Municipals Income Trust, Series 146 (the "Trust") (included
in Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304 (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 New York state and local taxes when held by residents of New York
(the "Bonds"). The objective of the Trust is Federal and New York 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 "State Trust" or
"Insured Trust."
The Trust consists of 10 issues of Bonds. One of the Bonds is a general
obligation of the governmental entity issuing it 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: Higher Education, 2 (23%); Health Care, 2 (21%); General Purpose, 2
(18%); General Obligation, 1 (15%); Water and Sewer, 1 (12%) and Retail
Electric/Gas/Telephone, 2 (11%). The dollar weighted average maturity of the
Bonds is 27 years.
Monthly Semi-Annual
--------- -------------
Estimated Current Return: 4.61% 4.65%
Estimated Long Term Return: 4.64% 4.68%
CUSIP: 64949F-32-0 64949F-33-8
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.
AUGUST 5, 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Initial Date of Deposit: August 5, 1998 Principal Amount of Bonds per Unit (1): $ 988.31
Principal Amount of Bonds: $ 3,062,775 Number of Units: 3,099
</TABLE>
- --------------------------------------------------------------------------------
PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
Aggregate Offering Price of Bonds $ 2,947,163
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 $ 943.73
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL INCOME PER UNIT
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Estimated Interest Income $ 48.22 $ 48.22
Less Estimated Expenses (4) $ 2.12 $ 1.69
Less Estimated Insurance Expenses $ -- $ --
Estimated Net Interest Income $ 46.10 $ 46.53
- --------------------------------------------------------------------------------
ESTIMATED DISTRIBUTIONS
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
--------- ----------
Initial Distribution $ 3.84 on $ 11.63 on
September 25, 1998 November 25, 1998
Normal Distribution (3) $ 3.84 $ 23.26
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 (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 $ 0.88 $ 0.85
----------- -----------
Total Annual Expenses per Unit $ 2.43 $ 1.91
=========== ===========
- --------------------------------------------------------------------------------
(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 (August 10, 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 $.22
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 $48.44. Estimated General
Expenses will increase to $2.34 and $1.91 under the monthly and semi-annual
distribution plans, respectively. Estimated Net Interest Income will remain
as shown.
PORTFOLIO
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OFFERING
PRICE TO
NEW YORK
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>
$ 350,000 New York City, New York, Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds, Series A (FSA Insured) 2007 @ 101
#5.125% Due 06/15/2021.............................. AAA 2019 @ 100 S.F. $ 347,778
62,775 Municipal Assistance Corporation,Troy, New York, Capital
Appreciation Revenue Bonds, Series C (MBIA Insured)
#0.00% Due 07/15/2021............................... AAA 19,844
500,000 New York State Environmental Facilities Corporation, Special
Obligation Revenue Refunding Bonds (Riverbank State Park)
AMBAC Assurance Insured 2007 @ 100
#5.125% Due 04/01/2022.............................. AAA 2017 @ 100 S.F. 497,395
295,000 Long Island, New York, Power Authority, Electric System
Revenue Bonds, Series A (FSA Insured) 2008 @ 101
#5.125% Due 12/01/2022.............................. AAA 2019 @ 100 S.F. 293,419
50,000 Long Island, New York, Power Authority, Electric System
Revenue Capital Appreciation Bonds, Series A (FSA Insured)
#0.00% Due 12/01/2023............................... AAA 14,022
450,000 New York City, New York, General Obligation Bonds, Series H
(MBIA Insured) 2008 @ 101
#5.125% Due 08/01/2025.............................. AAA 2023 @ 100 S.F. 446,733
500,000 New York State Dormitory Authority, Revenues City University
System, Consolidated Revenue Bonds, Series 1 (MBIA Insured) 2008 @ 102
#5.125% Due 07/01/2027.............................. AAA 2025 @ 100 S.F. 496,615
500,000 New York State Dormitory Authority, Revenue Bonds (Hospital
of Special Surgery) FHA Insured Mortgage (MBIA Insured) 2008 @ 101
#5.00% Due 02/01/2028##............................. AAA 2018 @ 100 S.F. 486,030
200,000 New York State Dormitory Authority, Revenue Bonds (Fordham
University) MBIA Insured 2008 @ 101
#5.00% Due 07/01/2028............................... AAA 2019 @ 100 S.F. 194,954
155,000 New York State, Dormitory Authority, Revenue Bonds, FHA
Hospital (New York and Presbyterian) AMBAC Assurance Insured 2008 @ 101
#5.00% Due 08/01/2032............................... AAA 2024 @ 100 S.F. 150,373
- --------------- ------------
$ 3,062,775 $ 2,947,163
=============== ============
</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 April 21, 1998 to
August 4, 1998.
(2) Other information regarding the Bonds is as follows:
COST TO PROFIT (LOSS)
SPONSOR TO SPONSOR
--------------- ---------------
$ 2,927,796 $ 19,367
- -----------
The breakdown of the Preinsured Bond Insurers is as follows: AMBAC Assurance
21%, MBIA 56% and FSA 23%.
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.
NEW YORK RISK FACTORS. The financial condition of the State of New York 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. Historically, the State has been one of the
wealthiest states in the nation; however, for decades the State economy has
grown more slowly than that of the nation as a whole, gradually eroding the
State's relative economic affluence.
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 economy of the State continues to be
influenced by the financial health of the City of New York, which faces greater
competition as other major cities develop financial and business capabilities.
The State has for many years had a very high state and local tax burden relative
to other states. The burden of State and local taxation, in combination with the
many other causes of regional economic dislocation, has contributed to the
decisions of some businesses and individuals to relocate outside, or not locate
within, the State.
The State is 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. On January 21, 1994, the State
entered into a settlement with Delaware with respect to State of Delaware v.
State of New York. The State made an immediate $35 million payment and agreed to
make a $33 million annual payment in each of the next five fiscal years. The
State has not settled with other parties to the litigation and will continue to
incur litigation expenses as to those claims.
All outstanding general obligation bonds of the State are rated "A" by
Standard and Poor's and "Aa2" by Moody's.
Further information concerning New York risk factors may be obtained upon
request to the Sponsor as described in "Additional Information" appearing in
Prospectus Part II.
TAX STATUS. The Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10% in the
case of certain taxpayers in the lowest tax bracket). Capital gain or loss is
long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. The date on
which a Unit is acquired (i.e., "the trade date") is excluded for purposes for
determining the holding period of the Unit. The legislation is generally
effective retroactively for amounts properly taken into account on or after
January 1, 1998. Capital gains realized from assets held for one year or less
are taxed at the same rates as ordinary income. For a discussion of the Federal
tax status of income earned on New York IM-IT Trust Units, see "Federal Tax
Status" in Prospectus Part II.
In the opinion of Winston & Strawn, special counsel to the Fund for New York
tax matters, under existing New York law:
The New York IM-IT Trust is not an association taxable as a corporation and
the income of the New York IM-IT Trust will be treated as the income of the
Unitholders under the income tax laws of the State and City of New York.
Individuals who reside in New York State or City will not be subject to State
and City tax on interest income which is exempt from Federal income tax under
section 103 of the Internal Revenue Code of 1986 and derived from obligations of
New York State or a political subdivision thereof, although they will be subject
to New York State and City tax with respect to any gains realized when such
obligations are sold, redeemed or paid at maturity or when any such Units are
sold or redeemed.
A resident of New York State (or New York City) will be subject to New York
State (or New York City) personal income tax with respect to gains realized when
New York Obligations held in the New York IM-IT Trust are sold, redeemed or paid
at maturity or when his Units are sold or redeemed, such gain will equal the
proceeds of sale, redemption or payment less the tax basis of the New York
Obligation or Unit (adjusted to reflect (a) the amortization of premium or
discount, if any, on New York Obligations held in the Trust, (b) accrued
original issue discount, with respect to each New York Obligation which, at the
time the New York Obligation was issued had original issue discount, and (c) the
deposit of New York Obligations with accrued interest in the Trust after the
Unitholder's settlement date).
Interest or gain from the New York IM-IT Trust derived by a Unitholder who is
not a resident of New York State (or New York City) will not be subject to New
York State (or New York City) personal income tax, unless the Units are property
employed in a business, trade, profession or occupation carried on in New York
State (or New York City).
Amounts paid on defaulted New York Obligations held by the Trustee under
policies of insurance issued with respect to such New York Obligations will be
excludable from income for New York State and New York City income tax purposes,
if and to the same extent as, such interest would have been excludable if paid
by the respective issuer.
For purposes of the New York State and New York City franchise tax on
corporations, Unitholders which are subject to such tax will be required to
include in their entire net income any interest or gains distributed to them
even though distributed in respect of New York obligations.
If borrowed funds are used to purchase Units in the Trust, all (or part) of
the interest on such indebtedness will not be deductible for New York State and
New York City tax purposes. The purchase of Units may be considered to have been
made with borrowed funds even though such funds are not directly traceable to
the purchase of Units in any New York Trust.
THE SPONSOR. Van Kampen Funds Inc. (formerly Van Kampen American Capital
Distributors, Inc.) is the Sponsor of the Trusts. The Sponsor is an indirect
subsidiary of Van Kampen Investments Inc. (formerly VK/AC Holding, Inc.). Van
Kampen Investments Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.,
which in turn is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
(formerly Morgan Stanley, Dean Witter, Discover & Co.). Van Kampen Investment
Advisory Corp. (formerly Van Kampen American Capital Investment Advisory Corp.)
is the Evaluator of the Trust and is an affiliate of the Sponsor.
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 Funds Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,549
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 250
Advest, Inc. 90 State House Square, Hartford, Connecticut 06103 100
Gruntal & Company, L.L.C. 14 Wall Street, New York, New York 10005 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
-------
3,099
=======
</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 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 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 unit investment trusts must equal
or exceed $100,000.
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
New York Insured Municipals Income Trust, Series 146 (included in Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
304):
We have audited the accompanying statement of condition and the portfolio of
New York Insured Municipals Income Trust, Series 146 (included in Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
304) as of August 5, 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 New York Insured Municipals
Income Trust, Series 146 (included in Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust, Multi-Series 304) as of August 5, 1998, in
conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
August 5, 1998
STATEMENT OF CONDITION
AS OF AUGUST 5, 1998
INVESTMENT IN BONDS
Contracts to purchase Bonds (1)(2) $ 2,947,163
Accrued interest to the First Settlement Date (1)(2) 23,030
-----------
Total $ 2,970,193
===========
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) $ 23,030
Interest of Unitholders--
Cost to investors 3,099,000
Less: Gross underwriting commission 151,837
-----------
Net interest to Unitholders (1)(2) 2,947,163
-----------
Total $ 2,970,193
===========
- --------------------------------------------------------------------------------
(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
AUGUST 5, 1998
INSURED MUNICIPALS INCOME TRUST AND INVESTORS' QUALITY
TAX-EXEMPT TRUST, MULTI-SERIES 304
NEW YORK INSURED MUNICIPALS
INCOME TRUST, SERIES 146
------ A Wealth of Knowledge A Knowledge of Wealthsm ------
VAN KAMPEN
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
PROSPECTUS PART I
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST, SERIES 237
- --------------------------------------------------------------------------------
Pennsylvania Insured Municipals Income Trust, Series 237 (the "Trust")
(included in Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 304 (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 Pennsylvania state and local taxes when held by residents of
Pennsylvania (the "Bonds"). The objective of the Trust is Federal and
Pennsylvania 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 "State Trust"
or "Insured Trust."
The Trust consists of 8 issues of Bonds. Three 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, 2 (33%); General Obligation, 3 (30%);
General Purpose, 1 (20%) and Water and Sewer, 2 (17%). The dollar weighted
average maturity of the Bonds is 26 years.
Monthly Semi-Annual
------------- ------------
Estimated Current Return: 4.61% 4.65%
Estimated Long Term Return: 4.66% 4.70%
CUSIP: 708837-10-9 708837-20-8
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.
AUGUST 5, 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.
<TABLE>
<CAPTION>
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
<S> <C> <C> <C>
Initial Date of Deposit: August 5, 1998 Principal Amount of Bonds per Unit (1): $ 997.01
Principal Amount of Bonds: $ 3,000,000 Number of Units: 3,009
</TABLE>
- --------------------------------------------------------------------------------
PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
Aggregate Offering Price of Bonds $ 2,861,570
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 $ 943.71
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL INCOME PER UNIT
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Estimated Interest Income $ 47.93 $ 47.93
Less Estimated Expenses (4) $ 1.83 $ 1.42
Less Estimated Insurance Expenses $ -- $ --
Estimated Net Interest Income $ 46.10 $ 46.51
- --------------------------------------------------------------------------------
ESTIMATED DISTRIBUTIONS
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------------- -----------------
Initial Distribution $ 3.84 on $ 19.37 on
September 25, 1998 January 25, 1999
Normal Distribution (3) $ 3.84 $ 23.25
Record Dates 10th day of January 10 and
each month July 10
Distribution Dates 25th day of January 25 and
each month July 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 $ 0.84 $ 0.83
----------- -----------
Total Annual Expenses per Unit $ 2.30 $ 1.89
=========== ===========
(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 (August 10, 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 $.47
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 $48.40. Estimated General
Expenses will increase to $2.30 and $1.89 under the monthly and semi-annual
distribution plans, respectively. Estimated Net Interest Income will remain
as shown.
<TABLE>
<CAPTION>
PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
OFFERING
PRICE TO
PENNSYLVANIA
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>
$ 600,000 Harrisburg, Pennsylvania, Authority Resource Recovery
Facility, Revenue Refunding Bonds (FSA Insured) 2008 @ 101
#5.00% Due 09/01/2021##............................. AAA 2016 @ 100 S.F. $ 586,998
150,000 North Hills, Pennsylvania, School District, Capital
Appreciation General Obligation Bonds (FGIC Insured)
#0.00% Due 11/15/2021............................... AAA 45,057
250,000 Lycoming County, Pennsylvania, General Obligation-Unlimited
Tax Refunding Bonds (MBIA Insured) 2008 @ 100
#5.00% Due 11/15/2022............................... AAA 2017 @ 100 S.F. 244,715
500,000 Deer Lakes School District, Pennsylvania, General
Obligation-Unlimited Tax Bonds (FSA Insured) 2008 @ 100
#5.00% Due 01/15/2023............................... AAA 2018 @ 100 S.F. 489,460
250,000 Pittsburgh, Pennsylvania, Water and Sewer Authority, Water and
Sewer System Revenue Bonds, First Lien, Series A
(FGIC Insured)
#5.25% Due 09/01/2023............................... AAA 2008 @ 100 251,875
250,000 Downington, Pennsylvania, Municipal Water Authority Revenue
Guaranteed Bonds (FSA Insured) 2008 @ 100
#5.00% Due 09/01/2025............................... AAA 2020 @ 100 S.F. 244,375
500,000 Northeastern Pennsylvania, Hospital and Education Authority,
Health Care Revenue Bonds (Wyoming Valley Health Care Issue)
Series 1996A (AMBAC Assurance Insured) 2007 @ 102
#5.25% Due 01/01/2026............................... AAA 2017 @ 100 S.F. 499,595
500,000 Lehigh County, Pennsylvania, General Purpose Authority,
Revenue Refunding Bonds (Good Shepherd Rehabilitation
Hospital) AMBAC Assurance Insured 2007 @ 102
#5.25% Due 11/15/2027............................... AAA 2018 @ 100 S.F. 499,495
- --------------- ------------
$ 3,000,000 $ 2,861,570
=============== ============
</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 30, 1998 to
August 4, 1998.
(2) Other information regarding the Bonds is as follows:
COST TO PROFIT (LOSS)
SPONSOR TO SPONSOR
--------------- ---------------
$ 2,844,426 $ 17,144
- -----------
The breakdown of the Preinsured Bond Insurers is as follows: AMBAC Assurance
33%, Financial Guaranty 14%, MBIA 8% and FSA 45%. 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.
PENNSYLVANIA RISK FACTORS. The financial condition of the Commonwealth of
Pennsylvania 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 Commonwealth and its local governments and, therefore, the ability of the
issuers of the Bonds to satisfy their obligations. Historically, the
Commonwealth has experienced significant revenue shortfalls.
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. Historically, the economy of the Commonwealth has
been dependent on heavy industry and manufacturing. Growth in the Commonwealth
economy has more recently been in the service sector, including trade, health
services and educational institutions. Growth in these sectors may be affected
by federal funding and state legislation.
The Commonwealth is a party to numerous lawsuits in which an adverse final
decision could materially affect the Commonwealth's governmental operations and
consequently its ability to pay debt service on its obligations.
All outstanding general obligation bonds of the Commonwealth are rated AA-
by Standard and Poor's and Aa3 by Moody's. Further information concerning
Pennsylvania risk factors may be obtained upon request to the Sponsor as
described in "Additional Information" appearing in Prospectus Part II.
TAX STATUS. The Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10% in the
case of certain taxpayers in the lowest tax bracket). Capital gain or loss is
long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. The date on
which a Unit is acquired (i.e., "the trade date") is excluded for purposes for
determining the holding period of the Unit. The legislation is generally
effective retroactively for amounts properly taken into account on or after
January 1, 1998. Capital gains realized from assets held for one year or less
are taxed at the same rates as ordinary income. For a discussion of the Federal
tax status of income earned on Pennsylvania IM-IT Trust Units, see "Federal Tax
Status" in Prospectus Part II. In the opinion of Chapman and Cutler, special
counsel for the Pennsylvania IM-IT Trust for Pennsylvania tax matters, under
existing law:
We have examined certain laws of the State of Pennsylvania (the "State") to
determine their applicability to the Pennsylvania IM-IT Trust and to the holders
of Units in the Pennsylvania IM-IT Trust who are residents of the State of
Pennsylvania (the "Unitholders"). The assets of the Pennsylvania IM-IT Trust
will consist of interest-bearing obligations issued by or on behalf of the
State, any public authority, commission, board or other agency created by the
State or a political subdivision of the State, or political subdivisions thereof
(the "Bonds"). Distributions of income with respect to the Bonds received by the
Pennsylvania IM-IT Trust will be made monthly.
Although we express no opinion with respect thereto, in rendering the opinion
expressed herein, we have assumed that: (i) the Bonds were validly issued by the
State or its municipalities, as the case may be, (ii) the interest thereon is
excludable from gross income for federal income tax purposes, (iii) the interest
thereon is exempt from Pennsylvania State and local taxes and (iv) the Bonds are
exempt from county personal property taxes. This opinion does not address the
taxation of persons other than full-time residents of Pennsylvania.
Based on the foregoing, and review and consideration of existing State laws
as of this date, it is our opinion, and we herewith advise you, as follows:
(1) The Pennsylvania IM-IT Trust will have no tax liability for purposes of
the personal income tax (the "Personal Income Tax"), the corporate
income tax (the "Corporate Income Tax") and the capital stock-franchise
tax (the "Franchise Tax"), all of which are imposed under the
Pennsylvania Tax Reform Code of 1971, or the Philadelphia School
District Investment Net Income Tax (the "Philadelphia School Tax")
imposed under Section 19-1804 of the Philadelphia Code of Ordinances.
(2) Interest on the Bonds, net of Pennsylvania IM-IT Trust expenses, which
is exempt from the Personal Income Tax when received by the
Pennsylvania IM-IT Trust and which would be exempt from such tax if
received directly by a Unitholder, will retain its status as exempt
from such tax when received by the Pennsylvania IM-IT Trust and
distributed to such Unitholder. Interest on the Bonds which is exempt
from the Corporate Income Tax and the Philadelphia School Tax when
received by the Pennsylvania IM-IT Trust and which would be exempt from
such taxes if received directly by a Unitholder, will retain its status
as exempt from such taxes when received by the Pennsylvania IM-IT Trust
and distributed to such Unitholder.
(3) Distributions from the Pennsylvania IM-IT Trust attributable to capital
gains recognized by the Pennsylvania IM-IT Trust upon its disposition
of a Bond issued on or after February 1, 1994, will be taxable for
purposes of the Personal Income Tax and the Corporate Income Tax. No
opinion is expressed with respect to the taxation of distributions from
the Pennsylvania IM-IT Trust attributable to capital gains recognized
by the Pennsylvania IM-IT Trust upon its disposition of a Bond issued
before February 1, 1994.
(4) Distributions from the Pennsylvania IM-IT Trust attributable to capital
gains recognized by the Pennsylvania IM-IT Trust upon its disposition
of a Bond will be exempt from the Philadelphia School Tax if the Bond
was held by the Pennsylvania IM-IT Trust for a period of more than six
months and the Unitholder held his Unit for more than six months before
the disposition of the Bond. If, however, the Bond was held by the
Pennsylvania IM-IT Trust or the Unit was held by the Unitholder for a
period of less than six months, then distributions from the
Pennsylvania IM-IT Trust attributable to capital gains recognized by
the Pennsylvania IM-IT Trust upon its disposition of a Bond issued on
or after February 1, 1994 will be taxable for purposes of the
Philadelphia School Tax; no opinion is expressed with respect to the
taxation of any such gains attributable to Bonds issued before February
1, 1994.
(5) Insurance proceeds paid under policies which represent maturing
interest on defaulted obligations will be exempt from the Corporate
Income Tax to the same extent as such amounts are excluded from gross
income for federal income tax purposes. No opinion is expressed with
respect to whether such insurance proceeds are exempt from the Personal
Income Tax or the Philadelphia School Tax.
(6) Each Unitholder will recognize gain for purposes of the Corporate
Income Tax if the Unitholder redeems or sells Units of the Pennsylvania
IM-IT Trust to the extent that such a transaction results in a
recognized gain to such Unitholder for federal income tax purposes and
such gain is attributable to Bonds issued on or after February 1, 1994.
No opinion is expressed with respect to the taxation of gains realized
by a Unitholder on the sale or redemption of a Unit to the extent such
gain is attributable to Bonds issued prior to February 1, 1994.
(7) A Unitholder's gain on the sale or redemption of a Unit will be subject
to the Personal Income Tax, except that no opinion is expressed with
respect to the taxation of any such gain to the extent it is
attributable to Bonds issued prior to February 1, 1994.
(8) A Unitholder's gain upon a redemption or sale of Units will be exempt
from the Philadelphia School Tax if the Unitholder held his Unit for
more than six months and the gain is attributable to Bonds held by the
Pennsylvania IM-IT Trust for a period of more than six months. If,
however, the Unit was held by the Unitholder for less than six months
or the gain is attributable to Bonds held by the Pennsylvania IM-IT
Trust for a period of less than six months, then the gains will be
subject to the Philadelphia School Tax; except that no opinion is
expressed with respect to the taxation of any such gains attributable
to Bonds issued before February 1, 1994.
(9) The Bonds will not be subject to taxation under the County Personal
Property Tax Act of June 17, 1913 (the "Personal Property Tax").
Personal property taxes in Pennsylvania are imposed and administered
locally, and thus no assurance can be given as to whether Units will be
subject to the Personal Property Tax in a particular jurisdiction.
However, in our opinion, Units should not be subject to the Personal
Property Tax.
Unitholders should be aware that, generally, interest on indebtedness
incurred or continued to purchase or carry Units is not deductible for purposes
of the Personal Income Tax, the Corporate Income Tax or the Philadelphia School
Tax.
We have not examined any of the Bonds to be deposited and held in the
Pennsylvania IM-IT Trust or the proceedings for the issuance thereof or the
opinions of bond counsel with respect thereto, and therefore express no opinion
as to the exemption from federal or state income taxation of interest on the
Bonds if interest thereon had been received directly by a Unitholder.
Chapman and Cutler has expressed no opinion with respect to taxation under
any other provision of Pennsylvania law. Ownership of the Units may result in
collateral Pennsylvania tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any such
collateral consequences.
THE SPONSOR. Van Kampen Funds Inc. (formerly Van Kampen American Capital
Distributors, Inc.) is the Sponsor of the Trusts. The Sponsor is an indirect
subsidiary of Van Kampen Investments Inc. (formerly VK/AC Holding, Inc.). Van
Kampen Investments Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.,
which in turn is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
(formerly Morgan Stanley, Dean Witter, Discover & Co.). Van Kampen Investment
Advisory Corp. (formerly Van Kampen American Capital Investment Advisory Corp.)
is the Evaluator of the Trusts and is an affiliate of the Sponsor.
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 Funds Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,109
AI Advest, Inc. 90 State House Square, Hartford, Connecticut 06103 100
AGE A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 100
F&C Fahnestock & Co., Inc. 110 Wall Street, 8th Floor, New York, New York 10005 100
GCI Gruntal & Company, L.L.C. 14 Wall Street, New York, New York 10005 100
JMS Janney Montgomery Scott Inc. 1801 Market Street, 11th Floor, Philadelphia, Pennsylvania 19103 100
MSDW Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 100
PHI Parker/Hunter, Incorporated 600 Grant Street, Pittsburgh, Pennsylvania 15219 100
PSI Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
WFS Wheat First Union River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
-----
3,009
=====
</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 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 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 unit investment trusts must equal
or exceed $100,000.
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
Pennsylvania Insured Municipals Income Trust, Series 237 (included in Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
304):
We have audited the accompanying statement of condition and the portfolio of
Pennsylvania Insured Municipals Income Trust, Series 237 (included in Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
304) as of August 5, 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 Pennsylvania Insured
Municipals Income Trust, Series 237 (included in Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 304) as of August 5, 1998,
in conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
August 5, 1998
STATEMENT OF CONDITION
AS OF AUGUST 5, 1998
INVESTMENT IN BONDS
Contracts to purchase Bonds (1)(2) $ 2,861,570
Accrued interest to the First Settlement Date (1)(2) 25,241
--------------------
Total $ 2,886,811
====================
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) $ 25,241
Interest of Unitholders--
Cost to investors 3,009,000
Less: Gross underwriting commission 147,430
--------------------
Net interest to Unitholders (1)(2) 2,861,570
--------------------
Total $ 2,886,811
====================
- --------------------------------------------------------------------------------
(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
AUGUST 5, 1998
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST, MULTI-SERIES 304
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST, SERIES 237
------ A Wealth of Knowledge oA Knowledge of Wealthsm ------
VAN KAMPEN
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
PROSPECTUS PART I
NORTH CAROLINA INVESTORS' QUALITY TAX-EXEMPT TRUST, SERIES 95
- --------------------------------------------------------------------------------
North Carolina Investors' Quality Tax-Exempt Trust, Series 95 (the "Trust")
(included in Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 304 (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 North Carolina state and local taxes when held by residents of North
Carolina (the "Bonds"). The objective of the Trust is Federal and North Carolina
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 therof. 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, 2 (30%); Certificate of Participation, 2 (20%);
Water and Sewer, 2 (20%); Public Building, 1 (13%); Wholesale Electric, 1 (12%)
and General Obligation, 1 (5%). The dollar weighted average maturity of the
Bonds is 23 years.
Monthly Semi-Annual
------- -----------
Estimated Current Return: 4.54% 4.59%
Estimated Long Term Return: 4.55% 4.60%
CUSIP: 65820D-38-3 65820D-39-1
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 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.
AUGUST 5, 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Initial Date of Deposit: August 5, 1998 Principal Amount of Bonds per Unit (1): $ 976.09
Principal Amount of Bonds: $ 2,000,000 Number of Units: 2,049
</TABLE>
- --------------------------------------------------------------------------------
PUBLIC OFFERING PRICE
- --------------------------------------------------------------------------------
Aggregate Offering Price of Bonds $ 1,948,602
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 $ 943.71
- --------------------------------------------------------------------------------
ESTIMATED ANNUAL INCOME PER UNIT
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------- -----------
Estimated Interest Income $ 47.86 $ 47.86
Less Estimated Expenses $ 2.46 $ 1.96
Estimated Net Interest Income $ 45.40 $ 45.90
- --------------------------------------------------------------------------------
ESTIMATED DISTRIBUTIONS
- --------------------------------------------------------------------------------
Semi-
Monthly Annual
----------------- ---------------------
Initial Distribution $ 3.78 on $ 11.47 on
September 25, 1998 November 25, 1998
Normal Distribution (3) $ 3.78 $ 22.95
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 (5) $ 0.91 $ 0.51
Evaluator's Supervisory Fee $ 0.25 $ 0.25
Evaluator's Evaluation Fee (5) $ 0.30 $ 0.30
Other Operating Expenses $ 1.00 $ 0.90
----------- -----------
Total Annual Expenses per Unit $ 2.46 $ 1.96
=========== ===========
- --------------------------------------------------------------------------------
(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 (August 10, 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) NORTH CAROLINA
- ----------------------------------------------------------------------------------------------------------------------------
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>
$ 100,000 Puerto Rico Commonwealth, Capital Appreciation General
Obligation Refunding Bonds (MBIA Insured)
#0.00% Due 07/01/2014............................. AAA Aaa $ 46,458
145,000 Durham, North Carolina, Water and Sewer Utility Systems
Revenue Bonds
#5.00% Due 06/01/2017............................. AA A 2008 @ 101 143,973
250,000 New Hanover County, North Carolina, Certificates of
Participation (MBIA Insured) 2007 @ 102
#5.00% Due 12/01/2017............................. AAA Aaa 2013 @ 100 S.F. 247,128
250,000 Centennial Authority, North Carolina, Hotel Tax Revenue,
Bonds Arena PJ Issue (FSA Insured) 2007 @ 102
#5.125% Due 09/01/2019............................ AAA Aaa 2016 @ 100 S.F. 250,122
250,000 Charlotte, North Carolina, Water and Sewer Systems 2006 @ 102
Revenue Bonds
#5.25% Due 12/01/2021............................. AA Aa2 2017 @ 100 S.F. 254,602
250,000 Charlotte-Mecklenberg Hospital Authority, North Carolina,
Health Care Systems Revenue Bonds, Carolinas Healthcare
System, Series A 2007 @ 102
#5.125% Due 01/15/2022............................ AA Aa3 2018 @ 100 S.F. 248,385
250,000 North Carolina, Eastern Municipal Power Agency, Power System
Revenue Refunding Bonds, Series A (MBIA Insured)
#5.375% Due 01/01/2024............................ AAA Aaa 2008 @ 101 255,240
155,000 Cumberland County, North Carolina, Certificates of
Participation Refunding Bonds (Civic Center Project)
AMBAC Assurance Insured 2008 @ 101
#5.00% Due 12/01/2024............................. AAA Aaa 2019 @ 100 S.F. 152,424
350,000 North Carolina Medical Care Commission, Health Care
Facilities Revenue Bonds, Carolina Medicorp Project 2007 @ 100
#5.25% Due 05/01/2026............................. AA Aa3 2022 @ 100 S.F. 350,270
- ------------ ----------
$ 2,000,000 $ 1,948,602
============ ==========
</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 31, 1998 to
August 4, 1998.
(2) Other information regarding the Bonds is as follows:
COST TO PROFIT (LOSS)
SPONSOR TO SPONSOR
--------------- ---------------
$ 1,937,944 $ 10,658
- -----------
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.
NORTH CAROLINA RISK FACTORS. The financial condition of the State of North
Carolina 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 North Carolina currently maintains a "triple A" bond rating from
Standard & Poor's and Moody's on its general obligation indebtedness.
Further information concerning North Carolina risk factors may be obtained
upon request to the Sponsor as described in "Additional Information" appearing
in Prospectus Part II.
TAX STATUS. The Internal Revenue Service Restructuring and Reform Act of 1998
(the "1998 Tax Act") provides that for taxpayers other than corporations, net
capital gain (which is defined as net long-term capital gain over net short-term
capital loss for the taxable year) realized from property (with certain
exclusions) is subject to a maximum marginal stated tax rate of 20% (10% in the
case of certain taxpayers in the lowest tax bracket). Capital gain or loss is
long-term if the holding period for the asset is more than one year, and is
short-term if the holding period for the asset is one year or less. The date on
which a Unit is acquired (i.e., the "trade date") is excluded for purposes for
determining the holding period of the Unit. The legislation is generally
effective retroactively for amounts properly taken into account on or after
January 1, 1998. Capital gains realized from assets held for one year or less
are taxed at the same rates as ordinary income. For a discussion of the Federal
tax status of income earned on North Carolina Quality Trust Units, see "Federal
Tax Status" in Prospectus Part II. The portfolio of the North Carolina Quality
Trust consists of bonds issued by the State of North Carolina or municipalities,
authorities or political subdivisions thereof (the "Bonds").
In the opinion of Hunton & Williams, special counsel to the Fund for North
Carolina tax matters, under existing North Carolina law:
Upon the establishing of the North Carolina Quality Trust and the Units
thereunder:
(1) The North Carolina Quality Trust is not an "association" taxable as a
corporation under North Carolina law with the result that income of the North
Carolina Quality Trust will be deemed to be income of the Unitholder.
(2) Interest on the Bonds that is exempt from North Carolina income tax when
received by the North Carolina Quality Trust will retain its tax-exempt status
when received by the Unitholders.
(3) Unitholders will realize a taxable event when the North Carolina Quality
Trust disposes of a Bond (whether by sale, exchange, redemption or payment at
maturity) or when a Unitholder redeems or sells his Units (or any of them), and
taxable gains for Federal income tax purposes may result in gain taxable as
ordinary income for North Carolina income tax purposes. However, when a Bond has
been issued under an act of the North Carolina General Assembly that provides
that all income from such Bond, including any profit made from the sale thereof,
shall be free from all taxation by the State of North Carolina, any such profit
received by the North Carolina Quality Trust will retain its tax-exempt status
in the hands of the Unitholders.
(4) Unitholders must amortize their proportionate shares of any premium on a
Bond. Amortization for each taxable year is accomplished by lowering the
Unitholder's basis (as adjusted) in his Units with no deduction against gross
income for the year.
(5) The Units are exempt from the North Carolina tax on intangible personal
property so long as the corpus of the North Carolina Quality Trust remains
composed entirely of Bonds or, pending distribution, amounts received on the
sale, redemption or maturity of the Bonds and the Trustee periodically supplies
to the North Carolina Department of Revenue at such times as required by the
Department of Revenue a complete description of the North Carolina Quality Trust
and also the name, description and value of the obligations held in the corpus
of the North Carolina Quality Trust.The opinion of Hunton & Williams is based,
in part, on the opinion of Chapman and Cutler regarding Federal tax status.
THE SPONSOR. Van Kampen Funds Inc. (formerly Van Kampen American Capital
Distributors, Inc.) is the Sponsor of the Trusts. The Sponsor is an indirect
subsidiary of Van Kampen Investments Inc. (formerly VK/AC Holding, Inc.). Van
Kampen Investments Inc. is a wholly-owned subsidiary of MSAM Holdings II, Inc.,
which in turn is a wholly-owned subsidiary of Morgan Stanley Dean Witter & Co.
(formerly Morgan Stanley, Dean Witter, Discover & Co.). Van Kampen Investment
Advisory Corp. (formerly Van Kampen American Capital Investment Advisory Corp.)
is the Evaluator of the Trust and is an affiliate of the Sponsor.
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 Funds Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,749
Gruntal & Company, L.L.C. 14 Wall Street, New York, New York 10005 100
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 100
Wheat First Union River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
-------
2,049
=======
</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 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 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 unit investment trusts must equal
or exceed $100,000.
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
North Carolina Investors' Quality Tax-Exempt Trust, Series 95 (included in
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304):
We have audited the accompanying statement of condition and the portfolio of
North Carolina Investors' Quality Tax-Exempt Trust, Series 95 (included in
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304) as of August 5, 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 North Carolina Investors'
Quality Tax-Exempt Trust, Series 95 (included in Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 304) as of August 5, 1998,
in conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
August 5, 1998
STATEMENT OF CONDITION
AS OF AUGUST 5, 1998
INVESTMENT IN BONDS
Contracts to purchase Bonds (1)(2) $ 1,948,602
Accrued interest to the First Settlement Date (1)(2) 19,916
-----------
Total $ 1,968,518
===========
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) $ 19,916
Interest of Unitholders--
Cost to investors 2,049,000
Less: Gross underwriting commission 100,398
-----------
Net interest to Unitholders (1)(2) 1,948,602
-----------
Total $ 1,968,518
===========
- --------------------------------------------------------------------------------
(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
AUGUST 5, 1998
INSURED MUNICIPALS INCOME TRUST AND INVESTORS' QUALITY
TAX-EXEMPT TRUST, MULTI-SERIES 304
NORTH CAROLINA INVESTORS' QUALITY
TAX-EXEMPT TRUST, SERIES 95
------ A Wealth of Knowledge A Knowledge of Wealthsm ------
VAN KAMPEN
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
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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
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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
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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
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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
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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
INFORMATION SUPPLEMENT
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST, MULTI-SERIES 304
- --------------------------------------------------------------------------------
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
New York Risk Factors.............................................. 18
Pennsylvania Risk Factors.......................................... 21
North Carolina Risk Factors........................................ 22
Estimated Cash Flows to Unitholders................................ 23
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 Assurance 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>
<CAPTION>
NEW YORK
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 20.8% 5.05% 5.68% 6.31% 6.94% 7.58% 8.21% 8.84%
25.35 - 61.40 42.35 - 102.30 32.9 5.96 6.71 7.45 8.20 8.94 9.69 10.43
61.40 - 128.10 102.30 - 155.95 35.7 6.22 7.00 7.78 8.55 9.33 10.11 10.89
128.10 - 278.45 155.95 - 278.45 40.4 6.71 7.55 8.39 9.23 10.07 10.91 11.74
Over 278.45 Over 278.45 43.7 7.10 7.99 8.88 9.77 10.66 11.55 12.43
</TABLE>
- -----------------
*The table does not reflect the New York State supplemental income tax based
upon a taxpayer's New York State taxable income and New York State adjusted
gross income. This supplemental tax results in an increased marginal State
income tax rate to the extent a taxpayer's New York State adjusted gross income
ranges between $100,000 and $150,000.
<TABLE>
<CAPTION>
PENNSYLVANIA
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 17.4% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87% 8.47%
25.35-61.40 42.35-102.30 30.0 5.71 6.43 7.14 7.86 8.57 9.29 10.00
61.40-128.10 102.30-155.95 32.9 5.96 6.71 7.45 8.20 8.94 9.69 10.43
128.10-278.45 155.95-278.45 37.8 6.43 7.23 8.04 8.84 9.65 10.45 11.25
Over 278.45 Over 278.45 41.3 6.81 7.67 8.52 9.37 10.22 11.07 11.93
</TABLE>
<TABLE>
<CAPTION>
NORTH CAROLINA
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 21.0% 5.06% 5.70% 6.33% 6.96% 7.59% 8.23% 8.86%
25.35 - 61.40 42.35 - 102.30 33.6 6.02 6.78 7.53 8.28 9.04 9.79 10.54
61.40 - 128.10 102.30 - 155.95 36.3 6.28 7.06 7.85 8.63 9.42 10.20 10.99
128.10 - 278.45 155.95 - 278.45 41.0 6.78 7.63 8.47 9.32 10.17 11.02 11.86
Over 278.45 Over 278.45 44.3 7.18 8.08 8.98 9.87 10.77 11.67 12.57
</TABLE>
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
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.
NEW YORK RISK FACTORS
A resident of New York State (or New York City) will be subject to New York
State (or New York City) personal income tax with respect to gains realized when
New York Obligations held in the New York IM-IT Trust are sold, redeemed or paid
at maturity or when his Units are sold or redeemed, such gain will equal the
proceeds of sale, redemption or payment less the tax basis of the New York
Obligation or Unit (adjusted to reflect (a) the amortization of premium or
discount, if any, on New York Obligations held in the Trust, (b) accrued
original issue discount, with respect to each New York Obligation which, at the
time the New York Obligation was issued had original issue discount, and (c) the
deposit of New York Obligations with accrued interest in the Trust after the
Unitholder's settlement date).
Interest or gain from the New York IM-IT Trust derived by a Unitholder who is
not a resident of New York State (or New York City) will not be subject to New
York State (or New York City) personal income tax, unless the Units are property
employed in a business, trade, profession or occupation carried on in New York
State (or New York City).
Amounts paid on defaulted New York Obligations held by the Trustee under
policies of insurance issued with respect to such New York Obligations will be
excludable from income for New York State and New York City income tax purposes,
if and to the same extent as, such interest would have been excludable if paid
by the respective issuer.
For purposes of the New York State and New York City franchise tax on
corporations, Unitholders which are subject to such tax will be required to
include in their entire net income any interest or gains distributed to them
even though distributed in respect of New York obligations.
If borrowed funds are used to purchase Units in the Trust, all (or part) of
the interest on such indebtedness will not be deductible for New York State and
New York City tax purposes. The purchase of Units may be considered to have been
made with borrowed funds even though such funds are not directly traceable to
the purchase of Units in any New York Trust.
The Portfolio of the New York IM-IT Trust includes obligations issued by New
York State (the "State"), by its various public bodies (the "Agencies"), and/or
by other entities located within the State, including the City of New York (the
"City").
Some of the more significant events relating to the financial situation in
New York are summarized below. This section provides only a brief summary of the
complex factors affecting the financial situation in New York and is based in
part on Official Statements issued by, and on other information reported by the
State, the City and the Agencies in connection with the issuance of their
respective securities.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal
Obligations held in the portfolio of the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
(1) The State: The State has historically been one of the wealthiest states
in the nation. For decades, however, the State economy has grown more slowly
than that of the nation as a whole, gradually eroding the State's relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx of
generally less affluent residents. Regionally, the older Northeast cities have
suffered because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high state and local tax burden
relative to other states. The burden of State and local taxation, in combination
with the many other causes of regional economic dislocation has contributed to
the decisions of some businesses and individuals to relocate outside, or not
locate within, the State. However, the State's 1995-96 budget reflected
significant actions to reduce the burden of State taxation, including adoption
of a 3-year, 20% reduction in the State's personal income tax. During 1996-97,
New York led the nation in tax cuts, at 54.1%, bringing the total value of tax
reductions in effect for the 1997 year to over $6 billion. Annual savings are
intended to grow to $12 billion by 2001-02. When measured as a percentage of
personal income, state-imposed taxes in New York should be below the national
median in 1998. The budget for fiscal year 1998-99 proposes an additional $700
million in tax reductions.
Slowdown of Regional Economy. A national recession commenced in mid-1990.
Economic recovery started considerably later in the State than in the nation as
a whole due in part to the significant retrenchment in the banking and financial
services industries, downsizing by several major corporations, cutbacks in
defense spending, and an oversupply of office buildings. In the last few years,
New York has shown signs of economic resurgence. New York has gone from last in
the nation in percentage of private sector employment growth to a level that is
on par with the national average, gaining 250,000 private sector jobs since
December 1994. Overall employment growth was close to 1.4% for 1997. National
employment growth in 1997 was estimated at 2.3%. The New York economy in 1998 is
expected to grow at about the same rate as in 1997. Many uncertainties exist in
forecasts of both the national and State economies and there can be no assurance
that the State economy will perform at a level sufficient to meet the State's
projections of receipts and disbursements. Personal income is expected to
increase 6.1% in 1997 and 4.5% in 1998.
1997-98 Fiscal Year. The 1997-98 General Fund Financial Plan continues to be
balanced, with a projected surplus of $1.83 billion. This will be the third
consecutive budget surplus generated by the Governor's administration. Of this
amount, $700 million is being used to finance one-time costs related to an extra
27th payroll and 53rd Medicaid cycle ($282 million) due to the cyclical timing
of these payments and to provide "hard-dollar" financing for capital projects of
the Community Enhancement Facilities Assistance Program which were previously
anticipated to be supported with bond proceeds. Proposed tax cut accelerations
account for the use of another $685 million of the surplus. Of the remainder,
$365 million is being used to finance 1998-99 Executive Budget recommendations,
and $68 million is being deposited into the Tax Stabilization Reserve Fund (the
State's "rainy day" fund) as provided by the Constitution. This is the third
consecutive extraordinary deposit in the rainy day fund and increases the size
of that fund to $400 million by the end of 1997-98, the highest balance ever
achieved.
The surplus results primarily from growth in projected receipts. As compared
to the enacted budget, revenues increased by $1.28 billion, while disbursements
increased by only $565 million. These changes from Mid-Year Financial Plan
projections reflect actual results through December 1997 as well as modified
economic and caseload projections for the balance of the fiscal year.
The General Fund is projected to be balanced on a cash basis for the 1997-98
fiscal year. Total receipts and transfers from other funds are projected to be
$35.197 billion, an increase of $216 billion from total receipts in the prior
fiscal year. Total General Fund disbursements and transfers to other funds are
projected to be $35.165 billion, an increase of $2.26 billion from the total
amount disbursed in the prior fiscal year.
The General Fund closing balance is expected to be $465 million at the end of
1997-98. Of this amount, $400 million will be on deposit in the Tax
Stabilization Reserve Fund (TSRF), while another $65 million will be on deposit
in the Contingency Reserve Fund (CRF) after a $24 million deposit in 1997-98.
The TSRF had an opening balance of $317 million to be supplemented by a required
payment of $15 million and an extraordinary maximum deposit of $68 million from
surplus 1997-98 monies.
In recent years, State actions affecting the level of receipts and
disbursements, as well as the relative strength of the State and regional
economy, actions of the Federal government and other factors, have created
structural gaps for the State. These gaps resulted from a significant disparity
between recurring revenues and the costs of maintaining or increasing the level
of support for State programs. As noted, the 1997-98 enacted budget combines
significant tax and program reductions which will, in the current and future
years, lower both the recurring receipts base (before the effect of any economic
stimulus from such tax reductions) and the historical annual growth in State
program spending. Notwithstanding these changes, the State can expect to
continue to confront structural deficits in future years.
One major uncertainty to the 1997-98 State Financial Plan continues to be
risks related to the economy and tax collections, which could produce either
favorable or unfavorable variances during the balance of the year. It is
possible that recent changes could produce slower economic growth and a
deterioration in State receipts. An additional risk to the 1997-98 State
Financial Plan arises from the potential impact of certain litigation now
pending against the State, which could produce adverse effects on the State's
projections of receipts and disbursements.
1998-99 Fiscal Year. General Fund receipts in 1998-99 will reflect the
initial phases of the STAR property tax reduction program as well as the
continuing impact of other 1997 and earlier tax reduction accomplishments. In
addition, the 1998-99 budget reflects several tax reduction proposals that will
reduce receipts available to the General Fund by about $700 million during the
fiscal year. Recurring growth in the State General Fund tax base is projected to
be nearly 6% during 1998-99. That growth rate is lower than that achieved in
1996-97 or currently estimated for 1997-98 and roughly equivalent to the rate
experienced in 1995-96. Total General Fund receipts for 1998-99 are projected at
$36.22 billion, an increase of more than $1 billion from the revised 1997-98
estimate. The largest source of receipts is the sales and use tax which accounts
for nearly 80% of projected receipts.
Total General Fund spending in the 1998-99 Executive Budget is projected to
increase $1.02 billion of 2.89% from the current year. The average annual
increase since 1994-95 is 1.85%. This rate is below the rate of inflation and
much lower than the average annual increase of 5.4% prior to 1994-95.
Education's recommended share of General Fund spending is 30% in 1998-99 and
criminal justice spending is 6.5%. Medicaid and welfare spending growth has been
reduced, reflecting Medicaid and welfare reforms implemented since 1995.
The 1998-99 Financial Plan includes approximately $62 million in
non-recurring resources, the lowest projected level ever recorded. In fiscal
year 1986-87 through 1994-95, the average annual level of one-timers was
approximately $819 million.
The projected 1998-99 closing fund balance of $500 million in the General
Fund is composed of monies available in the TSRF and the CRF. An additional
deposit of $35 million will supplement the $65 million balance in the CRF,
increasing that amount available for possible litigation risks to $100 million
in 1998-99.
On November 16, 1993, the Court of Appeals, the State's highest court,
affirmed the decision of a lower court in three actions, which declared
unconstitutional State actuarial funding methods for determining State and local
contributions to the State employee retirement system. Following the decision,
the State Comptroller developed a plan to phase in a constitutional funding
method and to restore prior funding levels of the retirement systems over a
four-year period. The plan is not expected to require the State to make
additional contributions with respect to the 1993-94 fiscal year nor to
materially and adversely affect the State's financial condition thereafter.
Through fiscal year 1998-99, the State expects to contribute $643 million more
to the retirement plans that would have been required under the prior funding
method.
Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements.
Indebtedness. As of March 31, 1997, the total amount of long-term State
general obligation debt authorized but unissued stood at $2.767 billion. As of
the same date, the State had approximately $5.03 billion in outstanding general
obligation debt, including $294 million of Bond Anticipation Notes ("BANS")
outstanding.
As of March 31, 1997, $22.499 billion of bonds, issued in connection with
lease-purchase and contractual obligation financings of State capital programs,
were outstanding. The total amount of outstanding State-supported debt as of
March 31, 1997 was $32.766 billion. As of March 31, 1997, total State-related
debt (which includes the State-supported debt, moral obligation and certain
other financings and State-guaranteed debt) was $37.114 billion.
The State anticipates that its borrowings for capital purposes during the
State's 1997-98 fiscal year will consist of $605 million in general obligation
bonds and BANS and $140 million in general obligation commercial paper. The
Legislature has also authorized the issuance of $311 million in certificates of
participation (including costs of issuance, reserve funds and other costs)
during the State's 1997-98 fiscal year for equipment purchases. The projection
of the State regarding its borrowings for the 1997-98 fiscal year may change if
actual receipts fall short of State projections or if other circumstances
require.
In June 1990, legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to issue
long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. As of June,
1995, LGAC had issued bonds and notes to provide net proceeds of $4.7 billion,
and has been authorized to issue its bonds to provide net proceeds of up to $529
million during the State's 1995-96 fiscal year to redeem notes sold in June
1995. The LGAC program was completed in 1995-96 with the issuance of the last
installment of authorized bond sales. As of March 31, 1997, $5.239 billion
remained outstanding of the LGAC.
Ratings. Moody's rating of the State's general obligation bonds is Aa2 and
S&P's rating is A. Previously, Moody's lowered its rating to A on June 6, 1990,
its rating having been A1 since May 27, 1986. S&P's previous rating was A- on
January 13, 1992. S&P's ratings were A from March 1990 to January 1992, AA- from
August 1987 to March 1990 and A+ from November 1982 to August 1987.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City
accounts for approximately 41% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other actions,
the State Legislature (i) created MAC to assist with long-term financing for the
City's short-term debt and other cash requirements and (ii) created the State
Financial Control Board (the "Control Board") to review and approve the City's
budgets and City four-year financial plans (the financial plans also apply to
certain City-related public agencies (the "Covered Organizations")).
From 1993 to 1996, the rate of economic growth in the City slowed
substantially. The City's economic improvement significantly accelerated in
fiscal year 1997, resulting in an unusually high, across-the-board increase in
tax receipts. Much of the increase can be traced to the performance of the
securities industry, but the City's economy has produced gains in retail trade,
tourism, and in business services. In 1997, the City experienced the largest
private sector job growth in the last 13 years.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections. The City is required to submit its
financial plans to review bodies, including the Control Board. If the City were
to experience certain adverse financial circumstances, including the occurrence
or the substantial likelihood and imminence of the occurrence of an annual
operating deficit of more than $100 million or the loss of access to the public
credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to exercise
certain powers, including prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1997-98 fiscal year or subsequent years, such developments could result in
reductions in projected State aid to the City. In addition, there can be no
assurance that State budgets in future fiscal years will be adopted by the April
1 statutory deadline and that there will not be adverse effects on the City's
cash flow and additional City expenditures as a result of such delays.
The Mayor is responsible for preparing the City's four-year financial plan,
including the City's current financial plan. The City projections set forth in
its financial plan are based on various assumptions and contingencies which are
uncertain and which may not materialize. Changes in major assumptions could
significantly affect the City's ability to balance its budget as required by
State law and to meet its annual cash flow and financing requirements. Such
assumptions and contingencies include the condition of the regional and local
economies, the absence of wage increases in excess of the increases assumed in
its financial plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets, levels of
education expenditures as may be required by State law, adoption of future City
budgets by the New York City Council, and approval by the Governor or the State
Legislature and the cooperation of MAC with respect to various other actions
proposed in such financial plan.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. The City's
financing program for fiscal years 1996 through 1999 contemplates the issuance
of $9.7 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make capital
investments. In addition, the City issues revenue and tax anticipation notes to
finance its seasonal work capital requirements. The terms and success of
projected public sales of City general obligation bonds and notes will be
subject to prevailing market conditions at the time of the sale, and no
assurance can be given that the credit markets will absorb the projected amounts
of public bond and note sales. Future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation bonds
and notes. If the City were unable to sell its general obligation bonds and
notes, it would be prevented from meeting its planned operating and capital
expenditures.
1996-99 Financial Plan. On July 11, 1995, the City submitted to the Control
Board the 1996-99 Financial Plan, which relates to the City, the Board of
Education and the City University of New York. The 1996-99 Financial Plan is
based on the City's expense and capital budgets for the City's 1996 fiscal year,
which were adopted on June 14, 1995, and sets forth proposed actions by the City
for the 1996 fiscal year to close substantial projected budget gaps resulting
from lower than projected tax receipts and other revenues and greater than
projected expenditures. In addition to substantial proposed agency expenditure
reductions and productivity, efficiency and labor initiatives negotiated with
the City's labor unions, the 1996-99 Financial Plan reflects a strategy to
substantially reduce spending for entitlements for the 1996 and subsequent
fiscal years.
1998-2002 Financial Plan. In January, 1998, the New York City mayor announced
the City's Financial Plan for Fiscal Years 1998-2002. For the second year in a
row, the New York City four-year financial plan contains a record surplus of
more than $1 billion. Since the adoption of the fiscal year 1998 budget, the
City is now forecasting additional resources of $3.1 billion. Approximately 73%
will be used to reduce the out-year gaps, 19% will fund targeted educational,
public safety and other initiatives, and 8% will be used to reduce taxes
further.
To reduce the out-year gaps, the City has imposed fiscal discipline on the
rate of growth of City spending which has, over the last four years, been held
below the rate of inflation. For fiscal year 1999, the proposed City-funded
spending increase will be held to 0.6%. The budget stabilization account,
established for the first time in 1997, will be maintained in fiscal year 1999
at $210 million with an additional $210 million created for fiscal year 2000. As
a result of this fiscal planning, the out-year gaps have been cut in half
compared to six years ago: fiscal year 1993 was $13.3 billion and fiscal year
1998 is $6.75 billion.
According to recent staff reports, while economic recovery in New York City
has been slower than in other regions of the country, a surge in Wall Street
profitability resulted in increased tax revenues and generated a substantial
surplus for the City in City fiscal year 1996-97. Although several sectors of
the City's economy have expanded recently, especially tourism and business and
professional services, City tax revenues remain heavily dependent on the
continued profitability of the securities industry and the course of the
national economy. These reports have also indicated that recent City budgets
have been balanced in part through the use of non-recurring resources; that the
City's Financial Plan tends to rely on actions outside its direct control; that
the City has not yet brought its long-term expenditure growth in line with
recurring revenue growth; and that the City is therefore likely to continue to
face substantial gaps between forecast revenues and expenditures in future years
that must be closed with reduced expenditures and/or increased revenues.
Given the foregoing factors, there can be no assurance that the City will
continue to maintain a balanced budget, or that it can maintain a balanced
budget without additional tax or other revenue increases or reductions in City
services, which could adversely affect the City's economic base.
Litigation. The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, actions commenced and claims
asserted against the City arising out of alleged constitutional violations,
torts, breaches of contracts, and other violations of law and condemnation
proceedings. While the ultimate outcome and fiscal impact, if any, on the
proceedings and claims are not currently predictable, adverse determinations in
certain of them might have a material adverse effect upon the Cityability to
carry out its financial plan. The 1996-99 Financial Plan includes provisions for
judgments and claims of $279 million, $236 million, $251 million and $264
million for the 1996 through 1999 fiscal years, respectively.
Ratings. As of March 1996, Moody's rating of the City's general obligation
bonds stood at Baa1. S&P's current rating of the City's general obligation bonds
is BBB+. S&P's previous rating of the City's general obligation bonds was A-.
On July 10, 1995, S&P revised downward its rating on City general obligation
bonds from A- to BBB+ and removed City bonds from CreditWatch. S&P stated that
"structural budgetary balance remains elusive because of persistent softness in
the City's economy, highlighted by weak job growth and a growing dependence on
the historically volatile financial services sector." Other factors identified
by S&P in lowering its rating on City bonds included a trend of using one-time
measures, including debt refinancings, to close projected budget gaps,
dependence on unratified labor savings to help balance financial plans,
optimistic projections of additional Federal and State aid or mandate relief, a
history of cash flow difficulties caused by State budget delays and continued
high debt levels. Fitch IBCA Inc. (formerly Fitch Investors Service, L.P.)
continues to rate the City general obligation bonds A-.
On February 11, 1991, Moody's had lowered its rating from A. Previously,
Moody's had raised its rating to A in May 1988, to Baa1 in December 1986, to Baa
in November 1983 and to Ba1 in November 1981. S&P had raised its rating to A- in
November 1987, to BBB+ in July 1985 and to BBB in March 1981.
Indebtedness. As of June 30, 1997, the City had $3.671 billion of
outstanding debt service of which $3.515 billion was net long-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability of such Agencies
to make payments of interest on, and principal amounts of, their respective
bonds. The difficulties have in certain instances caused the State (under
so-called "moral obligation" provisions which are non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover, it is expected
that the problems faced by these Agencies will continue and will require
increasing amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those Agencies
having financial difficulties to meet their obligations could result in a
default by one or more of the Agencies. Such default, if it were to occur, would
be likely to have a significant adverse effect on investor confidence in, and
therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of certain
conditions that must be satisfied in connection with Federal guarantees of City
and MAC obligations and could thus jeopardize the City's long-term financing
plans.
(4) State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings, and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a variety
of significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. In 1997, a civil rights claim alleging intentional school
segregation in Yonkers has resulted in a $9 million judgment for plaintiffs that
the State must pay.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the future.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State
assistance and the need to reduce their spending or increase their revenues. The
potential impact on the State of such actions by localities is not included in
projections of State receipts and expenditures in the State's 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the State Legislature to assist Yonkers could result in increased State
expenditures for extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the City of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, aid that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share the more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1995, the total indebtedness of all localities in
the State other than New York City was approximately $19.0 billion.
Approximately $102.3 million of that indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to State enabling
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Eighteen
localities had outstanding indebtedness for deficiting financing at the close of
their fiscal year ending in 1995.
From time to time, Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
the State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit markets,
the marketability of notes and bonds issued by localities within the State,
including notes or bonds in the New York Trust, could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions, and long-range economic trends. The long
range potential problems of declining urban population, increasing expenditures,
and other economic trends could adversely affect localities and require
increasing State assistance in the future.
(6) Other Issuers of New York Municipal Obligations. There are a number of
other agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
PENNSYLVANIA RISK FACTORS
Investors should be aware of certain factors that might affect the financial
conditions of the Commonwealth of Pennsylvania. Pennsylvania historically has
been identified as a heavy industry state although that reputation has changed
recently as the industrial composition of the Commonwealth diversified when the
coal, steel and railroad industries began to decline. A more diversified economy
was necessary as the traditionally strong industries in the Commonwealth
declined due to a long-term shift in jobs, investment and workers away from the
northeast part of the nation. The major sources of growth in Pennsylvania are in
the service sector, including trade, medical and the health services, education
and financial institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure, particularly in
crop and livestock products as well as agribusiness and food related industries.
Strong growth experienced in Pennsylvania in 1997 was unanticipated and is
unlikely to continue. The peak growth was reached during the first quarter and
growth in subsequent quarters has been lower. Due to Pennsylvania's improved
competitive position, the Commonwealth should experience economic growth rates
close to the national average. The annual rate of job growth, ranked 45th in
1995, is currently ranked 17th nationwide.
Non-manufacturing employment has increased in recent years to 82.8% of total
Commonwealth employment as of May 1998. Consequently, manufacturing employment
constitutes a diminished share of total employment within the Commonwealth.
Manufacturing, contributing 17.2% of non-agricultural employment as of May 1998,
has fallen behind both the services sector and the trade sector as the largest
single source of employment within the Commonwealth. In May 1998, the services
sector accounted for 31.8% of all non-agricultural employment while the trade
sector accounted for 22.4%.
Preliminary results from the Pennsylvania Department of Labor and Industry
show Pennsylvania's total non-farm jobs increased by 61,400 or almost 1.1% from
May 1997 to May 1998, a stark difference from the 106,200 gain between December
1996 and December 1997. The services industry was responsible for over one-half
of all new jobs created during this period. Retail trade increased 1% or 10,000
jobs. Construction employment increased 4.6% or 9,900 jobs. Manufacturing growth
decreased .3% or 2,300 jobs from May 1997 to May 1998. As of May 1998, the
seasonally adjusted unemployment rate for both the Commonwealth and the United
States was 4.3%.
More jobs in 1997 brought faster growing personal income. For the four
quarters ending with the first quarter of 1997, personal income in Pennsylvania
rose at a rate of over 6%. This healthy advance contributed to a 6.1% increase
in General Fund tax revenue for fiscal year 1996-97 due to similar increases in
collections for personal income tax and the sales and use tax.
Financial information for the principal operating funds of the Commonwealth
is maintained on a budgetary basis of accounting. A budgetary basis of
accounting is used for the purpose of ensuring compliance with the enacted
operating budget and is governed by applicable statutes of the Commonwealth and
by administrative procedures. The Commonwealth also prepares annual financial
statements in accordance with generally accepted accounting principles ("GAAP").
The budgetary basis financial information maintained by the Commonwealth to
monitor and enforce budgetary control is adjusted at fiscal year-end to reflect
appropriate accruals for financial reporting in conformity with GAAP.
Fiscal 1997 Financial Results. At June 30, 1997, the Commonwealth reported an
unreserved/undesignated fund balance (budgetary basis) of $402.7 million in the
General Fund. This compares to a budgetary basis fund balance of $158.5 million
at June 30, 1996. The budgetary basis fund balance for the fiscal year ended
June 30, 1997 was the result of revenue collections totaling $26,149.6 million
less appropriation authorizations totaling $25,835.7 million, less other net
financing uses totaling $69.7 million. Included in the $25,835.7 million
appropriation authorizations are $164.3 million of state supplemental
appropriations and $207.0 million in federal supplemental appropriations
authorized during the fiscal year.
On a GAAP basis, at June 30, 1997, the Commonwealth's General Fund reported a
fund balance of $1,364.9 million, an increase of $729.7 million from the $635.2
million fund balance at June 30, 1996. Total assets increased by $563.4 million
to $4,268.5 million . Liabilities decreased $166.3 million to $2,903.6 million.
For fiscal year 1996-97, revenues of the Commonwealth's General, Special
Revenue, Debt Service and Capital Projects Funds (collectively, the governmental
funds) totaled $32,073 million, an increase of $1,147 million or 3.7% from
fiscal year 1995-96. Taxes accounted for 56.6% of the total general governmental
revenues. Their combined fund balances at June 30, 1997 increased by $914.6
million to $2,900.9 million. The unreserved/undesignated fund balance was $699.2
million compared to $378.2 million from the previous year.
Fiscal 1998 Budget. Total receipts for fiscal year 1997-98 are projected at
$17,077 million. Appropriations are estimated at $17,269 million. The closing
balance in the General Fund (after adding the beginning balance of $403 billion
and deducting lapses of $120 million) is $331 million. After a transfer to the
Rainy Day Fund of $50 million, the ending balance in the General Fund for fiscal
year 1997-98 is estimated at $281 million.
Estimated revenues for 1997-98 have been raised $231.1 million due to
substantial upward revisions to personal income and inheritance revenues and
downward revisions to sales and use and insurance premiums taxes. The personal
income tax has provided almost all of the revenue surplus. Through December
1997, fiscal year 1997-98 revenues have increased 2.8% over the same period in
the prior fiscal year. Revised estimates for 1997-98 project a 2.1% increase in
General Fund revenues. Total revenues, excluding proposed tax changes, are
projected to increase by 2.9%.
Proposed Fiscal 1999 Budget. The Governor's 1998-99 Budget continues a
four-year record of tax cuts and fiscal discipline. The proposed 1998-99 General
Fund Budget is $17.8 billion, an increase of $518 million or 3%. The total
recommended budget for 1998-99 is $35.8 billion. Approximately $10.16 billion is
from federal funds.
General Fund revenue is estimated to be generated in the following
percentages: 34.7% from sales tax, 34.2% from personal income tax, 12.5% from
business tax, 9.3% from corporate net income tax, 5.4% from other revenues, and
3.9% from the inheritance tax. Total expenditures for fiscal year 1998-99 are
estimated in the following percentages: 44.3% for education, 34.4% for health
and human services, 11.3% for protection, 3.8% for direction programs, 3.1% for
other programs, and 3.1% for economic development.
Budgets for the past four years have proposed an average spending growth of
2.0%. The average growth in the enacted budgets during the previous ten-year
period was 5.4%. Over $128 million in tax reductions are proposed in 1998-99 to
help working families and to stimulate job creation and retention.
After an estimated $2 million transfer to the Rainy Day Fund in 1998-99, the
ending fund balance for the General Fund for fiscal year 1998-99 is estimated at
$9 million. With the projected transfer at the end of 1998-99, the reserve
balance in the Commonwealth's Rainy Day Fund will exceed $500 million, more than
seven times the balance in 1994-95.
Debt Administration. The Constitution of the Commonwealth of Pennsylvania
permits the incurrence of debt, without approval of the electorate, for capital
projects specifically authorized in a capital budget. Capital project debt
outstanding cannot exceed one and three quarters (1.75) times the average of the
annual tax revenues deposited in all funds during the previous five fiscal
years. The certified constitutional debt limit at August 29, 1997 was $34.3
billion. Outstanding capital project debt at August 29, 1997 amounted to $3.7
billion.
In addition to constitutionally authorized capital project debt, the
Commonwealth may incur debt for electorate approved programs, such as economic
revitalization, land and water development, and water facilities restoration;
and for special purposes approved by the General Assembly, such as disaster
relief. The total general obligation bond indebtedness outstanding at June 30,
1997 was $4,842 million. Total debt service transfers paid from General Fund and
Motor License Fund appropriations during the fiscal year ended June 30, 1997
amounted to $781.5 million.
All outstanding general obligation bonds of the Commonwealth are rated AA- by
S&P and Aa3 by Moody's. Any explanation concerning the significance of such
ratings must be obtained from the rating agencies. There is no assurance that
any ratings will continue for any period of time or that they will not be
revised or withdrawn.
In addition to general obligation bonds, the Commonwealth issues tax
anticipation notes ("TANS") to meet operating cash needs during certain months
of the fiscal year. The Commonwealth anticipates issuance of $225 million in
General Fund TANS during the 1997-98 fiscal year. During fiscal year 1996-97,
$550 million TANS were issued.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,478,002 in 1996, according to
the U.S. Bureau of the Census. Philadelphia functions both as a city of the
first class and a county for the purpose of administering various governmental
programs.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities in
remedying fiscal emergencies was enacted by the General Assembly and approved by
the Governor in June 1991. PICA is designed to provide assistance through the
issuance of funding debt to liquidate budget deficits and to make factual
findings and recommendations to the assisted city concerning its budgetary and
fiscal affairs. An intergovernmental cooperation agreement between Philadelphia
and PICA was approved by City Council on January 3, 1992, and approved by the
PICA Board and signed by the Mayor on January 8, 1992. At this time,
Philadelphia is operating under a five-year fiscal plan approved by PICA on
April 30, 1996.
As of February 28, 1997, PICA has issued approximately $1,761.7 million of
its Special Tax Revenue Bonds to provide financial assistance to Philadelphia,
to liquidate the cumulative General Fund balance deficit, to refund certain
general obligation bonds of the City and to fund additional capital projects. No
further PICA bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired on
December 31, 1994. PICA's authority to issue debt for the purpose of financing a
cash flow deficit expired on December 31, 1996. Its ability to refund existing
outstanding debt is unrestricted. PICA had $1,102.4 million in Special Tax
Revenue Bonds outstanding as of June 30, 1997.
The audited General fund balance of the City as of June 30, 1995, 1996, and
1997 showed a surplus of approximately $80.5 million,
$118.5 million, and $128.8 million, respectively.
S&P's rating on Philadelphia's general obligation bonds is "BBB" and Moody's
rating is "Baa." Any explanation concerning the significance of such ratings
must be obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be revised or
withdrawn.
It should be noted that the creditworthiness of obligations issued by local
Pennsylvania issuers may be unrelated to the creditworthiness of obligations
issued by the Commonwealth of Pennsylvania, and there is no obligation on the
part of the Commonwealth to make payment on such local obligations in the event
of default.
NORTH CAROLINA RISK FACTORS
See "Portfolio" in Prospectus Part I for a list of the Bonds included in
the North Carolina Trust. The portions of the following discussion regarding the
financial condition of the State government may not be relevant to general
obligation or revenue bonds issued by political subdivisions of the State. Those
portions and the sections which follow regarding the economy of the State are
included for the purpose of providing information about general economic
conditions that may or may not affect issuers of the North Carolina Bonds. None
of the information is relevant to Bonds issued by territories or possessions of
the United States that may be included in the portfolio of the North Carolina
Trust.
General obligations of a city, town or county in North Carolina are
payable from the general revenues of the entity, including ad valorem tax
revenues on property within the jurisdiction. Revenue bonds issued by North
Carolina political subdivisions include (1) revenue bonds payable exclusively
from revenue-producing governmental enterprises and (2) industrial revenue
bonds, college and hospital revenue bonds and other "private activity bonds"
which are essentially non-governmental debt issues and which are payable
exclusively by private entities such as non-profit organizations and business
concerns of all sizes. State and local governments have no obligation to provide
for payment of such private activity bonds and in many cases would be legally
prohibited from doing so. The value of such private activity bonds may be
affected by a wide variety of factors relevant to particular localities or
industries, including economic developments outside of North Carolina. In
addition, the Trust is concentrated on Bonds of North Carolina issuers and is
subject to additional risk from decreased diversification as well as factors
that may be particular to North Carolina or, in the case of revenue bonds
payable exclusively from private party revenues or from specific state non-tax
revenue, factors that may be particular to the related activity or payment
party.
Section 23-48 of the North Carolina General Statutes appears to permit any
city, town, school district, county or other taxing district to avail itself of
the provisions of Chapter 9 of the United States Bankruptcy Code, but only with
the consent of the Local Government Commission of the State and of the holders
of such percentage or percentages of the indebtedness of the issuer as may be
required by the Bankruptcy Code (if any such consent is required). Thus,
although limitations apply, in certain circumstances political subdivisions
might be able to seek the protection of the Bankruptcy Code.
State Budget and Revenues. The North Carolina State Constitution requires
that the total expenditures of the State for the fiscal period covered by each
budget not exceed the total of receipts during the fiscal period and the surplus
remaining in the State Treasury at the beginning of the period. In November
1996, the voters of the State approved a constitutional amendment giving the
Governor the power to veto certain legislative matters, including budgetary
matters.
Since 1994, the State has had a budget surplus, in part as a result of new
taxes and fees and spending reductions put into place in the early 1990's. In
addition, the State, like the nation, has experienced economic recovery during
the 1990's.
The State budget is based upon estimated revenues and a multitude of
existing and assumed State and non-State factors, including State and national
economic conditions, international activity and federal government policies and
legislation. The unreserved General Fund balance at June 30, 1997, the end of
the 1996-97 fiscal year, was approximately $292.2 million, and the reserved
balance of the General Fund was approximately $880.8 million.
In 1995, the North Carolina General Assembly repealed, effective for
taxable years beginning January 1, 1995, the tax levied on various forms of
intangible personal property. The legislature provided specific appropriations
to counties and municipalities from state revenues to replace the revenues those
political subdivisions previously received from intangibles tax revenue. In
addition, in the 1996 session the legislature reduced the corporate income tax
rate from 7.75% to 6.9% (phased in over four years), reduced the food tax from
4% to 3%, and eliminated most privilege license taxes as of January 1, 1997. As
a result of the comprehensive tax reductions, General Fund tax collections for
1995-96 grew by only 1.0% over 1994-95, as opposed to the 6.4% growth that would
have occurred if such measures had not been taken.
In the 1996-97 Budget prepared by the Office of State Budget and
Management, it was projected that General Fund net revenues would increase 3%
over 1995-96. In fact, actual General Fund net revenues for 1996-97 increased
8.3% over 1995-96. This increase resulted primarily from growth in the North
Carolina economy, which resulted in increased personal and corporate income tax
receipts.
It is unclear what effect these developments at the State level may have on
the value of the Bonds in the North Carolina Trust. Litigation. The following
are cases pending in which the State faces the risk of either a loss of revenue
or an unanticipated expenditure. In the opinion of the Department of State
Treasurer, an adverse decision in any of these cases would not materially
adversely affect the State's ability to meet its financial obligations.
Leandro, et. al. v. State of North Carolina and State Board of Education
- -- In May, 1994, students and boards of education in five counties in the State
filed suit in state Superior Court requesting a declaration that the public
education system of North Carolina, including its system of funding, violates
the North Carolina Constitution by failing to provide adequate or substantially
equal educational opportunities and denying due process of law, and violates
various statutes relating to public education.
On July 24, 1997, the North Carolina Supreme Court issued a decision in
the case. The Court upheld the present funding system against the claim that it
unlawfully discriminated against low wealth counties on the basis that the
Constitution does not require substantially equal funding and educational
advantages in all school districts. The Court remanded the case for trial on the
claim for relief based on the Court's conclusion that the Constitution
guarantees every child of the state an opportunity to receive a sound basic
education in North Carolina public schools. Five other counties intervened and
now allege claims for relief on behalf of their students' rights to a sound
basic education on the basis of the high proportion of at-risk students in their
counties' systems. The North Carolina Attorney General's Office believes that
sound legal arguments support the State's position on the outstanding claims.
Francisco Case -- In August, 1994, a class action lawsuit was filed in
state court against the Superintendent of Public Instruction and the State Board
of Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and has
failed to supervise local school systems in administering programs for them. The
complaint does not allege an amount in controversy, but asks the Court to order
the defendants to fund a comprehensive program to ensure equal educational
opportunities for children with limited English proficiency. Discovery is
underway, but no trial date has been set. The North Carolina Attorney General's
Office believes that sound legal arguments support the State's position.
Faulkenbury v. Teachers' and State Employees' Retirement System; Peele v.
Teachers' and State Employees' Retirement System; Woodard v. Local Governmental
Employees' Retirement System -- Plaintiffs are disability retirees who brought
class actions in state court challenging changes in the formula for payment of
disability retirement benefits and claiming impairment of contract rights,
breach of fiduciary duty, violation of other federal constitutional rights, and
violation of state constitutional and statutory rights. The Superior Court
issued an order ruling in favor of plaintiffs. The Order was affirmed by the
North Carolina Supreme Court. A determination of the actual amount of the
State's liability and the payment process is being determined by the parties.
The plaintiffs have submitted documentation to the court asserting that the cost
in damages and higher prospective benefit payments to the plaintiffs and class
members would amount to $407 million. These amounts would be payable from the
funds of the Retirement systems.
Bailey v. State -- State and local government retirees filed a class
action suit in 1990 as a result of the repeal of the income tax exemptions for
state and local government retirement benefits. The original suit was dismissed
after the North Carolina Supreme Court ruled in 1991 that the plaintiffs had
failed to comply with state law requirements for challenging unconstitutional
taxes and the United States Supreme Court denied review.
In 1992, many of the same plaintiffs filed a new lawsuit alleging
essentially the same claims, including breach of contract, unconstitutional
impairment of contract rights by the State in taxing benefits that were
allegedly promised to be tax-exempt, and violation of several state
constitutional provisions. Thereafter, taxpayers also filed additional lawsuits
claiming refunds of income taxes paid for tax years through 1996. In May 1995,
the trial court found that the repeal of the tax exemption for state and local
government retirement benefits that were vested before August 1989 was unlawful
and that such benefits remain exempt from income taxation. The North Carolina
Supreme Court allowed discretionary review, and handed down its decision on May
8, 1998, upholding the decision of the trial court.
Patton v. State -- Federal retirees filed a class action suit in Wake
County Superior Court in 1995 seeking monetary relief for taxes paid since 1989.
This case was brought in anticipation of a favorable outcome for the plaintiffs
in the Bailey case. The federal retirees allege that a result in the Bailey case
that exempts State and local retirement benefits from State income taxes would
require a similar exemption for federal retirement benefits under the United
States Supreme Court's 1989 decision in Davis v. Michigan. In Davis, the United
States Supreme Court ruled that a Michigan income tax statute that taxed federal
retirement benefits while exempting those paid by state and local governments
violated the constitutional doctrine of intergovernmental tax immunity. The
Patton case was being held in abeyance pending the outcome in Bailey.
On June 10, 1998, the Wake County Superior Court approved a consent order
with respect to the Bailey and Patton cases which the North Carolina General
Assembly agreed to appropriate the sum of $799,000 ($400,000 in fiscal year
1998-1999 and $399,000 in fiscal year 1999-2000) to be paid in the form of cash
refunds to State, local and federal retiree plaintiffs in the Bailey and Patton
cases in complete satisfaction of all liability of the State of North Carolina
and its officials arising from the taxation of State, local and federal
retirement income and benefits for tax years 1989 through 1997. The consent
order will become final upon enactment of the necessary legislation by the North
Carolina General Assembly appropriating the funds, and approval by the court
following notice to members of the members of the affected classes. Both the
House and Senate versions of the budget contain the necessary appropriation,
although a final budget for fiscal year 1998-1999 has not yet been passed.
Smith, et. al. v. Offerman and State of North Carolina, et. al. -- This
class action is related to litigation in Fulton Corporation v. Faulkner, 516
U.S. 325, 133 L.Ed.2d 796 (1995), a case filed by a single taxpayer relating to
the State's intangibles tax. On July 7, 1995, while the Fulton case was pending
before the United States Supreme Court, the Smith class action was commenced on
behalf of all other taxpayers who had complied with the requirements of the tax
refund statute N.C.G.S. 105-267, and would therefore be entitled to refunds if
Fulton prevailed on its refund claim. These original plaintiffs were later
designated Class A when a second group of plaintiffs were added. The new class,
denominated Class B, consisted of taxpayers who had paid the tax but failed to
comply with the tax refund statute. On February 21, 1996, the United States
Supreme Court held in Fulton that the State's intangibles tax on shares of tax
(by then repealed) violated the Commerce Clause of the United States
Constitution because it discriminated against stock issued by corporations that
do all or part of their business outside of North Carolina. It remanded the case
to the North Carolina Supreme Court to consider remedial issues including
whether the offending provision in the statute (the taxable percentage
deduction) was severable.
On February 10, 1997, the Supreme Court of North Carolina in the Fulton
remand proceeding severed the taxable deduction provision and invited the
General Assembly to determine the appropriate remedy for the discriminatory tax
treatment of eligible taxpayers who paid the tax but did not benefit from the
deduction. While the General Assembly considered the remedial issues raised by
the Fulton remand, the Smith plaintiffs moved for judgment on their refund
claims. On June 11, 1997, the trial judge in Smith ordered refunds to be made
for tax years 1991-1994 to the Class A plaintiffs and dismissed the Class B
claims. Refunds to Class A taxpayers, totaling approximately $120,000,000, have
substantially been paid, with interest. The Class B plaintiffs appealed, and
their appeal is pending in the North Carolina Court of Appeals. The decision in
Bailey that overruled prior decisions requiring a taxpayer to pay the tax and
file a protest within thirty (30) days may have an adverse impact on the outcome
of this case.
Shaver v. Boyles, Refrow, and State of North Carolina -- This class action
was filed on January 16, 1998, by intangibles taxpayers who paid intangibles tax
on shares of stock for tax years 1990-1994 and did not receive refunds because
they failed to meet the tax refund statute requirements. These are the same
taxpayers as Class B plaintiffs in Smith, but they claim refund entitlement
under an alleged alternative theory. They claim refunds of approximately
$131,750,000 for tax years 1991-1994 and $80,000,000 for tax year 1990.
In the opinion of the Department of the State Treasurer, the decision in
the Bailey case, if it becomes final, and any adverse decisions in the Patton
and Smith cases, should an adverse decision be rendered, will not materially
adversely affect the State's ability to meet its financial obligations in view
of the State's on-going financial strength and of the current status of its
finances, including its budget stabilization reserve of $500 million. Also, as
of March 31, 1998, in addition to the State's beginning unreserved General Fund
balance of $315 million, the State has realized $585 million in revenues in
excess of expenditures in the General Fund.
The State is involved in numerous other claims and legal proceedings, many
of which normally occur in governmental operations; however, the North Carolina
Attorney General does not expect any of the other outstanding lawsuits to
materially adversely affect the State's ability to meet its financial
obligations.
General. The population of the State has increased 13% from 1980, from
5,895,195 to 6,656,810 as reported by the 1990 federal census, and the State
rose from twelfth to tenth in population. The State's estimate of population as
of July, 1997 is 7,436,690. Notwithstanding its rank in population size, North
Carolina is primarily a rural state, having only six municipalities with
populations in excess of 100,000.
The labor force has undergone significant change during recent years as
the State has moved from an agricultural to a service and goods producing
economy. Those persons displaced by farm mechanization and farm consolidations
have, in large measure, sought and found employment in other pursuits. Due to
the wide dispersion of non-agricultural employment, the people have been able to
maintain, to a large extent, their rural habitation practices. During the period
1980 to 1996, the State labor force grew about 33% (from 2,855,200 to
3,796,200). Per capita income during the period 1985 to 1996 grew from $11,870
to $22,010, an increase of 85.4%.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. As of July 1997, the State was reported to
rank tenth among the states in non-agricultural employment and eighth in
manufacturing employment. Employment indicators have varied somewhat in the
annual periods since June of 1990, but have demonstrated an upward trend since
1991. The following table reflects the fluctuations in certain key employment
categories.
<TABLE>
<CAPTION>
Category (All seasonally Adjusted) June 1993 June 1994 June 1995 June 1996 June 1997
- ------------------------------ ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Civilian Labor Force 3,504,000 3,560,000 3,578,000 3,704,000 3,797,000
Nonagricultural Employment 3,203,400 3,358,700 3,419,100 3,506,000 3,620,300
Goods Producing Occupations
(mining, construction and
manufacturing) 993,600 1,021,500 1,036,700 1,023,800 1,041,000
Service Occupations 2,209,800 2,337,200 2,382,400 2,482,400 2,579,300
Wholesale/Retail Occupations 723,200 749,000 776,900 809,100 813,500
Government Employees 515,400 554,600 555,300 570,800 579,600
Miscellaneous Services 676,900 731,900 742,200 786,100 852,500
Agricultural Employment 88,400 53,000 53,000 53,000 not available
</TABLE>
The seasonally adjusted unemployment rate in July 1997 was estimated to be
3.7% of the labor force, as compared with 4.8% nationwide.
North Carolina's economy continues to benefit from a vibrant manufacturing
sector. Manufacturing firms employ approximately 24% of the total
non-agricultural workforce. North Carolina has the second highest percentage of
manufacturing workers in the nation. The State's annual value of manufacturing
shipments totals $142 billion, ranking the State eighth in the nation. The State
leads the nation in the production of textiles, tobacco products, furniture and
fiberoptic cable, and is among the largest producers of pharmaceuticals,
electronics and telecommunications equipment. More than 700 international firms
have established a presence in the State. Charlotte is now the second largest
financial center in the country, based on assets of banks headquartered there.
The strength of the State's manufacturing sector also supports the growth in
exports; the latest annual statistics show $8.76 billion in exports, making
North Carolina one of the few states with an export trade surplus.
In 1996, the State's gross agricultural income of nearly $8.0 billion
placed it eighth in the nation in gross agricultural income. The State ranks
third in the nation in net farm income. According to the State Commissioner of
Agriculture, in 1996, the State ranked first in the nation in the production of
flue-cured tobacco, total tobacco, turkeys and sweet potatoes; second in hog
production, trout and the production of cucumbers for pickles; third in the
value of net farm income poultry and egg products, and greenhouse and nursery
income; fourth in commercial broilers, peanuts, blueberries and strawberries;
and fifth in burley tobacco.
The diversity of agriculture in North Carolina and a continuing push in
marketing efforts have protected farm income from some of the wide variations
that have been experienced in other states where most of the agricultural
economy is dependent on a small number of agricultural commodities. North
Carolina is the third most diversified agricultural state in the nation.
Tobacco production, which had been the leading source of agricultural
income in the State, declined in 1995. The poultry industry is now the leading
source of gross agricultural income, at 29%, and the pork industry provides 22%
of the total agricultural income. Tobacco farming in North Carolina has been and
is expected to continue to be affected by major Federal legislation and
regulatory measures regarding tobacco production and marketing and by
international competition. The tobacco industry remains important to North
Carolina providing approximately 13% of gross agricultural income.
The number of farms has been decreasing; in 1997 there were approximately
57,000 farms in the State, down from approximately 72,000 in 1987 (a decrease of
about 20% in ten years). However, a strong agribusiness sector supports farmers
with farm inputs (agricultural chemicals and fertilizer, farm machinery, and
building supplies) and processing of commodities produced by farmers (vegetable
canning and cigarette manufacturing). North Carolina's agriculture industry,
including food, fiber and forest products, contributes over $45 billion annually
to the State's economy.
The North Carolina Department of Commerce, Travel and Tourism Division,
indicates that travel and tourism is increasingly important to the State's
economy. Travel and tourism's $9.8 billion economic impact in 1996 represents a
6.5% increase over 1995. The North Carolina travel and tourism industry directly
supports 167,100 jobs or 4.7% of total non-agricultural employment.
Bond Ratings. Currently, Moody's rates North Carolina general obligation
bonds as Aaa and Standard & Poor's rates such bonds as AAA. Standard & Poor's
also reaffirmed its stable outlook for the State in June 1996. Standard & Poor's
reports that North Carolina's rating reflects the State's strong economic
characteristics, sound financial performance, and low debt levels.
The Sponsor believes the information summarized above describes some of
the more significant events relating to the North Carolina Trust. The sources of
this information are the official statements of issuers located in North
Carolina, State agencies, publicly available documents, publications of rating
agencies and statements by, or news reports of statements by State officials and
employees and by rating agencies. The Sponsor and its counsel have not
independently verified any of the information contained in the official
statements and other sources and counsel have not expressed any opinion
regarding the completeness or materiality of any matters contained in this
Prospectus other than the tax opinion in Prospectus Part I.
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>
<CAPTION>
NEW YORK
MONTHLY
ESTIMATED ESTIMATED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
September 1998 - June 2021 $ 3.84 $ 3.84
July 2021 3.45 $112.93 116.38
August 2021 3.37 20.26 23.63
September 2021 - March 2022 3.37 3.37
April 2022 3.17 161.34 164.51
May 2022 - November 2022 2.70 2.70
December 2022 2.59 95.20 97.79
January 2023 - November 2023 2.31 2.31
December 2023 2.31 16.13 18.44
January 2024 - July 2025 2.31 2.31
August 2025 2.13 145.21 147.34
September 2025 - June 2027 1.71 1.71
July 2027 1.51 161.34 162.85
August 2027 - January 2028 1.04 1.04
February 2028 .85 161.34 162.19
March 2028 - June 2028 .39 .39
July 2028 .32 64.54 64.86
August 2028 - July 2032 .13 .13
August 2032 .07 50.02 50.09
</TABLE>
<TABLE>
<CAPTION>
SEMI-ANNUAL
DISTRIBUTION DATES
(EACH AND ESTIMATED ESTIMATED ESTIMATED
NOVEMBER UNLESS INTEREST PRINCIPAL TOTAL
OTHERWISE SPECIFIED) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
November 1998 $11.63 $ 11.63
May 1999 - May 2021 23.26 23.26
July 2021 $112.93 112.93
August 2021 20.26 20.26
November 2021 20.99 20.99
April 2022 161.34 161.34
May 2022 19.57 19.57
November 2022 16.40 16.40
December 2022 95.20 95.20
May 2023 14.30 14.30
November 2023 14.02 14.02
December 2023 16.13 16.13
May 2024 - May 2025 14.02 14.02
August 2025 145.21 145.21
November 2025 12.03 12.03
May 2026 - May 2027 10.40 10.40
July 2027 161.34 161.34
November 2027 7.50 7.50
February 2028 161.34 161.34
May 2028 4.19 4.19
July 2028 64.54 64.54
November 2028 1.29 1.29
May 2029 - May 2032 .85 .85
August 2032 .36 50.02 50.38
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA
MONTHLY
ESTIMATED ESTIMATED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
September 1998 - February 2008 $ 3.84 $ 3.84
March 2008 3.73 $ 83.08 86.81
April 2008 - August 2021 3.48 3.48
September 2021 3.24 199.40 202.64
October 2021 - November 2021 2.68 2.68
December 2021 2.68 49.85 52.53
January 2022 - November 2022 2.68 2.68
December 2022 2.40 83.09 85.49
January 2023 2.35 2.35
February 2023 1.79 166.16 167.95
March 2023 - August 2025 1.68 1.68
September 2025 1.58 83.09 84.67
October 2025 - December 2025 1.34 1.34
January 2026 1.13 166.17 167.30
February 2026 - November 2027 .64 .64
December 2027 .05 166.16 166.21
</TABLE>
<TABLE>
<CAPTION>
SEMI-ANNUAL
DISTRIBUTION DATES
(EACH JULY AND ESTIMATED ESTIMATED ESTIMATED
JANUARY UNLESS INTEREST PRINCIPAL TOTAL
OTHERWISE SPECIFIED) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
January 1999 $19.37 $ 19.37
July 1999 - January 2008 23.25 23.25
March 2008 $ 83.08 83.08
July 2008 21.72 21.72
January 2009 - July 2021 21.12 21.12
September 2021 199.40 199.40
December 2021 49.85 49.85
January 2022 17.63 17.63
July 2022 16.27 16.27
December 2022 83.09 83.09
January 2023 15.65 15.65
February 2023 166.16 166.16
July 2023 10.29 10.29
January 2024 - July 2025 10.18 10.18
September 2025 83.09 83.09
January 2026 8.51 166.17 174.68
July 2026 - July 2027 3.89 3.89
December 2027 2.65 166.16 168.81
</TABLE>
<TABLE>
<CAPTION>
NORTHCAROLINA
MONTHLY
ESTIMATED ESTIMATED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
September 1998 - April 2007 $ 3.78 $ 3.78
May 2007 3.56 $170.81 174.37
June 2007 - November 2008 3.05 3.05
December 2008 2.90 122.01 124.91
January 2009 - August 2009 2.54 2.54
September 2009 2.38 122.01 124.39
October 2009 - December 2009 2.03 2.03
January 2010 1.87 122.01 123.88
February 2010 - June 2014 1.50 1.50
July 2014 1.50 48.81 50.31
August 2014 - May 2017 1.50 1.50
June 2017 1.42 70.76 72.18
July 2017 - November 2017 1.22 1.22
December 2017 1.07 122.01 123.08
January 2018 - January 2022 .73 .73
February 2022 .31 122.01 122.32
March 2022 - November 2024 .22 .22
December 2024 .13 75.65 75.78
</TABLE>
<TABLE>
<CAPTION>
SEMI-ANNUAL
DISTRIBUTION DATES
(EACH NOVEMBER AND ESTIMATED ESTIMATED ESTIMATED
MAY UNLESS INTEREST PRINCIPAL TOTAL
OTHERWISE SPECIFIED) DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C>
November 1998 $11.47 $ 11.47
May 1999 - November 2006 22.95 22.95
May 2007 22.73 $170.81 193.54
November 2007 - November 2008 18.56 18.56
December 2008 122.01 122.01
May 2009 15.80 15.80
September 2009 122.01 122.01
November 2009 14.26 14.26
January 2010 122.01 122.01
May 2010 10.08 10.08
November 2010 - May 2014 9.17 9.17
July 2014 48.81 48.81
November 2014 - May 2017 9.17 9.17
June 2017 70.76 70.76
November 2017 7.67 7.67
December 2017 122.01 122.01
May 2018 4.83 4.83
November 2018 - November 2021 4.48 4.48
February 2022 122.01 122.01
May 2022 2.53 2.53
November 2022 - November 2024 1.43 1.43
December 2024 .14 75.65 75.79
</TABLE>
S-1
CONTENTS OF REGISTRATION STATEMENT
This Amendment of Registration Statement comprises the following papers
and documents: The facing sheet and the Cross-Reference sheet The Prospectus and
the signatures The consents of independent public accountants, ratings services
and legal counsel
The following exhibits:
1.1 Copy of Trust Agreement.
1.4 Copy of municipal bond insurance policy (if applicable).
1.5 Form of Master Agreement Among Underwriters. Reference is made to
Exhibit 1.5 to the Registration Statement on Form S-6 for Insured
Municipals Income Trust, 228th Insured Multi-Series (File No.
333-36891) as filed on January 29, 1998.
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to the Federal and Pennsylvania income tax
status of securities being registered.
3.3 Opinion and consent of counsel as to New York income tax status of
the Fund under New York law.
3.4 Opinion and consent of counsel as to income tax status to North
Carolina residents of Units of the North Carolina Quality Trust.
4.1 Consent of Interactive Data Corporation.
4.2 Consent of Standard & Poor's with respect to the Insured Trusts.
4.3 Consent of Grant Thornton LLP.
EX-27 Financial Data Schedules.
SIGNATURES
The Registrant, Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 304, hereby identifies Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 300, Multi Series
189 and Multi-Series 213 for purposes of the representations required by Rule
487 and represents the following: (1) that the portfolio securities deposited in
the series as to the securities of which this Registration Statement is being
filed do not differ materially in type or quality from those deposited in such
previous series; (2) that, except to the extent necessary to identify the
specific portfolio securities deposited in, and to provide essential financial
information for, the series with respect to the securities of which this
Registration Statement is being filed, this Registration Statement does not
contain disclosures that differ in any material respect from those contained in
the registration statements for such previous series as to which the effective
date was determined by the Commission or the staff; and (3) that it has complied
with Rule 460 under the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 304 has duly caused this Amendment to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago and State of Illinois on the 5th day of
August, 1998.
INSURED MUNICIPALS INCOME TRUST AND INVESTORS'
QUALITY TAX-EXEMPT TRUST, MULTI-SERIES 304
By GINA M. COSTELLO
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below on August 5, 1998 by the
following persons who constitute a majority of the Board of Directors of Van
Kampen Funds Inc.
SIGNATURE TITLE
Don G. Powell Chairman and Chief Executive )
Officer )
John H. Zimmerman President and Chief Operating)
Officer )
Ronald A. Nyberg Executive Vice President and )
General Counsel )
William R. Rybak Executive Vice President and )
Chief Financial Officer )
GINA M. COSTELLO
(Attorney-in-fact*)
- -------------------------------------------------------------------------------
*An executed copy of each of the related powers of attorney was filed with
the Securities and Exchange Commission in connection with the Registration
Statement on Form S-6 of Van Kampen American Capital Equity Opportunity Trust,
Series 64 (File No. 333-33087) and Van Kampen American Capital Equity
Opportunity Trust, Series 87 (File No. 333-44581) and the same are hereby
incorporated herein by this reference.
EXHIBIT 1.1
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 304
TRUST AGREEMENT
Dated: August 5, 1998
This Trust Agreement between Van Kampen Funds Inc., as Depositor,
American Portfolio Evaluation Services, a division of Van Kampen Investment
Advisory Corp., as Evaluator, and The Bank of New York, as Trustee, sets forth
certain provisions in full and incorporates other provisions by reference to the
document entitled "Standard Terms and Conditions of Trust For Van Kampen Funds
Inc. Tax-Exempt Trust, Dated March 16, 1995" (herein called the "Standard Terms
and Conditions of Trust"), and such provisions as are set forth in full and such
provisions as are incorporated by reference constitute a single instrument. All
references herein to Articles and Sections are to Articles and Sections of the
Standard Terms and Conditions of Trust.
WITNESSETH THAT:
In consideration of the premises and of the mutual agreements herein
contained, the Depositor and the Trustee agree as follows:
PART I
STANDARD TERMS AND CONDITIONS OF TRUST
Subject to the provisions of Part II hereof, all the provisions
contained in the Standard Terms and Conditions of Trust are herein incorporated
by reference in their entirety and shall be deemed to be a part of this
instrument as fully and to the same extent as though said provisions had been
set forth in full in this instrument.
PART II
SPECIAL TERMS AND CONDITIONS OF TRUST
The following special terms and conditions are hereby agreed to:
(a) The Bonds defined in Section 1.01(4), listed in the
Schedules hereto, have been deposited in the Trusts under this Trust
Agreement.
(b) The fractional undivided interest in and ownership of the
various Trusts represented by each Unit thereof is a fractional amount,
the numerator of which is one and the denominator of which is the
amount set forth under "Summary of Essential Financial
Information__Number of Units" in the related Prospectus Part I.
(c) The approximate amounts, if any, which the Trustee shall
be required to advance out of its own funds and cause to be paid to the
Depositor pursuant to Section 3.05 shall be the amount per Unit that
the Trustee agreed to reduce its fee or pay Trust expenses set forth in
the footnotes in the related Prospectus Part I times the number of
units in such Trust referred to in Part II (b) of this Trust Agreement.
(d) The First General Record Date and the amount of the
second distribution of funds from the Interest Account of each Trust
shall be the record date for the Interest Account and the amount set
forth under "Summary of Essential Financial Information-Estimated
Distributions - Initial Distribution" in the related Prospectus Part I.
(e) The First Settlement Date shall be the date set forth in
the footnotes to the "Summary of Essential Financial Information" in
the related Prospectus Part I.
(f) Any monies held to purchase "when issued" bonds will be
held in noninterest bearing accounts.
(g) The Evaluation Time for purpose of sale, purchase or
redemption of Units shall be the close of the New York Stock Exchange.
(h) As set forth in Section 3.05, the Record Dates and
Distribution Dates for each Trust are those dates set forth under
"Summary of Essential Financial Information - Estimated Distributions"
in the related Prospectus Part I.
(i) As set forth in Section 3.15, the Evaluator's Annual
Supervisory Fee shall be that amount set forth in "Summary of Essential
Financial Information-Expenses-Evaluator's Supervisory Fee" in
Prospectus Part I.
(j) As set forth in Section 4.03, the Evaluator's Annual
Evaluation Fee shall be that amount, and computed on that basis, set
forth in "Summary of Essential Financial
Information-Expenses-Evaluator's Evaluation Fee" in the related
Prospectus Part I
(k) The Trustee's annual compensation as set forth under
Section 6.04, under each distribution plan shall be that amount as
specified in the related Prospectus Part I under the section entitled
"Summary of Essential Financial Information-Expenses-Trustee's Fee" and
will include a fee to induce the Trustee to advance funds to meet
scheduled distributions.
(l) The sixth paragraph of Section 3.05 is hereby revoked and
replaced by the following paragraph:
Unitholders desiring to receive semi-annual distributions and who
purchase their Units prior to the Record Date for the second distribution under
the monthly plan of distribution may elect at the time of purchase to receive
distributions on a semi-annual basis by notice to the Trustee. Such notice shall
be effective with respect to subsequent distributions until changed by further
notice to the Trustee. Unitholders desiring to receive semi-annual distributions
and who purchase their Units prior to the Record Date for the first distribution
may elect at the time of purchase to receive distributions on a semi-annual
basis by notice to the Trustee. Such notice shall be effective with respect to
subsequent distributions until changed by further notice to the Trustee. Changes
in the plan of distribution will become effective as of opening of business on
the day after the next succeeding semi-annual Record Date and such distributions
will continue until further notice.
(m) Sections 8.02(d) and 8.02(e) are hereby revoked and replaced with
the following:
(d) distribute to each Unitholder of such Trust such
holder's pro rata share of the balance of the Interest Account
of such Trust;
(e) distribute to each Unitholder of such Trust such
holder's pro rata share of the balance of the Principal
Account of such Trust; and
(n) Section 1.01(1) and (3) shall be replaced in their entirety by the
following:
(1) "Depositor" shall mean Van Kampen Funds Inc. and
its successors in interest, or any successor depositor
appointed as hereinafter provided.
(3) "Evaluator" shall mean American Portfolio
Evaluation Services (a division of Van Kampen Investment
Advisory Corp.) and its successors in interest, or any
successor evaluator appointed as hereinafter provided.
August 4, 1998
IN WITNESS WHEREOF, the undersigned have caused this Trust Agreement to
be executed and their corporate seals to be hereto affixed and attested; all as
of the day, month and year first above written.
VAN KAMPEN FUNDS INC.
By JAMES J. BOYNE
Vice President
(SEAL)
Attest:
By NICOLAUS DALMASO
Assistant Secretary
AMERICAN PORTFOLIO EVALUATION SERVICE, a
division of Van Kampen Investment Advisory Corp.
By James J. Boyne
Vice President
(SEAL)
Attest:
By NICOLAUS DALMASO
Assistant Secretary
THE BANK OF NEW YORK
By JEFFREY COHEN
Vice President
(SEAL)
Attest:
By ROBERT WEIR
Assistant Treasurer
SCHEDULES TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 304
(Note: Incorporated herein and made a part hereof as indicated below
are the corresponding "Portfolio" of each of the Trusts as set forth in the
related Prospectus Part I.)
EXHIBIT 3.1
CHAPMAN AND CUTLER
111 West Monroe Street
Chicago, Illinois 60603
August 5, 1998
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Insured Municipals Income Trust and Investors' Quality
TAX-EXEMPT TRUST, MULTI-SERIES 304
Gentlemen:
We have served as counsel for Van Kampen Funds Inc., Sponsor and
Depositor of Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 304 (hereinafter referred to as the "Fund"), in connection
with the preparation, execution and delivery of a Trust Agreement dated August
5, 1998 between Van Kampen Funds Inc., as Depositor, American Portfolio
Evaluation Services, a division of Van Kampen Investment Advisory Corp., as
Evaluator, and The Bank of New York, as Trustee, pursuant to which the Depositor
has delivered to and deposited Bonds listed in the Schedules to the Trust
Agreement with the Trustee and pursuant to which the Trustee has issued to or on
the order of the Depositor a certificate or certificates representing Units of
fractional undivided interest in and ownership of the several Trusts of said
Fund (hereinafter referred to as the "Units") created under said Trust
Agreement.
In connection therewith, we have examined such pertinent records and
documents and matters of law as we have deemed necessary in order to enable us
to express the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
1. The execution and delivery of the Trust Agreement and the
execution and issuance of certificates evidencing the Units in the
several Trusts of the Fund have been duly authorized; and
2. The certificates evidencing the Units in the several
Trusts of the Fund when duly executed and delivered by the Depositor
and the Trustee in accordance with the aforementioned Trust Agreement,
will constitute valid and binding obligations of such Trusts and the
Depositor in accordance with the terms thereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (File No. 333-45165) relating to the Units referred to
above and to the use of our name and to the reference to our firm in said
Registration Statement and in the related Prospectus.
Respectfully submitted,
CHAPMAN AND CUTLER
EXHIBIT 3.2
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
August 5, 1998
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York
Unit Investment Trust Division
101 Barclay Street
New York, New York 10286
Re: Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 304
----------------------------------------------
Gentlemen:
We have acted as counsel for Van Kampen Funds Inc., Depositor of
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304 (the "Fund"), in connection with the issuance of Units of
fractional undivided interest in the several Trusts of said Fund under a Trust
Agreement dated August 5, 1998 (the "Indenture") between Van Kampen Funds Inc.,
as Depositor, American Portfolio Evaluation Services, a division of Van Kampen
Investment Advisory Corp., as Evaluator, and The Bank of New York, as Trustee.
In this connection, we have examined the Registration Statement, the
form of Prospectus proposed to be filed with the Securities and Exchange
Commission, the Indenture and such other instruments and documents as we have
deemed pertinent. For purposes of the following opinions, it is assumed that
each asset of the Trusts is debt, the interest on which is excluded from gross
income for federal income tax purposes.
Based upon the foregoing and upon an investigation of such matters of
law as we consider to be applicable, we are of the opinion that, under existing
Federal income tax law:
(i) Each Trust is not an association taxable as a corporation but will
be governed by the provisions of subchapter J (relating to trusts) of Chapter 1,
Internal Revenue Code of 1986 (the "Code").
(ii) Each Unitholder will be considered as owning a pro rata share of
each asset of the respective Trust in the proportion that the number of Units of
such Trust held by him bears to the total number of Units outstanding of such
Trust. Under Subpart E, Subchapter J of Chapter 1 of the Code, income of each
Trust will be treated as income of each Unitholder of the respective Trust in
the proportion described, and an item of Trust income will have the same
character in the hands of a Unitholder as it would have in the hands of the
Trustee. Accordingly, to the extent that the income of a Trust consists of
interest and original issue discount excludable from gross income under Section
103 of the Code, such income will be excludable from Federal gross income of the
Unitholders, except in the case of a Unitholder who is a substantial user (or a
person related to such user) of a facility financed through issuance of any
industrial development bonds or certain private activity bonds held by the
respective Trust. In the case of such Unitholder who is a substantial user (and
no other) interest received with respect to his Units attributable to such
industrial development bonds or such private activity bonds is includable in his
gross income. In the case of certain corporations, interest on the Bonds is
included in computing the alternative minimum tax pursuant to Section 56(c) of
the Code and the branch profits tax imposed by Section 884 of the Code with
respect to U.S. branches of foreign corporations.
(iii) Gain or loss will be recognized to a Unitholder upon redemption
or sale of his Units. Such gain or loss is measured by comparing the proceeds of
such redemption or sale with the adjusted basis of the Units. 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. Accordingly, 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. In addition, such basis will
be increased by the Unitholder's aliquot share of the accrued original issue
discount (and market discount, if the Unitholder elects to include market
discount in income as it accrues) with respect to each Bond held by the Trust
with respect to which there was original issue discount at the time the Bond was
issued (or which was purchased with market discount) and reduced by the annual
amortization of bond premium, if any, on Bonds held by the Trust.
(iv) If the Trustee disposes of a Trust asset (whether by sale, payment
on maturity, redemption or otherwise) gain or loss is recognized to the
Unitholder and the amount thereof is measured by comparing the Unitholder's
aliquot share of the total proceeds from the transaction with his basis for his
fractional interest in the asset disposed of. Such basis is ascertained by
apportioning the tax basis for his Units among each of the Trust assets (as of
the date on which his Units were acquired) ratably according to their values as
of the valuation date nearest the date on which he purchased such Units. A
Unitholder's basis in his Units and of his fractional interest in each Trust
asset must be reduced by the amount of his aliquot share of accrued interest
received by the Trust, if any, on Bonds delivered after the Unitholders pay for
their Units to the extent that such interest accrued on the 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), must be reduced
by the annual amortization of bond premium, if any, on Bonds held by the Trust
and must be increased by the Unitholder's share of the accrued original issue
discount (and market discount, if the Unitholder elects to include market
discount in income as it accrues) with respect to each Bond which, at the time
the Bond was issued, had original issue discount (or which was purchased with
market discount).
(v) In the case of any Bond held by the Trust where the "stated
redemption price at maturity" exceeds the "issue price", such excess shall be
original issue discount. With respect to each Unitholder, upon the purchase of
his Units subsequent to the original issuance of Bonds held by the Trust,
Section 1272(a)(7) of the Code provides for a reduction in the accrued "daily
portion" of such original issue discount upon the purchase of a Bond subsequent
to the Bond's original issue, under certain circumstances. In the case of any
Bond held by the Trust the interest on which is excludable from gross income
under Section 103 of the Code, any original issue discount which accrues with
respect thereto will be treated as interest which is excludable from gross
income under Section 103 of the Code.
(vi) We have examined the Municipal Bond Unit Investment Trust
Insurance policies, if any, issued to certain of the Trusts on the Date of
Deposit by AMBAC Assurance Corporation, Financial Guaranty Insurance Corporation
or a combination thereof. Each such policy, or a combination of such policies,
insures all bonds held by the Trustee for that particular Trust (other than
bonds described in paragraph (vii)) against default in the prompt payment of
principal and interest. In our opinion, any amount paid under each said policy,
or a combination of said policies, which represents 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 so excludable if
paid in normal course of business by the respective 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. Paragraph (ii) of this opinion is accordingly applicable
to insurance proceeds representing maturing interest.
(vii) Certain bonds in the portfolios of certain of the Insured Trusts
have been insured by the issuers thereof against default in the prompt payment
of principal and interest (the "Insured Bonds"). Insurance has been obtained for
such Insured Bonds, or, in the case of a commitment, the Bonds will be
ultimately insured under the terms of such an insurance policy, which are
designated as issuer Insured Bonds on the portfolio pages of the respective
Trusts in the prospectus for the Fund, by the issuer of such Insured Bonds.
Insurance on Insured Bonds is effective so long as such Insured Bonds remain
outstanding. For each of these Insured Bonds, we have been advised that the
aggregate principal amount of such Insured Bonds listed on the portfolio page
for the respective Trust was acquired by the applicable Trust and are part of
the series of such Insured Bonds listed in the aggregate principal amount. Based
upon the assumption that the Insured Bonds of the Trust are part of the series
covered by an insurance policy or, in the case of a commitment, will be
ultimately insured under the terms of such an insurance policy, it is our
opinion that any amounts received by the applicable Trust representing maturing
interest on such Insured Bonds will be excludable from federal gross income if,
and to the same extent as, such interest would have been so excludable if paid
in normal course by the Issuer 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 Insured Bonds,
rather than the insurer, will pay debt service on the Insured Bonds. Paragraph
(ii) of this opinion is accordingly applicable to such payment.
Because the Trusts do not include any "private activity" bonds within
the meaning of Section 141 of the Code issued on or after August 8, 1986, none
of the Trust Funds' interest income shall be treated as an item of tax
preference when computing the alternative minimum tax. In the case of
corporations, for taxable years beginning after December 31, 1986, the
alternative minimum tax depends upon the corporation's alternative minimum
taxable income ("AMTI") which is the corporation's taxable income with certain
adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items used
in computing AMTI of a corporation (other than an S corporation, Regulated
Investment Company, Real Estate Investment Trust or REMIC or FASIT) for taxable
years beginning after 1989, is an amount equal to 75% of the excess of such
corporation's "adjusted current earnings" over an amount equal to its AMTI
(before such adjustment item and the alternative tax net operating loss
deduction). "Adjusted current earnings" includes all tax-exempt interest,
including interest on all Bonds in the Trust, and tax-exempt original issue
discount.
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"). 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.
Effective for tax returns filed after December 31, 1987, all taxpayers
are required to disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 265 of the Code provides for a reduction in each taxable year
of 100 percent of the otherwise deductible interest on indebtedness incurred or
continued by financial institutions, to which either Section 585 or Section 593
of the Code applies, to purchase or carry obligations acquired after August 7,
1986, the interest on which is exempt from Federal income taxes for such taxable
year. Under rules prescribed by Section 265, the amount of interest otherwise
deductible by such financial institutions in any taxable year which is deemed to
be attributable to tax-exempt obligations acquired after August 7, 1986, will
generally be the amount that bears the same ratio to the interest deduction
otherwise allowable (determined without regard to Section 265) to the taxpayer
for the taxable year as the taxpayer's average adjusted basis (within the
meaning of Section 1016) of tax-exempt obligations acquired after August 7,
1986, bears to such average adjusted basis for all assets of the taxpayer.
We also call attention to the fact that, under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units is not
deductible for Federal income tax purposes. Under rules used by the Internal
Revenue Service for determining when borrowed funds are considered used for the
purpose of purchasing or carrying particular assets, the purchase of Units may
be considered to have been made with borrowed funds even though the borrowed
funds are not directly traceable to the purchase of Units. However, these rules
generally do not apply to interest paid on indebtedness incurred for
expenditures of a personal nature such as a mortgage incurred to purchase or
improve a personal residence.
"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.
We have examined certain laws of the State of Pennsylvania (the
"State") to determine their applicability to the Pennsylvania IM-IT Trust (the
"Pennsvylania Trust") and to the holders of Units in the Pennsylvania Trust who
are residents of the State of Pennsylvania (the "Unitholders"). The assets of
the Pennsylvania Trust will consist of interest-bearing obligations issued by or
on behalf of the State, any public authority, commission, board or other agency
created by the State or a political subdivision of the State, or political
subdivisions thereof (the "Bonds"). Distributions of income with respect to the
Bonds received by the Pennsylvania Trust will be made monthly.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued by the State or its municipalities, as the case may be, (ii) the interest
thereon is excludable from gross income for federal income tax purposes, (iii)
the interest thereon is exempt from Pennsylvania State and local taxes and (iv)
the Bonds are exempt from county personal property taxes. This opinion does not
address the taxation of persons other than full-time residents of Pennsylvania.
Based on the foregoing, and review and consideration of existing State
laws as of this date, it is our opinion, and we herewith advise you, as follows:
(1) The Pennsylvania Trust will have no tax liability for purposes of
the personal income tax (the "Personal Income Tax"), the corporate income tax
(the "Corporate Income Tax") and the capital stock-franchise tax (the
`"Franchise Tax"), all of which are imposed under the Pennsylvania Tax Reform
Code of 1971, or the Philadelphia School District Investment Net Income Tax (the
"Philadelphia School Tax") imposed under Section 19-1804 of the Philadelphia
Code of Ordinances.
(2) Interest on the Bonds, net of Pennsylvania Trust expenses, which is
exempt from the Personal Income Tax when received by the Pennsylvania Trust and
which would be exempt from such tax if received directly by a Unitholder, will
retain its status as exempt from such tax when received by the Pennsylvania
Trust and distributed to such Unitholder. Interest on the Bonds which is exempt
from the Corporate Income Tax and the Philadelphia School Tax when received by
the Pennsylvania Trust and which would be exempt from such taxes if received
directly by a Unitholder, will retain its status as exempt from such taxes when
received by the Pennsylvania Trust and distributed to such Unitholder.
(3) Distributions from the Pennsylvania Trust attributable to capital
gains recognized by the Pennsylvania Trust upon its disposition of a Bond issued
on or after February 1, 1994, will be taxable for purposes of the Personal
Income Tax and the Corporate Income Tax. No opinion is expressed with respect to
the taxation of distributions from the Pennsylvania Trust attributable to
capital gains recognized by the Pennsylvania Trust upon its disposition of a
Bond issued before February 1, 1994.
(4) Distributions from the Pennsylvania Trust attributable to capital
gains recognized by the Pennsylvania Trust upon its disposition of a Bond will
be exempt from the Philadelphia School Tax if the Bond was held by the
Pennsylvania Trust for a period of more than six months and the Unitholder held
his Unit for more than six months before the disposition of the Bond. If,
however, the Bond was held by the Pennsylvania Trust or the Unit was held by the
Unitholder for a period of less than six months, then distributions from the
Pennsylvania Trust attributable to capital gains recognized by the Pennsylvania
Trust upon its disposition of a Bond issued on or after February 1, 1994 will be
taxable for purposes of the Philadelphia School Tax; no opinion is expressed
with respect to the taxation of any such gains attributable to Bonds issued
before February 1, 1994.
(5) Insurance proceeds paid under policies which represent maturing
interest on defaulted obligations will be exempt from the Corporate Income Tax
to the same extent as such amounts are excluded from gross income for federal
income tax purposes. No opinion is expressed with respect to whether such
insurance proceeds are exempt from the Personal Income Tax or the Philadelphia
School Tax.
(6) Each Unitholder will recognize gain for purposes of the Corporate
Income Tax if the Unitholder redeems or sells Units of the Pennsylvania Trust to
the extent that such a transaction results in a recognized gain to such
Unitholder for federal income tax purposes and such gain is attributable to
Bonds issued on or after February 1, 1994. No opinion is expressed with respect
to the taxation of gains realized by a Unitholder on the sale or redemption of a
Unit to the extent such gain is attributable to Bonds issued prior to February
1, 1994.
(7) A Unitholder's gain on the sale or redemption of a Unit will be
subject to the Personal Income Tax, except that no opinion is expressed with
respect to the taxation of any such gain to the extent it is attributable to
Bonds issued prior to February 1, 1994.
(8) A Unitholder's gain upon a redemption or sale of Units will be
exempt from the Philadelphia School Tax if the Unitholder held his Unit for more
than six months and the gain is attributable to Bonds held by the Pennsylvania
Trust for a period of more than six months. If, however, the Unit was held by
the Unitholder for less than six months or the gain is attributable to Bonds
held by the Pennsylvania Trust for a period of less than six months, then the
gains will be subject to the Philadelphia School Tax; except that no opinion is
expressed with respect to the taxation of any such gains attributable to Bonds
issued before February 1, 1994.
(9) The Bonds will not be subject to taxation under the County Personal
Property Tax Act of June 17, 1913 (the "Personal Property Tax"). Personal
property taxes in Pennsylvania are imposed and administered locally, and thus no
assurance can be given as to whether Units will be subject to the Personal
Property Tax in a particular jurisdiction. However, in our opinion, Units should
not be subject to the Personal Property Tax.
Unitholders should be aware that, generally, interest on indebtedness
incurred or continued to purchase or carry Units is not deductible for purposes
of the Personal Income Tax, the Corporate Income Tax or the Philadelphia School
Tax.
We have not examined any of the Bonds to be deposited and held in the
Pennsylvania Trust or the proceedings for the issuance thereof or the opinions
of bond counsel with respect thereto, and therefore express no opinion as to the
exemption from federal or state income taxation of interest on the Bonds if
interest thereon had been received directly by a Unitholder.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provision of Pennsylvania law. Ownership of the Units may result
in collateral Pennsylvania tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any such
collateral consequences.
Very truly yours,
CHAPMAN AND CUTLER
EXHIBIT 3.3
WINSTON & STRAWN
200 Park Avenue
New York, New York 10166-4193
August 5, 1998
The Bank of New York,
As Trustee of Insured Municipals
Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 304
101 Barclay Street, 17 West
New York, New York 10286
Dear Sirs:
We have acted as special counsel for the Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 304 (the "Fund")
consisting of New York Insured Municipals Income Trust, Series 146, Pennsylvania
Insured Municipals Income Trust, Series 237, and North Carolina Investors'
Quality Tax-Exempt Trust, Series 95 (in the aggregate "Trusts" and individually
"Trust") for the purposes of determining the applicability of certain New York
taxes under the circumstances hereinafter described.
The Fund is created pursuant to a Trust Agreement (the "Indenture"),
dated as of today (the "Date of Deposit") among Van Kampen Funds Inc. (the
"Depositor"), American Portfolio Evaluation Services, a division of Van Kampen
Investment Advisory Corp., an affiliate of the Depositor, as Evaluator, and The
Bank of New York as Trustee (the "Trustee"). As described in the prospectus
relating to the Fund dated today to be filed as an amendment to a registration
statement previously filed with the Securities and Exchange Commission (File No.
333-45165) under the Securities Act of 1933, as amended (the "Prospectus" and
the "Registration Statement"), the objectives of the Fund are the generation of
income exempt from Federal taxation and as regards each of the Trusts
denominated with the name of a State exempt, to the extent indicated in the
Prospectus, from income tax, if any, of that State. No opinion is expressed
herein with regard to the Federal or State tax aspects (other than New York) of
the bonds, the Fund, the Trusts, units of each Trust (the "Units"), or any
interest, gains or losses in respect thereof.
As more fully set forth in the Indenture and in the Prospectus, the
activities of the Trustee will include the following:
On the Date of Deposit, the Depositor will deposit with the Trustee
with respect to each of the Trusts, the total principal amount of interest
bearing obligations and/or contracts for the purchase thereof together with an
irrevocable letter of credit in the amount required for the purchase price and
accrued interest, if any, and an insurance policy purchased by the Depositor
evidencing the insurance guaranteeing the timely payment of principal and
interest of the obligations comprising the corpus of such Trusts other than
those obligations the timely payment of principal and interest of which are
guaranteed by an insurance policy purchased by the issuer thereof or a prior
owner, which may be the Depositor prior to the Date of Deposit, as more fully
set forth in the Prospectus and the Registration Statement.
We understand with respect to the obligations described in the
preceding paragraph that all insurance, whether purchased by the Depositor, a
prior owner or the issuer, provides, or will provide, that the amount paid by
the insurer in respect of any bond may not exceed the amount of principal and
interest due on the bond and such payment will in no event relieve the issuer
from its continuing obligation to pay such defaulted principal and interest in
accordance with the terms of the obligation.
The Trustee will not participate in the selection of the obligations to
be deposited in the Fund, and, upon the receipt thereof, will deliver to the
Depositor a registered certificate for the number of Units representing the
entire capital of each of the Trusts as more fully set forth in the Prospectus
and the Registration Statement. The Units, which are represented by certificates
("Certificates"), will be offered to the public by the Prospectus upon the
effectiveness of the Registration Statement.
The duties of the Trustee, which are ministerial in nature, will
consist primarily of crediting the appropriate accounts with interest received
by each of the Trusts and with the proceeds from the disposition of obligations
held in each of the Trusts and the distribution of such interest and proceeds to
the Unit holders of that Trust. The Trustee will also maintain records of the
registered holders of Certificates representing an interest in each Trust and
administer the redemption of Units by such Certificate holders and may perform
certain administrative functions with respect to an automatic investment option.
Generally, obligations held in the Fund may be removed therefrom by the
Trustee only upon redemption prior to their stated maturity, at the direction of
the Depositor in the event of an advance refunding or upon the occurrence of
certain other specified events which adversely affect the sound investment
character of the Fund, such as default by the issuer in payment of interest or
principal on the obligation and no provision for payment is made therefor either
pursuant to the portfolio insurance or otherwise and the Depositor fails to
instruct the Trustee, within thirty (30) days after notification, to hold such
obligation.
Prior to the termination of the Fund, the Trustee is empowered to sell
Bonds, from a list furnished by the Evaluator, only for the purpose of redeeming
Units tendered to it and of paying expenses for which funds are not available.
The Trustee does not have the power to vary the investment of any Unit holder in
the Fund, and under no circumstances may the proceeds of sale of any obligations
held by the Fund be used to purchase new obligations to be held therein.
Article 9-A of the New York Tax Law imposes a franchise tax on business
corporations, and, for purposes of that Article, Section 208 defines the term
"corporation" to include, among other things, "any business conducted by a
trustee or trustees wherein interest or ownership is evidenced by certificate or
other written instrument."
The Regulations promulgated under Section 208 provide as follows:
The term "trust" includes any business conducted by a trustee
or trustees in which interest or ownership is evidenced by
certificate or other written instrument. Such a trust
includes, but is not limited to, an association commonly
referred to as a "business trust" or "Massachusetts trust". In
determining whether a trustee or trustees are conducting a
business, the form of the agreement is of significance but is
not controlling. The actual activities of the trustee or
trustees, not their purposes and powers, will be regarded as
decisive factors in determining whether a trust is subject to
tax under Article 9-A. The mere investment of funds and the
collection of income therefrom, with incidental replacement of
securities and reinvestment of funds, does not constitute the
conduct of a business in the case of a trust. 20 NYCRR
1-2.3(b)(2) (July 11, 1990).
New York cases dealing with the question of whether a trust will be
subject to the franchise tax have also delineated the general rule that where a
trustee merely invests funds and collects and distributes the income therefrom,
the trust is not engaged in business and is not subject to the franchise tax.
BURRELL v. LYNCH, 274 A.D. 347, 84 N.Y.S.2d 171 (3rd Dept. 1948), ORDER
RESETTLED, 274 A.D. 1073, 85 N.Y.S.2d 705 (3rd Dept. 1949).
In an opinion of the Attorney General of the State of New York, 47 N.Y.
Att'y. Gen. Rep. 213 (Nov. 24, 1942), it was held that where the trustee of an
unincorporated investment trust was without authority to reinvest amounts
received upon the sales of securities and could dispose of securities making up
the trust only upon the happening of certain specified events or the existence
of certain specified conditions, the trust was not subject to the franchise tax.
In the instant situation, the Trustee is not empowered to, and we
assume will not, sell obligations contained in the corpus of the Fund and
reinvest the proceeds therefrom. Further, the power to sell such obligations is
limited to circumstances in which the creditworthiness or soundness of the
obligation is in question or in which cash is needed to pay redeeming Unit
holders or to pay expenses, or where the Fund is liquidated pursuant to the
termination of the Indenture. Only in circumstances in which the issuer of an
obligation attempts to refinance it can the Trustee exchange an obligation for a
new security. In substance, the Trustee will merely collect and distribute
income and will not reinvest any income or proceeds, and the Trustee has no
power to vary the investment of any Unit holder in the Fund.
Under Subpart E of Part I, Subchapter J of Chapter 1 of the Internal
Revenue Code of 1986, as amended (the "Code"), the grantor of a trust will be
deemed to be the owner of the trust under certain circumstances, and therefore
taxable on his proportionate interest in the income thereof. Where this Federal
tax rule applies, the income attributed to the guarantor will also be income to
him for New York income tax purposes. See TSB-M-78(9)(c), New York Department of
Taxation and Finance, June 23, 1978.
Article 22 (Personal Income Tax) of the New York Tax Law imposes a tax
on a New York State resident individual's State adjusted gross income. Such
amount is defined by Section 612 as his Federal adjusted gross income, with an
addition for interest income on the obligations of a State or political
subdivision of a state other than New York, is excluded from his federal
adjusted gross income. Such amount is defined by Section T46-112 of the
Administrative Code of the City of New York as his Federal adjusted gross
income, with an addition for interest income on the obligations of a state or
political subdivision of a state other than New York, if excluded from his
federal adjusted gross income. 48 U.S.C. Section 745 exempts interest on a bond
issued by the Government of Puerto Rico or a political subdivision thereof from
tax of the United States, of any State, and of any state's county, municipality,
or municipal subdivision thereof. 48 U.S.C. Section 1423a exempts interest on a
bond issued by the Government of Guam or by its authority from taxation by the
United States, any state or political subdivision. The New York Trust holds only
obligations issued by New York State or a political subdivision thereof or by
the Government of Puerto Rico or a political subdivision thereof, or by the
Government of Guam or by its authority.
By letter, dated today, Messrs. Chapman and Cutler, counsel for the
Depositor, rendered their opinion that each Unit holder of a Trust will be
considered as owning a share of each asset of that Trust in the proportion that
the number of Units held by such holder bears to the total number of Units
outstanding and the income of a Trust will be treated as the income of each Unit
holder of that Trust in said proportion pursuant to Subpart E of Part E,
subchapter J of Chapter 1 of the Code.
Based on the foregoing and on the opinion of Messrs. Chapman and
Cutler, counsel for the Depositor, dated today, upon which we specifically rely,
we are of the opinion that under existing laws, rulings and court decisions
interpreting the laws of the State and City of New York.
1. Each of the Trusts will not constitute an association taxable as
a corporation under New York law, and, accordingly, will not be subject to tax
on its income under the New York State franchise tax or the New York City
general corporation tax.
2. The income of each of the Trusts will be treated as the income of
the Unit holders under the income tax laws of the State and City of New York.
3. Resident individuals of New York State and City will not be
subject to the State or City personal income taxes on interest income on their
proportionate shares of interest income earned by a Trust on any obligation of
New York State or a political subdivision thereof or of the Government of Puerto
Rico or a political subdivision thereof or of the Government of Guam or by its
authority, to the extent such income is excludable from Federal gross income
under Code Section 103.
4. Any amounts paid under the insurance policies purchased by the
Depositor and deposited with the Trustee, as more fully described above,
representing maturing interest on defaulted obligations held by the Trustee will
not be subject to New York State or City income taxes if, and to the same extent
as, such amounts would have been excludable from New York State or City income
taxes if paid by the issuer. Paragraph 3 of this opinion is accordingly
applicable to such policy proceeds representing maturing interest.
5. Any amounts paid under an insurance policy purchased by the
issuer of an obligation or a prior owner, as more fully described above,
representing maturing interest on such defaulting obligation held by the Trustee
will not be subject to New York State or City income taxes if, and to the same
extent as, such amounts would have been excludable from New York State or City
income taxes if paid by the issuer. Paragraph 3 of this opinion is accordingly
applicable to such policy proceeds representing maturing interest.
6. Resident individuals of New York State and City who hold Units
will recognize gain or loss, if any, under the State or City personal income tax
law if the Trustee disposes of a Fund asset. The amount of such gain or loss is
measured by comparing the Unit holder's aliquot share of the total proceeds from
the transaction with his basis for his fractional interest in the asset disposed
of. Such basis is ascertained by apportioning the tax basis for his Units among
each of the Trust's assets (as of the date on which his Units were acquired)
ratably according to their values as of the valuation date nearest the date on
which he purchased such Units. A Unit holder's basis in his Units and of his
fractional interest in the Trust's assets must be reduced by the amount of his
aliquot share of interest received by the Trust, if any, on bonds delivered
after the settlement date to the extent that such interest accrued on the Bonds
during the period from the Unit holder's settlement date to the date such Bonds
are delivered to that Trust and must be adjusted for amortization of bond
premium or accretion of original issue discount, if any, on tax-exempt
obligations held by the Trust.
7. Resident individuals of New York State and City who hold Units
will recognize gain or loss, if any, under the State or City personal income tax
law if the Unit holder sells or redeems any Units. Such gain or loss is measured
by comparing the proceeds of such redemption or sale with the adjusted basis of
the Units redeemed or sold. Before adjustment, such basis would normally be cost
if the Unit holder had acquired his Units by purchase, plus his aliquot share of
advances by the Trustee to the Fund to pay interest on Bonds delivered after the
Unit holder's settlement date to the extent that such interest accrued on the
Bonds during the period from the settlement date to the date such Bonds are
delivered to the Fund, but only to the extent that such advances are to be
repaid to the Trustee out of interest received by the Fund with respect to such
Bonds.
8. Unit holders who are not residents of the State of New York are
not subject to the personal income tax law thereof with respect to any interest
or gain derived from a Trust or any gain from the sale or other disposition of
the Units, except to the extent that such interest or gain is from property
employed in a business, trade, profession or occupation carried on in New York
State.
In addition, we are of the opinion that no New York State stock
transfer tax will be payable in respect of any transfer of the Certificates by
reason of the exemption contained in paragraph (a) of Subdivision 8 of Section
270 of the New York Tax Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement relating to the Units and to the use of our name and the
reference to our firm in the Registration Statement and in the Prospectus.
Very truly yours,
WINSTON & STRAWN
EXHIBIT 3.4
HUNTON & WILLIAMS
ONE HANOVER SQUARE, SUITE 1400
FAYETTEVILLE STREET MALL
RALEIGH, NORTH CAROLINA 27601
August 5, 1998
The Bank of New York
through its Wall Street Trust Division
101 Barclay Street
New York, New York 10286
Re: Van Kampen Funds Inc.
Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304,
NORTH CAROLINA INVESTORS' QUALITY TAX-EXEMPT TRUST, SERIES 95
Gentlemen:
We are acting as special North Carolina counsel to the Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series
304 (the "Fund") on North Carolina tax matters relating to North Carolina
Investors' Quality Tax-Exempt Trust, Series 95 (the "North Carolina Trust")
included as part of the Fund. Units of beneficial interest in the North Carolina
Trust (the "Units") are to be sold pursuant to an effective registration
statement on Form S-6 (Registration No. 333-45165) under the Securities Act of
1933 (the "Registration Statement"), filed by Van Kampen Funds Inc. (the
"Sponsor") on behalf of the Fund, covering the Units and other units of the
other trusts described in the Registration Statement. The number of Units to be
sold is stated in the Registration Statement.
The North Carolina Trust is to be established and the Units are to be
created pursuant to a Trust Agreement (the "Trust Agreement"), dated the date
hereof, among the Sponsor and The Bank of New York through its Wall Street Trust
division, as Trustee (the "Trustee"). We understand that the portfolio of the
North Carolina Trust consists of bonds issued by the State of North Carolina or
municipalities, authorities or political subdivisions thereof (the "North
Carolina Bonds") or by territories or possessions of the United States. We have
assumed for the purposes of this opinion that the issuers of bonds other than
North Carolina Bonds will be limited to the Commonwealth of Puerto Rico, the
United States virgin Islands or Guam, or their respective public authorities
(collectively, the "Possession bonds") (the North Carolina Debt Obligations and
the Possession Debt Obligations are sometimes referred to herein as the
"Bonds").
We have examined originals, forms or certified copies, or copies
otherwise identified to our satisfaction, of the Trust Agreement, the
Registration Statement and such other documents as we have deemed necessary for
the purpose of this opinion. We have also relied upon the form of opinion, to be
dated the date hereof and addressed to the Sponsor, of Chapman and Cutler,
counsel to the Sponsor, with respect to the matters of Federal income tax law
set forth therein.
We have also relied on current interpretations of the North Carolina
Department of Revenue regarding the tax consequences resulting from the
inclusion of Possession bonds in the North Carolina Trust. There can be no
assurance that these interpretations will not be changed during the existence of
the North Carolina Trust. These interpretations are:
a. Individual Income Tax Bulletin on the subject of
"Deductions from Federal Taxable Income" located in the publication INDIVIDUAL
INCOME TAX BULLETINS, TAXABLE YEARS 1995 AND 1996, issued by the North Carolina
Department of Revenue effective for tax years 1995 and 1996 (a copy of a
pertinent portion of which is attached hereto as Exhibit A, and which we assume
will remain applicable for subsequent tax years); and
b. Letters dated February 3, 1984, and November 16, 1984 of
the Division of Corporate Income and Franchise Taxation, North Carolina
Department of Revenue (copies of which are attached hereto as Exhibits B-1 and
B-2.
Based upon the foregoing, we are of the opinion that, insofar as the
law of the State of North Carolina is concerned, upon the establishing of the
North Carolina Trust and the issuance of the Units thereunder:
A. The North Carolina Trust is not an "association" taxable
as a corporation under North Carolina law with the result that income
of the North Carolina Trust will be deemed to be income of the Unit
holders.
B. Interest on the Bonds that is exempt from North Carolina
income tax when received by the North Carolina Trust will retain its
tax-exempt status when received by the Unit holders.
C. Unit holders will realize a taxable event when the North
Carolina Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when a Unit holder redeems or
sells his Units (or any of them), and taxable gains for Federal income
tax purposes may result in gains taxable as ordinary income for North
Carolina income tax purposes. However, when a Bond has been issued
under an act of the North Carolina General Assembly that provides that
all income from such Bond, including any profit made from the sale
thereof, shall be free from all taxation by the State of North
Carolina, any such profit received by the North Carolina Trust will
retain its tax-exempt status in the hands of the Unit holders.
D. Unit holders must amortize their proportionate shares of
any premium on a Bond. Amortization for each taxable year is achieved
by lowering the Unit holder's basis (as adjusted) in his Units, with no
deduction against gross income for the year.
In rendering the foregoing opinion we have not passed on or considered,
among other things, the due authorization and delivery of the Bonds or the North
Carolina income tax status of the Bonds or income therefrom.
No opinion is expressed herein as to the effect on the North Carolina
Trust, or on the taxability of the Units or amounts received from the North
Carolina Trust by Unit holders, as a result of the inclusion of Bonds other than
North Carolina Bonds and Possession bonds in the North Carolina Trust.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm in the Registration
Statement under the headings "Tax Status Of The Trust Funds" and "Legal
Opinions."
Very truly yours,
Hunton & Williams
EXHIBIT 4.1
Interactive Data
14 Wall Street
New York, New York 10005
August 4, 1998
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 304 (A Unit Investment Trust)
Registered Under the Securities Act of 1933, File No. 333-45165
- -------------------------------------------------------------------------------
Gentlemen:
We have examined the Registration Statement for the above captioned
Fund, copy of which is attached hereto.
We hereby consent to the reference in the Prospectus and Registration
Statement for the above captioned Fund to Interactive Data Corporation, as the
Evaluator, and to the use of the obligations prepared by us which are referred
to in such Prospectus and Statement.
You are authorized to file copies of this letter with the Securities
and Exchange Commission.
Very truly yours,
James Perry
Vice President
EXHIBIT 4.2
Standard & Poor's
A Division of The McGraw-Hill Corporation
25 Broadway
New York, New York 10004-1064
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, IL 60181
Re: Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 304, consisting of: New York Insured Municipals
Income Trust, Series 146 and Pennsylvania Insured Municipals Income
Truist, Series 237
Pursuant to your request for a Standard & Poor's rating on the units of
the above-captioned trust, SEC #333-45165 we have reviewed the information
presented to us and have assigned a `AAA' rating to the units of the trust and a
`AAA' rating to the securities contained in the trust for as long as they remain
in the trust. The ratings are direct reflections, of the portfolio of the trust,
which will be composed solely of securities covered by bond insurance policies
that insure against default in the payment of principal and interest on the
securities so long as they remain in the trust. Since such policies have been
issued by one or more insurance companies which have been assigned a `AAA'
claims paying ability rating by S&P, S&P has assigned a `AAA' rating to the
units of the trust and to the securities contained in the trust for as long as
they remain in the trust.
Standard & Poor's will maintain surveillance on the "AAA" Rating until
September 5, 1999. On this date, the rating will be automatically withdrawn by
Standard & Poor's unless a post effective letter is requested by the Trust.
You have permission to use the name of Standard & Poor's Corporation
and the above-assigned ratings in connection with your dissemination of
information relating to these units, provided that it is understood that the
ratings are not "market" ratings nor recommendations to buy, hold, or sell the
units of the trust or the securities contained in the trust. Further, it should
be understood the rating on the units does not take into account the extent to
which fund expenses or portfolio asset sales for less than the fund's purchase
price will reduce payment to the unit holders of the interest and principal
required to be paid on the portfolio assets. S&P reserves the right to advise
its own clients, subscribers, and the public of the ratings. S&P relies on the
sponsor and its counsel, accountants, and other experts for the accuracy and
completeness of the information submitted in connection with the ratings. S&P
does not independently verify the truth or accuracy of any such information.
This letter evidences our consent to the use of the name of Standard &
Poor's Corporation in connection with the rating assigned to the units in the
registration statement or prospectus relating to the units or the trust.
However, this letter should not be construed as a consent by us, within the
meaning of Section 7 of the Securities Act of 1933, to the use of the name of
Standard & Poor's Corporation in connection with the ratings assigned to the
securities contained in the trust. You are hereby authorized to file a copy of
this letter with the Securities and Exchange Commission.
Please be certain to send us three copies of your final prospectus as
soon as it becomes available. Should we not receive them within a reasonable
time after the closing or should they not conform to the representations made to
us, we reserve the right to withdraw the rating.
We are pleased to have had the opportunity to be of service to you. If
we can be of further help, please do not hesitate to call upon us.
Sincerely,
Sanford Bragg
EXHIBIT 4.3
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We have issued our report dated August 5, 1998 on the statements of
condition and related bond portfolios of Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust, Multi-Series 304 (New York IM-IT,
Pennsylvania IM-IT and North Carolina Quality Trusts) as of August 5, 1998
contained in the Registration Statement on Form S-6 and in the Prospectus. We
consent to the use of our report in the Registration Statement and in the
Prospectus and to the use of our name as it appears under the caption "Other
Matters-Independent Certified Public Accountants" in Prospectus Part II.
GRANT THORNTON LLP
Chicago, Illinois
August 5, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This report reflects the current time period taken from 487 on August 5, 1998.
It is unaudited
</LEGEND>
<SERIES>
<NUMBER> 146
<NAME> I-NY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-05-1998
<PERIOD-END> AUG-05-1998
<INVESTMENTS-AT-COST> 1,948,602
<INVESTMENTS-AT-VALUE> 1,948,602
<RECEIVABLES> 19,916
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,968,518
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,916
<TOTAL-LIABILITIES> 19,916
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,948,602
<SHARES-COMMON-STOCK> 2,049
<SHARES-COMMON-PRIOR> 0
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<NET-ASSETS> 1,948,602
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<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This report reflects the current time period taken from 487 on August 5, 1998.
It is unaudited
</LEGEND>
<SERIES>
<NUMBER> 237
<NAME> I-PA
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-05-1998
<PERIOD-END> AUG-05-1998
<INVESTMENTS-AT-COST> 2,861,570
<INVESTMENTS-AT-VALUE> 2,861,570
<RECEIVABLES> 25,241
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,886,811
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,241
<TOTAL-LIABILITIES> 25,241
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,861,570
<SHARES-COMMON-STOCK> 3,009
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,861,570
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This report reflects the current time period taken from 487 on August 5, 1998.
It is unaudited
</LEGEND>
<SERIES>
<NUMBER> 95
<NAME> Q-NC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-05-1998
<PERIOD-END> AUG-05-1998
<INVESTMENTS-AT-COST> 1,948,602
<INVESTMENTS-AT-VALUE> 1,948,602
<RECEIVABLES> 19,916
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,968,518
<PAYABLE-FOR-SECURITIES> 0
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<SENIOR-EQUITY> 0
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 0
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<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
