MEMORANDUM OF CHANGES
VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIES 322
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. 333-83355
CIK #1024841
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
AMENDMENT NO. 1
TO
FORM S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact Name of Trust: VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIES 322
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: A. Thomas Smith III, General Counsel
111 West 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
September 16, 1999 at 2:00 p.m. pursuant to Rule 487.
Van Kampen Focus Portfolios (SM)
A Division of Van Kampen Funds Inc.
IM-IT 414
Insured Municipals Income Trust, Series 414 invests in a portfolio of
tax-exempt municipal bonds. The Trust seeks to provide federal tax-exempt income
and to preserve capital. The Trust is a unit investment trust included in Van
Kampen Focus Portfolios, Municipal Series 322.
Monthly Semi-Annual
Distributions Distributions
------------- ------------
Estimated Current Return: 5.26% 5.30%
Estimated Long Term Return: 5.32% 5.36%
CUSIP: 45808S-30-5 45808S-31-3
Estimated current return shows the estimated cash you should receive each
year divided by the unit price. Estimated long term return shows the estimated
return over the estimated life of your Trust. We base this estimate on an
average of the bond yields over their estimated life. This estimate also
reflects the sales charge and estimated expenses. We derive the average yield
for your portfolio by weighting each bond's yield by its value and estimated
life. Unlike estimated current return, estimated long term return accounts for
maturities, discounts and premiums of the bonds. These estimates show a
comparison rather than a prediction of returns. No return calculation can
predict your actual return. Your actual return may vary from these estimates.
Prospectus Part I
September 16, 1999
This prospectus contains two parts.
No one may use this Prospectus Part I unless accompanied by Prospectus Part II.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved of the
Trust units or passed upon the adequacy or accuracy of this prospectus.
Any contrary representation is a criminal offense.
Summary of Essential Financial Information
- ----------------------------------------------------------
General Information
- ----------------------------------------------------------
Date of Deposit September 16, 1999
Principal amount of bonds in Trust $9,060,000
Principal amount of bonds per unit (1) $998.90
Number of units 9,070
Weighted average maturity of bonds 30 years
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
Unit Price
- ----------------------------------------------------------
Aggregate offering price of bonds in Trust $ 8,625,605
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 $ 943.25
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
Portfolio Diversification (% of Par Value)
- ----------------------------------------------------------
Water and Sewer 24%
General Obligation 22
Health Care 22
Higher Education 17
Public Building 15
--------
Total 100%
========
- ----------------------------------------------------------------
Estimated Annual Income Per Unit
- ----------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
------------- -------------
Estimated interest income $ 54.84 $ 54.84
Less estimated expenses (4) $ 2.24 $ 1.80
Less estimated insurance expenses $ -- $ --
Estimated net interest income $ 52.60 $ 53.04
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Expenses
- ----------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
------------- -------------
Sales Charge (% of Unit 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 $ 0.78 $ 0.74
----------- -----------
Total annual expenses per unit $ 2.24 $ 1.80
=========== ===========
- -------------------------------------------------------------------------
Estimated Distributions
- -------------------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
----------------- -----------------
Initial distribution $ 2.77 on $ 11.63 on
October 25, 1999 December 25, 1999
Normal distribution (3) $ 4.38 $ 26.52
Record dates 10th day of December 10 and
each month June 10
Distribution dates 25th day of December 25 and
each month June 25
- --------------------------------------------------------------------------------
(1) Some bonds may mature or be called or sold during your Trust's life. This
could include a call or sale at a price below par value. We cannot
guarantee that the value of your units will equal the principal amount of
bonds per unit when you redeem them or when your Trust terminates.
(2) After the first settlement date (September 21, 1999), you will pay accrued
interest from this date to your settlement date less interest
distributions.
(3) We base this amount on estimated cash flows per unit. This amount will vary
with changes in expenses, interest rates and maturity, call or sale of
bonds. The Information Supplement includes the estimated cash flows.
(4) This shows estimated expenses in the first year other than insurance
expenses.
(5) Your Trust assesses this fee per $1,000 principal amount of bonds. Your
Trust assesses other fees per unit.
<TABLE>
<CAPTION>
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Offering
Aggregate Name of Issuer, Title, Interest Rate and Redemption Price to
Principal Maturity Date of Bonds (1)(2) Rating (3) Feature (4) Trust (2)
- --------------- --------------------------------------------------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 400,000 Utah, Building Ownership Authority, Lease Revenue Bonds, State
Facilities Master Lease Program, Series A (FSA Insured) 2009 @ 100
5.50% Due 05/15/2021 AAA 2015 @ 100 S.F. $ 387,276
1,000,000 Illinois, Educational Facilities Authority, Revenue Refunding
Bonds, Illinois Institute of Technology, Series 1999
(AMBAC Assurance Insured) 2009 @ 100
5.25% Due 12/01/2025 AAA 2020 @ 100 S.F. 918,740
1,000,000 District of Columbia, Refunding General Obligation Bonds,
Series B (FSA Insured) 2008 @ 101
#5.25% Due 06/01/2026 AAA 2022 @ 100 S.F. 915,550
1,000,000 University of Illinois, Health Services Facilities Revenue
Bonds, Series A (AMBAC Assurance Insured) 2007 @ 102
#5.875% Due 10/01/2026 AAA 2019 @ 100 S.F. 1,001,610
1,000,000 Wisconsin Health and Educational Facilities Authority, Revenue
Bonds, Series 1997 (Aurora Health Care, Inc.) MBIA Insured 2007 @ 102
#5.25% Due 08/15/2027 AAA 2018 @ 100 S.F. 912,710
500,000 District of Columbia, Revenue Bonds, Catholic University of
America Project (AMBAC Assurance Insured) 2009 @ 101
#5.625% Due 10/01/2029 AAA 2020 @ 100 S.F. 488,725
1,000,000 Grand Forks, North Dakota, Sales Tax Revenue Bonds (The
Aurora Project) Series 1997A (MBIA Insured) 2007 @ 100
#5.625% Due 12/15/2029 AAA 2017 @ 100 S.F. 978,690
1,160,000 Oklahoma, Mustang Improvement Authority, Utility
Revenue Bonds (FSA Insured) 2009 @ 102
#5.80% Due 10/01/2030 Aaa* 2020 @ 100 S.F. 1,167,424
1,000,000 Chicago, Illinois, Refunding General Obligation Bonds,
Series A (FGIC Insured) 2009 @ 101
#5.375% Due 01/01/2034 AAA 2030 @ 100 S.F. 928,040
1,000,000 Jefferson County, Alabama, Sewer Revenue Bonds, Capital
Improvement, Series A (FGIC Insured) 2009 @ 101
#5.375% Due 02/01/2036 AAA 2034 @ 100 S.F. 926,840
- --------------- ---------------
$ 9,060,000 $ 8,625,605
=============== ===============
- --------------------------------------------------------------------------------
For an explanation of the footnotes used on this page, see "Notes to Portfolio".
</TABLE>
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 September 10,
1999 to September 15, 1999.
(2) Other information regarding the bonds is as follows:
Cost to Profit (Loss)
Sponsor to Sponsor
-------------- ------------
$ 8,562,016 $ 63,589
The breakdown of the preinsured bond insurers is as follows: AMBAC
Assurance 28%, Financial Guaranty 22%, MBIA 22% and FSA 28%.
Approximately 33% of the principal amount of bonds in the Trust are issued
by issuers located in the State of Illinois.
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain bonds. The cost of any such contracts and the
corresponding gain or loss is included in the Cost to Sponsor. Bonds marked
by "##" following the maturity date have been purchased on a "when, as and
if issued" or "delayed delivery" basis. Interest on these bonds begins
accruing to the benefit of Unitholders on their respective dates of
delivery. Delivery is expected to take place at various dates after the
first settlement date.
"#" prior to the coupon rate indicates that the bond was issued at an
original issue discount. See "The Trusts--Risk Factors" in Prospectus Part
II. The tax effect of bonds issued at an original issue discount is
described in "Federal Tax Status" in Prospectus Part II.
(3) All ratings are by Standard & Poor's unless otherwise indicated. "*"
indicates that the rating of the bond is by Moody's. "o" indicates that the
rating is contingent upon receipt by the rating agency of a policy of
insurance obtained by the issuer of the bonds. "N/R" indicates that the
rating service did not provide a rating for that bond. For a brief
description of the ratings see "Description of Ratings" in the Information
Supplement.
(4) This is the year in which each bond is initially or currently callable and
the call price for that year. Each bond continues to be callable at
declining prices thereafter (but not below par value) except for original
issue discount bonds which are redeemable at prices based on the issue
price plus the amount of original issue discount accreted to redemption
date plus, if applicable, some premium, the amount of which will decline in
subsequent years. "S.F." indicates a sinking fund is established with
respect to an issue of bonds. Certain bonds may be subject to redemption
without premium prior to the date shown pursuant to extraordinary optional
or mandatory redemptions if certain events occur. See "The Trusts--Risk
Factors" in Prospectus Part II.
Underwriting. The Underwriters named below have purchased Units in the
following amounts from the Sponsor. 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 6,470
Edward Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 750
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 500
City Securities Corp. 135 N. Pennsylvania Street, Suite 2200, Indianapolis, Indiana 46204 250
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 250
Southwest Securities Inc. 1201 Elm Street, Suite 4300, Dallas, Texas 75270 250
Robert W. Baird & Co. Inc. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 100
Fahnestock & Co., Inc. 110 Wall Street, 8th Floor, New York, New York 10005 100
Gruntal & Company, L.L.C. 1 Liberty Plaza, New York, New York 10006 100
J.J.B. Hilliard, W.L. Lyons, Inc. 501 South Fourth Street, Louisville, Kentucky 40202 100
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
-----
9,070
=====
</TABLE>
Certificates. Notwithstanding anything in Part II of the Prospectus,
ownership of Units is evidenced in book entry form unless a Unitholder makes a
written request to the Trustee that ownership be in certificate form.
Report of Certified Public Accountants
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
IM-IT 414 (included in Van Kampen Focus Portfolios, Municipal Series 322):
We have audited the accompanying statement of condition and the portfolio of
IM-IT 414 (included in Van Kampen Focus Portfolios, Municipal Series 322) as of
September 16, 1999. 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 IM-IT 414 (included in Van
Kampen Focus Portfolios, Municipal Series 322) as of September 16, 1999, in
conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
September 16, 1999
Statement of Condition
As of September 16, 1999
INVESTMENT IN BONDS
Contracts to purchase bonds (1)(2) ............................. $8,625,605
Accrued interest to the first settlement date (1)(2) ........... 142,527
----------
Total .................................................... $8,768,132
==========
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) ............... $ 142,527
Interest of Unitholders--
Cost to investors ........................................ 9,070,000
Less: Gross underwriting commission ...................... 444,395
----------
Net interest to Unitholders (1)(2) ....................... 8,625,605
----------
Total .................................................... $8,768,132
==========
- --------------------------------------------------------------------------------
(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.
Focus on . . .
, Your Prospectus Part I
Summary of Essential Financial Information......2
Portfolio.......................................3
Notes to Portfolio..............................4
Underwriting....................................5
Certificates....................................5
Report of Certified Public Accountants..........6
Statement of Condition..........................6
, Daily Prices
(1) Call our 24-Hour Pricing Line
(800) 953-6785
(1) Visit our Focus Portfolios Internet Pricing Page
http://www.vankampen.com
, Account Questions
(1) Contact the Trustee
(800) 221-7668
, Learning More About Unit Trusts
(1) Contact Van Kampen
(630) 684-6000
(1) Visit our Focus Portfolios Internet Product Page
http://www.vankampen.com
, Additional Information
You may obtain an Information Supplement that
provides more details about your trust and its policies.
(1) Visit the SEC Internet Site
http://www.sec.gov
(1) Contact the Trustee
(800) 221-7668
IMITPRO414
Van Kampen Focus Portfolios (SM)
A Division of Van Kampen Funds Inc.
Prospectus Part I
September 16, 1999
Van Kampen Focus Portfolios, Municipal Series 322
IM-IT 414
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Van Kampen Focus Portfolios (SM)
A Division of Van Kampen Funds Inc.
California IM-IT 182
California Insured Municipals Income Trust, Series 182 invests in a
portfolio of tax-exempt municipal bonds. The Trust seeks to provide federal and
state tax-exempt income and to preserve capital. The Trust is a unit investment
trust included in Van Kampen Focus Portfolios, Municipal Series 322.
Monthly Semi-Annual
Distributions Distributions
------------- ------------
Estimated Current Return: 5.03% 5.07%
Estimated Long Term Return: 5.08% 5.13%
CUSIP: 13033Q-18-9 13033Q-19-7
Estimated current return shows the estimated cash you should receive each
year divided by the unit price. Estimated long term return shows the estimated
return over the estimated life of your Trust. We base this estimate on an
average of the bond yields over their estimated life. This estimate also
reflects the sales charge and estimated expenses. We derive the average yield
for your portfolio by weighting each bond's yield by its value and estimated
life. Unlike estimated current return, estimated long term return accounts for
maturities, discounts and premiums of the bonds. These estimates show a
comparison rather than a prediction of returns. No return calculation can
predict your actual return. Your actual return may vary from these estimates.
Prospectus Part I
September 16, 1999
This prospectus contains two parts.
No one may use this Prospectus Part I unless accompanied by Prospectus Part II.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved of the
Trust units or passed upon the adequacy or accuracy of this prospectus.
Any contrary representation is a criminal offense.
Summary of Essential Financial Information
- ----------------------------------------------------------
General Information
- ----------------------------------------------------------
Date of Deposit September 16, 1999
Principal amount of bonds in Trust $3,025,000
Principal amount of bonds per unit (1) $1,000.00
Number of units 3,025
Weighted average maturity of bonds 28 years
- ----------------------------------------------------------
- ----------------------------------------------------------
Unit Price
- ----------------------------------------------------------
Aggregate offering price of bonds in Trust $ 2,876,790
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 $ 943.50
- ----------------------------------------------------------
- ----------------------------------------------------------
Portfolio Diversification (% of Par Value)
- ----------------------------------------------------------
Water and Sewer 34%
Certificate of Participation 24
General Obligation 17
Health Care 17
Higher Education 8
--------
Total 100%
========
- ----------------------------------------------------------
- ----------------------------------------------------------------
Estimated Annual Income Per Unit
- ----------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
------------- -------------
Estimated interest income $ 52.67 $ 52.67
Less estimated expenses (4) $ 2.37 $ 1.93
Less estimated insurance expenses $ -- $ --
Estimated net interest income $ 50.30 $ 50.74
- ----------------------------------------------------------------
- ----------------------------------------------------------------
Expenses
- ----------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
------------- -------------
Sales Charge (% of Unit 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 $ 1.09 $ 1.05
----------- -----------
Total annual expenses per unit $ 2.55 $ 2.11
=========== ===========
- ----------------------------------------------------------------------
Estimated Distributions
- ----------------------------------------------------------------------
Semi-
Monthly Annual
Distributions Distributions
---------------- ----------------
Initial distribution $ 2.65 on $ 15.36 on
October 25, 1999 January 25, 2000
Normal distribution (3) $ 4.19 $ 25.37
Record dates 10th day of January 10 and
each month July 10
Distribution dates 25th day of January 25 and
each month July 25
- ----------------------------------------------------------------------
(1) Some bonds may mature or be called or sold during your Trust's life. This
could include a call or sale at a price below par value. We cannot
guarantee that the value of your units will equal the principal amount of
bonds per unit when you redeem them or when your Trust terminates.
(2) After the first settlement date (September 21, 1999), you will pay accrued
interest from this date to your settlement date less interest
distributions.
(3) We base this amount on estimated cash flows per unit. This amount will vary
with changes in expenses, interest rates and maturity, call or sale of
bonds. The Information Supplement includes the estimated cash flows.
(4) This shows estimated expenses in the first year other than insurance
expenses.
(5) Your Trust assesses this fee per $1,000 principal amount of bonds. Your
Trust assesses other fees per unit.
(6) During the first year the Trustee will reduce its fee by approximately $.18
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 $52.85.
Estimated expenses will increase to $2.55 and $2.11 under the monthly and
semi-annual distribution plans, respectively. Estimated net interest income
will remain as shown.
<TABLE>
<CAPTION>
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
Offering
Aggregate Name of Issuer, Title, Interest Rate and Redemption Price to
Principal Maturity Date of Bonds (1)(2) Rating (3) Feature (4) Trust (2)
- --------------- --------------------------------------------------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 250,000 Contra Costa, California, Water District, Water Revenue
Refunding Bonds, Series H (FGIC Insured) 2007 @ 100
#5.00% Due 10/01/2022 AAA 2019 @ 100 S.F. $ 228,660
250,000 California, State University Foundation, Revenue Bonds,
Monterey Bay Auxiliary (FGIC Insured) 2009 @ 101
#5.00% Due 06/01/2024 AAA 2020 @ 100 S.F. 227,883
500,000 California, General Obligation Bonds (FSA Insured) 2009 @ 101
#5.50% Due 09/01/2024## AAA 2021 @ 100 S.F. 493,165
500,000 California, Health Facilities Financing Authority, Revenue
Bonds, Sutter Health, Series A (MBIA Insured) 2009 @ 101
#5.35% Due 08/15/2028 AAA 2020 @ 100 S.F. 480,540
275,000 Pomona, California, Public Financing Authority, 1999 Revenue
Bonds, Water Facilities Project, Series AC (FGIC Insured) 2009 @ 101
#5.50% Due 05/01/2029 AAA 2020 @ 100 S.F. 270,842
500,000 San Diego, California, Public Facilities Financing Authority,
Sewer Revenue Bonds, Series A (FGIC Insured) 2009 @ 101
#5.00% Due 05/15/2029 AAA 2020 @ 100 S.F. 450,690
250,000 Stockton, California, Revenue Certificates of Participation
Bonds, Waste Water System Project, Series 1998A
(MBIA Insured) 2008 @ 102
5.20% Due 09/01/2029 AAA 2024 @ 100 S.F. 233,385
500,000 Los Angeles, California, Certificates of Participation Bonds,
Department of Public Social Services, Series A
(AMBAC Assurance Insured) 2009 @ 101
#5.50% Due 08/01/2031 AAA 2025 @ 100 S.F. 491,625
- --------------- ---------------
$ 3,025,000 $ 2,876,790
=============== ===============
For an explanation of the footnotes used on this page, see "Notes to Portfolio".
</TABLE>
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 September 13,
1999 to September 15, 1999.
(2) Other information regarding the bonds is as follows:
Cost to Profit (Loss)
Sponsor to Sponsor
--------------- ---------------
$ 2,858,654 $ 18,136
The breakdown of the preinsured bond insurers is as follows: AMBAC
Assurance 16%, Financial Guaranty 34%, MBIA 33% and FSA 17%.
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.
California. The financial condition of the State of California is affected by
various national, economic, social and environmental policies and conditions.
Additionally, limitations imposed by constitutional amendments, legislative
measures, or voter initiatives 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 State faces a
structural imbalance in its budget with the largest programs supported by the
General Fund (education, health, welfare and corrections) growing at rates
higher than the growth rates for the principal revenue sources of the General
Fund.
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, such as natural disasters, complications with
exports and industry deregulation. The California economy continues to show
weakness in manufacturing, particularly aerospace as well as in the telephone,
communications and public utility industries. California's population increase
has resulted in traffic congestion, school overcrowding and high housing costs
which have caused an increase demand for government services and which may
impede future economic growth.
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. On December 7, 1994, Orange
County, California, together with its pooled investment fund (the "Pooled Fund")
filed for protection under Chapter 9 of the federal Bankruptcy Code. Many
governmental entities kept moneys in the Pooled Fund.
All outstanding general obligation bonds of the State are rated "A+" by
Standard and Poor's and "A1" by Moody's.
Further information concerning California risk factors may be obtained upon
request to the Sponsor as described in "Additional Information" appearing in
Prospectus Part II.
Tax Status. For a discussion of the Federal tax status of income earned on
California IM-IT Trust Units, see "Federal Tax Status" in Prospectus Part II.
We have examined the income tax laws of the State of California to determine
its applicability to the California IM-IT Trust and to the holders of Units in
the California IM-IT Trust who are full-time residents of the State of
California ("California Unitholders"). The assets of the California IM-IT Trust
will consist of bonds issued by the State of California or a local government of
California (the "California Bonds") or by the Commonwealth of Puerto Rico or its
authority (the "Possession Bonds") (collectively, the "Bonds"). For purposes of
the following opinions, it is assumed that each asset of the California IM-IT
Trust is debt, the interest on which is excluded from gross income for federal
income tax purposes.
Neither the Sponsor nor its counsel have independently examined the Bonds to
be deposited in and held in the California IM-IT Trust. However, although
Chapman and Cutler expresses no opinion with respect to the issuance of the
Bonds, in rendering its opinion expressed herein, it has assumed that: (i) the
Bonds were validly issued; (ii) the interest thereon is excludable from gross
income for federal income tax purposes; and (iii) interest on the Bonds, if
received directly by a California Unitholder, would be exempt from the income
tax imposed by the State of California that is applicable to individuals, trusts
and estates (the "California Personal Income Tax"). This opinion does not
address the taxation of persons other than full time residents of California. We
have assumed that, at the respective times of issuance of the Bonds, opinions
that the Bonds were validly issued and that interest on the Bonds is excluded
from gross income for Federal income tax purposes were rendered by bond counsel
to the respective issuing authorities. In addition, we have assumed that, with
respect to the California Bonds, bond counsel to the issuing authorities
rendered opinions that the interest on the California Bonds is exempt from the
California Personal Income Tax and, with respect to the Possession Bonds, bond
counsel to the issuing authorities rendered opinions that the Possession Bonds
and the interest thereon is exempt from all state and local income taxation.
Neither the Sponsor nor its counsel has made any review for the California IM-IT
Trust of the proceedings relating to the issuance of the Bonds or of the basis
for the opinions rendered in connection therewith.
Based upon the foregoing, and upon an investigation of such matters of law as
we considered to be applicable, we are of the opinion that, under existing
provisions of the law of the State of California as of the date hereof:
1. The California IM-IT Trust is not an association taxable as a
corporation for purposes of the California Bank and Corporation Tax
Law, and each California Unitholder will be treated as the owner of a
pro rata portion of the California IM-IT Trust, and the income of such
portion of the California IM-IT Trust will be treated as the income of
the California Unitholders under the California Personal Income Tax.
2. Interest on the Bonds which is exempt from tax under the California
Personal Income Tax when received by the California IM-IT Trust and
which would be excludable from California taxable income for purposes
of the California Personal Income Tax if received directly by a
California Unitholder, will be excludable from California taxable
income for purposes of the California Personal Income Tax when
received by the California IM-IT Trust and distributed to a California
Unitholder.
3. Each California Unitholder of the California IM-IT Trust will
generally recognize gain or loss for California Personal Income Tax
purposes if the Trustee disposes of a Bond (whether by redemption,
sale or otherwise) or when the California Unitholder redeems or sells
Units of the California IM-IT Trust, to the extent that such a
transaction results in a recognized gain or loss to such California
Unitholder for federal income tax purposes. However, there are certain
differences between the recognition of gain or loss for federal income
tax purposes and for California Personal Income Tax purposes, and
California Unitholders are advised to consult their own tax advisors.
Tax basis reduction requirements relating to amortization of bond
premium may, under some circumstances, result in a California
Unitholder realizing taxable gain for California Personal Income Tax
purposes when a Unit is sold or redeemed for an amount equal to or
less than its original cost.
4. Under the California Personal Income Tax, interest on indebtedness
incurred or continued by a California Unitholder to purchase Units in
the California IM-IT Trust is not deductible for purposes of the
California Personal Income Tax.
This opinion relates only to California Unitholders subject to the California
Personal Income Tax. No opinion is expressed with respect to the taxation of
California Unitholders subject to the California Bank and Corporation Tax Law
and such California Unitholders are advised to consult their own tax advisors.
Please note, however, that interest on the underlying Bonds attributed to a
California Unitholder that is subject to the California Bank and Corporation Tax
Law may be includible in its gross income for purposes of determining its
California franchise tax. We have not examined any of the Bonds to be deposited
and held in the California IM-IT Trust or the proceedings for the issuance
thereof or the opinions of bond counsel with respect thereto, and we express no
opinion with respect to taxation under any other provisions of the California
law. Ownership of the Units may result in collateral California tax consequences
to certain taxpayers. Prospective investors should consult their tax advisors as
to the applicability of any such collateral consequences.
Underwriting. The Underwriters named below have purchased Units in the
following amounts from the Sponsor. 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 2,475
Morgan Stanley Dean Witter & Co. 2 World Trade Center, 59th Floor, New York, New York 10048 250
Gruntal & Company, L.L.C. 1 Liberty Plaza, New York, New York 10006 100
Edward Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
-----
3,025
=====
</TABLE>
Certificates. Notwithstanding anything in Part II of the Prospectus,
ownership of Units is evidenced in book entry form unless a Unitholder makes a
written request to the Trustee that ownership be in certificate form.
Report of Certified Public Accountants
To the Board of Directors of Van Kampen Funds Inc. and the Unitholders of
California IM-IT 182 (included in Van Kampen Focus Portfolios, Municipal Series
322):
We have audited the accompanying statement of condition and the portfolio of
California IM-IT 182 (included in Van Kampen Focus Portfolios, Municipal Series
322) as of September 16, 1999. 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 California IM-IT 182 (included
in Van Kampen Focus Portfolios, Municipal Series 322) as of September 16, 1999,
in conformity with generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON LLP
September 16, 1999
Statement of Condition
As of September 16, 1999
INVESTMENT IN BONDS
Contracts to purchase bonds (1)(2) ............................. $2,876,790
Accrued interest to the first settlement date (1)(2) ........... 35,279
----------
Total .................................................... $2,912,069
==========
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor (1)(2) ............... $ 35,279
Interest of Unitholders--
Cost to investors ........................................ 3,025,000
Less: Gross underwriting commission ...................... 148,210
----------
Net interest to Unitholders (1)(2) ....................... 2,876,790
----------
Total .................................................... $2,912,069
==========
- --------------------------------------------------------------------------------
(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.
Focus on . . .
, Your Prospectus Part I
Summary of Essential Financial Information......2
Portfolio.......................................3
Notes to Portfolio..............................4
California......................................4
Tax Status......................................5
Underwriting....................................6
Certificates....................................6
Report of Certified Public Accountants..........7
Statement of Condition..........................7
, Daily Prices
(1) Call our 24-Hour Pricing Line
(800) 953-6785
(1) Visit our Focus Portfolios Internet Pricing Page
http://www.vankampen.com
, Account Questions
(1) Contact the Trustee
(800) 221-7668
, Learning More About Unit Trusts
(1) Contact Van Kampen
(630) 684-6000
(1) Visit our Focus Portfolios Internet Product Page
http://www.vankampen.com
, Additional Information
You may obtain an Information Supplement that
provides more details about your trust and its policies.
(1) Visit the SEC Internet Site
http://www.sec.gov
(1) Contact the Trustee
(800) 221-7668
I-CAPRO182
Van Kampen Focus Portfolios (SM)
A Division of Van Kampen Funds Inc.
Prospectus Part I
September 16, 1999
Van Kampen Focus Portfolios, Municipal Series 322
California IM-IT 182
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Van Kampen Focus Portfolios(SM)
A Division of Van Kampen Funds Inc.
Prospectus Part II
April 1999
Van Kampen Focus Portfolios
Municipal Series
A convenient way to invest in a diversified
portfolio of tax-exempt municipal bonds
This prospectus contains two parts.
No one may use this Prospectus Part II unless accompanied by Prospectus Part I.
- --------------------------------------------------------------------------------
The Securities and Exchange Commission has not approved or disapproved of the
Trust units or passed upon the adequacy or accuracy of this prospectus. Any
contrary representation is a criminal offense.
THE TRUSTS
- --------------------------------------------------------------------------------
General. Your Trust is one of several unit investment trusts created under
the name Van Kampen Focus Portfolios, Municipal Series. The Trusts were 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 Funds Inc., as Sponsor, American Portfolio
Evaluation Services, a division of Van Kampen Investment Advisory Corp., as
Evaluator, and The Bank of New York, as Trustee.
The Trusts are 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. Trusts that hold only insured bonds or bonds that are insured
under a portfolio insurance policy are referred to herein as "Insured Trusts".
Trusts that primarily hold bonds issued by a single state, including political
subdivisions and authorities thereof, are referred to herein as "State Trusts".
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 Trusts 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. A Trust 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 a Trust 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 "Trust Administration--Portfolio Administration").
The Bonds. Your Trust invests in municipal bonds. States, municipalities
and public authorities issue these bonds to raise money for a variety of
purposes. In selecting bonds, we seek to diversify your portfolio by bond
purpose. This section briefly describes different bond types to help you better
understand your investment. We list the types of bonds in your portfolio in
Prospectus Part I. We also describe these bonds in greater detail in the
Information Supplement.
General obligation bonds are backed by the general taxing power of the
issuer. The issuer secures these bonds by pledging its faith, credit and
unlimited taxing power for the payment of principal and interest.
Revenue bonds are payable only from the revenue of a specific project or
authority. They are not supported by the issuer's general power to levy taxes.
The risk of default in payment of interest or principal increases if the income
of the related project falters because that income is the only source of
payment. All of the following bonds are revenue bonds.
Airport bonds are obligations of issuers that own and operate airports. The
ability of the issuer to make payments on these bonds primarily depends on the
ability of airlines to meet their obligations under use agreements. Due to
increased competition, deregulation, increased fuel costs and other factors,
some airlines may have difficulty meeting these obligations.
Bond banks are vehicles that pool various municipal obligations into larger
offerings. This reduces the cost of borrowing for the municipalities. The types
of financing projects that these obligations support vary.
Certificates of participation are generally a type of municipal lease
obligation. Lease payments of a governmental entity secure payments on these
bonds. These payments depend on the governmental entity budgeting appropriations
for the lease payments. A governmental body cannot obligate future governments
to appropriate for or make lease payments, but governments typically promise to
take action necessary to include lease payments in their budgets. If a
government fails to budget for or make lease payments, sufficient funds may not
exist to pay interest or principal on these bonds.
Health care bonds are obligations of issuers that derive revenue from
hospitals and hospital systems. The ability of these issuers to make payments on
bonds depends on factors such as facility occupancy levels, demand for services,
competition resulting from hospital mergers and affiliations, the need to reduce
costs, government regulation, costs of malpractice insurance and claims, and
government financial assistance (such as Medicare and Medicaid).
Higher education bonds are obligations of issuers that operate universities
and colleges. These issuers derive revenues from tuition, dormitories, grants
and endowments. These issuers face problems related to declines in the number of
college-age individuals, possible inability to raise tuitions and fees,
uncertainty of continued federal grants, state funding or donations, and
government legislation or regulation.
Industrial revenue bonds finance the cost of acquiring, building or
improving industrial projects. Private corporations usually operate these
projects. The ability of the issuer to make payments on these bonds depends on
factors such as the creditworthiness of the corporation operating the project,
revenues generated by the project, expenses of the project and environmental or
other regulatory restrictions.
Multi-family housing bonds are obligations of issuers that derive revenues
from mortgage loans on multiple family residences, retirement housing or housing
projects for low to moderate-income families. These bonds are generally
pre-payable at any time. It is likely that their life will be less than their
stated maturity. The ability of these issuers to make payments on bonds depends
on such factors as rental income, occupancy levels, operating expenses, mortgage
default rates, taxes, government regulations and appropriation of subsidies.
Other care bonds include obligations of issuers that derive revenue from
mental health facilities, nursing homes and intermediate care facilities. These
bonds are similar to health care bonds and the issuers face the same general
risks.
Public building bonds finance the cost of acquiring, leasing, building or
improving public buildings such as offices, recreation facilities, convention
centers, police stations, correctional institutions and parking garages. The
ability of the issuers to make payments on these bonds depends on factors such
as the government budgeting sufficient funds to make lease or mortgage payments
on the facility, user fees or rents, costs of maintenance and decreases in use
of the facility.
Public education bonds are obligations of issuers that operate primary and
secondary schools. The ability of these issuers to make payments on these bonds
depends primarily on ad valorem taxes. These issuers may also face problems
related to litigation contesting state constitutionality of public education
financing.
Retail electric/gas/telephone bonds are obligations of issuers that derive
revenues from the retail sale of utilities to customers. The ability of these
issuers to make payments on these bonds depends on factors such as the rates and
demand for these utilities, competition, government regulation and rate
approvals, overhead expenses and the cost of fuels.
Single family housing bonds are obligations of issuers that derive revenues
from mortgage loans on single family residences. Single family residences
generally include one to four-family dwellings. These bonds are similar to
multi-family housing bonds and the issuers face the same general risks.
Tax district bonds are obligations secured by a pledge of taxing power by a
municipality, such as tax increment financing or tax allocation bonds. These
bonds are similar to general obligation bonds. Unlike general obligation bonds,
however, the municipality does not pledge its unlimited taxing power to pay
these bonds. Instead, the municipality pledges revenues from a specific tax to
pay these bonds. If the tax cannot support payment of interest and principal, a
municipality may need to raise the related tax to pay these bonds.
An inability to raise the tax could have an adverse affect on these bonds.
Transportation bonds are obligations of issuers that own and operate public
transit systems, ports, highways, turnpikes, bridges and other transportation
systems. The ability of these issuers to make payments on these bonds depends on
variations in use, the degree of government subsidization, competition from
other forms of transportation and increased costs. Port authorities derive
revenues primarily from fees imposed on ships using the port facilities. These
fees can fluctuate depending on the local economy and competition from air, rail
and truck transportation. Increased fuel costs, alternative transportation modes
and competition from toll-free bridges and roads will impact revenues of issuers
that operate bridges, roads or tunnels.
Waste disposal bonds are obligations of issuers that derive revenues from
resource recovery facilities. These facilities process solid waste, generate
steam and convert steam to electricity. These issuers face problems such as
costs and delays due to environmental concerns, effects of conservation and
recycling, destruction or condemnation of a project, void or unenforceable
contracts, changes in the economic availability of raw materials, operating
supplies or facilities, and other unavoidable changes that adversely affect
operation of a project.
Water and sewer bonds are obligations of issuers that derive revenues from
user fees from the sale of water and sewerage services. These issuers face
problems such as the ability to obtain rate increases, population declines,
difficulties in obtaining new fresh water supplies and "no-growth" zoning
ordinances. These issuers also face many of the same problems of waste disposal
issuers.
Wholesale electric bonds are obligations of issuers that derive revenues
from selling electricity to other utilities. The ability of these issuers to
make payments on these bonds depends on factors such as the rates and demand for
electric utilities, competition, overhead expenses and government regulation and
rate approvals.
More About the Bonds. In addition to describing the purpose of the bonds,
we also list other information about the bonds in the "Portfolio" in Prospectus
Part I. This information relates to other characteristics of the bonds. This
section briefly describes some of these characteristics.
Original issue discount bonds were initially issued at a price below their
face (or par) value. These bonds typically pay a lower interest rate than
comparable bonds that were issued at or above their par value. In a stable
interest rate environment, the market value of these bonds tends to increase
more slowly in early years and in greater increments as the bonds approach
maturity. The issuers of these bonds may be able to call or redeem a bond before
its stated maturity date and at a price less than the bond's par value.
Zero coupon bonds are a type of original issue discount bond. These bonds
do not pay any current interest during their life. If you own this type of bond,
you have the right to receive a final payment of the bond's par value at
maturity. The price of these bonds often fluctuates greatly during periods of
changing market interest rates compared to bonds that make current interest
payments. The issuers of certain of these bonds can call the bond at a price
below the bond's par value.
"When, as and if issued" bonds are bonds that trade before they are
actually issued. This means that we can only deliver them to your Trust "when,
as and if" the bonds are actually issued. Delivery of these bonds may be delayed
or may not occur. Interest on these bonds does not begin accruing to your Trust
until we deliver the bond to the Trust. You may have to adjust your tax basis if
we deliver any of these bonds after the expected delivery date. Any adjustment
would reflect interest that accrued between the time you purchased your units
and the delivery of the bonds to your Trust. This could lower your first year
estimated current return. You may experience gains or losses on these bonds from
the time you purchase units even though your Trust has not yet received them.
Risk Factors. All investments involve risk. This section describes the main
risks that can impact the value of bonds in your Trust. You should understand
these risks before you invest. If the value of the bonds falls, the value of
your units will also fall. We cannot guarantee that your Trust will achieve it
objective or that your investment return will be positive over any period.
Market risk is the risk that the value of the bonds in your Trust will
fluctuate. This could cause the value of your units to fall below your original
purchase price or below the par value. Market value fluctuates in response to
various factors. These can include changes in interest rates, inflation, the
financial condition of a bond's issuer or insurer, perceptions of the issuer or
insurer, or ratings on a bond. Even though we carefully supervise your
portfolio, you should remember that we do not manage your portfolio. Your Trust
will not sell a bond solely because the market value falls as is possible in a
managed fund.
Interest rate risk is the risk that the value of bonds will fall if
interest rates increase. Bonds typically fall in value when interest rates rise
and rise in value when interest rates fall. Bonds with longer periods before
maturity are often more sensitive to interest rate changes.
Credit risk is the risk that a bond's issuer or insurer is unable to meet
its obligation to pay principal or interest on the bond.
Call risk is the risk that the issuer prepays or "calls" a bond before its
stated maturity. An issuer might call a bond if interest rates fall and the bond
pays a higher interest rate or if it no longer needs the money for the original
purpose. If an issuer calls a bond, your Trust will distribute the principal to
you but your future interest distributions will fall. You might not be able to
reinvest this principal at as high a yield. A bond's call price could be less
than the price your Trust paid for the bond and could be below the bond's par
value. This means that you could receive less than the amount you paid for your
units. If enough bonds in your Trust are called, your Trust could terminate
early. We list the first date that the issuer can call each bond in the
portfolio in Prospectus Part I along with the price the issuer would have to
pay.
Bond quality risk is the risk that a bond will fall in value if a rating
agency decreases the bond's rating.
Bond concentration risk is the risk that your Trust is less diversified
because it concentrates in a particular type of bond. When a certain type of
bond makes up 25% or more of a Trust, the Trust is considered to be
"concentrated" in that bond type. We describe the different bond types under
"The Bonds".
Reduced diversification risk is the risk that your Trust will become
smaller and less diversified as bonds are sold, are called or mature. This could
increase your risk of loss and increase your share of Trust expenses.
Liquidity risk is the risk that the value of a bond will fall if trading in
the bond is limited or absent. No one can guarantee that a liquid trading market
will exist for any bond because these bonds generally trade in the
over-the-counter market (they are not listed on a securities exchange).
Litigation and legislation risk is the risk that future litigation or
legislation could affect the value of your Trust. For example, future
legislation could reduce tax rates, impose a flat tax, exempt all investment
income from tax or change the tax status of the bonds. Litigation could
challenge an issuer's authority to issue or make payments on bonds.
No FDIC Guarantee. An investment in your Trust is not a deposit of any bank
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
Year 2000 Readiness Disclosure. These two paragraphs constitute "Year 2000
Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Disclosure Act of 1998. Your Trust could be negatively impacted if
computer systems used by the Sponsor, Evaluator, Trustee or other service
providers to your Trust do not properly process date-related information after
December 31, 1999. This is commonly known as the "Year 2000 Problem". The
Sponsor, Evaluator and Trustee are taking steps to address this problem and to
obtain reasonable assurances that other service providers to the Trust are
taking comparable steps. We cannot guarantee that these steps will be sufficient
to avoid any adverse impact on your Trust. This problem may impact issuers to
varying degrees based on factors such as issuer type and degree of technological
sophistication. We cannot predict what impact, if any, this problem will have on
the issuers or insurers of the bonds.
In addition, computer failures in the financial services industry could
detrimentally affect the markets for the bonds beginning January 1, 2000.
Improperly functioning trading systems may result in settlement problems and
liquidity issues. Moreover, corporate and governmental data processing errors
may adversely affect issuers or insurers and overall economic uncertainties.
Remediation costs will affect the ability of individual issuers or insurers to
make payments on the bonds will be affected by remediation costs. All of these
factors could adversely affect the bonds in your Trust.
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.
<TABLE>
<CAPTION>
The initial offering period sales charges are as follows:
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
The sales charge applicable to quantity purchases during the initial
offering period is reduced as follows:
<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
- -------------------------------- -------------------- -------------------- ---------------- -------------
<C> <C> <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
- -----------------------------
* 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.
<CAPTION>
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:
Years To Maturity Sales Charge Years To Maturity Sales Charge Years To Maturity Sales Charge
------------------ -------------- ------------------- -------------- ------------------- --------------
<S> <C> <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
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 the units purchased are of a unit investment trust
purchased on the Initial Purchase 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 (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. If you purchased Units on more than
one day to achieve the discounts described in this paragraph, the discount
allowed on any single day will apply only to Units purchased on that day (a
retroactive discount is not given on all prior purchases).
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 Funds 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 Trusts; (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 State
IM-IT, Long- IM-IT Intermediate
IM-IT Term State IM-IT Short IM-IT Limited Laddered
Discount and National Intermediate Intermediate Maturity Maturity
Trust Quality Trusts Trust Trust Trust 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 $ 18.00 $ 32.00 $ 10.00 $ 25.00 $ 27.00 $ 18.00
250 - 499 Units $ 18.00 $ 33.00 $ 10.50 $ 23.50 $ 26.00 $ 17.00
500 - 999 Units $ 16.00 $ 26.00 $ 10.00 $ 23.50 $ 25.50 $ 16.00
1,000 - 1,499 Units $ 14.00 $ 20.00 $ 8.00 $ 20.00 $ 20.00 $ 13.00
1,500 or more Units $ 12.00 $ 20.00 $ 8.00 $ 20.00 $ 20.00 $ 13.00
</TABLE>
Included in the concessions and agency commissions described in the table
are 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 for 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. See "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 State
IM-IT, Long- IM-IT Intermediate
IM-IT Term State IM-IT Short IM-IT Limited Laddered
Discount and National Intermediate Intermediate Maturity Maturity
Trust Quality Trusts Trust Trust Trust 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>
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 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
Funds 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
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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-cancelable 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-cancelable 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.
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.
TRUST ADMINISTRATION
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The Sponsor. Van Kampen Funds Inc. is the Sponsor of your Trust. We are a
subsidiary of Van Kampen Investments Inc. (which is an indirect subsidiary of
Morgan Stanley Dean Witter & Co.). We specialize in underwriting and
distribution of investment companies with roots in money management dating back
to 1926. We are a Delaware corporation, a registered broker-dealer and a member
of the National Association of Securities Dealers, Inc. You can contact us by
calling (630) 684-6000 or at our offices listed on the back cover of this
prospectus. As of November 30, 1998, our total stockholders' equity was
$135,236,000 (audited). If we fail to or cannot perform our duties under the
trust agreement or become bankrupt, the Trustee may appoint a new sponsor,
continue to operate your Trust without a sponsor, or terminate your Trust and
distribute the liquidation proceeds.
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 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 the sale was 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 a Trust which the Trustee may be required to pay
under any present or future law of the United States of America or of any other
taxing authority having jurisdiction. In addition, the Trust Agreement contains
other customary provisions limiting the liability of the Trustee. The Trustee
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 has made any review of
the Trust proceedings relating to the issuance of the Bonds or of the basis of
the 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. 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. The Taxpayer Relief Act of 1997 ("1997 Act") includes provisions
that treat certain transactions (e.g., short sales, offsetting notional
principal contracts, futures transactions, forward sales, or similar
arrangements) designed to reduce or eliminate risk of loss and
opportunities for gain as constructive sales for purposes of recognition
of gain (but not loss) and for purposes of determining the holding
period. 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 date that 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 at 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.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. Unitholders should consult their own tax advisors with
respect to calculating their basis;
(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 bonds, rather than the insurer, will pay debt
service on the bonds; 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 "1993 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 1993 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. Legislative proposals have been made that would require accrual
basis taxpayers to include market discount in 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, REMIC or FASIT) 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 a Trust. 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 reinstate the Superfund Tax for taxable years
beginning after December 31, 1998 and before January 1, 2010. 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
certain other corporations, including securities dealers and other financial
intermediaries. Investors with questions regarding these issues should consult
their tax advisers.
In the case of certain of the Bonds in a Trust, 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 Trusts for New York tax matters,
under existing law, each Trust is not an association taxable as a corporation
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
Trusts of the proceedings relating to the issuance of the Bonds or of the basis
for such opinions.
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) generally 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 from the holding
period for the Unit. Capital gains realized from assets held for one year or
less are taxed at the same rates as ordinary income. Unitholders should consult
their own tax advisers as to the tax rate applicable to capital gain dividends.
In addition, please note that capital gains may be recharacterized as
ordinary income in the case of certain financial transactions that are
considered "conversion transactions" effective for transactions entered into
after April 30, 1993. Unitholders should consult their tax advisers regarding
the potential effect of this provision on their investment in Units.
For purposes of computing the alternative minimum tax for individuals and
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.
In general, 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 1993 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 Trusts. However, American Portfolio Evaluation Services, a
division of Van Kampen 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 Trusts. 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 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 Trusts 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). Each Trust will pay
the costs associated with updating its registration statement each year. Unit
investment trust sponsors have historically paid these costs. 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 Trusts.
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 Trusts. Amounts so withdrawn shall not be considered a part of a Trust'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 Trusts, 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 Trusts.
ADDITIONAL INFORMATION
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This Prospectus does not contain all the information set forth in the
Registration Statement filed by the Trusts 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 Trusts. 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 Trusts
for New York tax matters. Special counsel to each Trust 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.
Focus on . . .
, Your Prospectus Part II
The Trusts......................................A-2
Estimated Current and Long-Term Returns.........A-6
Public Offering.................................A-7
Rights of Unitholders..........................A-12
Insurance on the Bonds in the Insured Trusts...A-14
Trust Administration...........................A-15
Federal Tax Status.............................A-17
Expenses.......................................A-20
Additional Information.........................A-21
Other Matters..................................A-21
, Daily Prices
(1) Call our 24-Hour Pricing Line
(800) 953-6785
(1) Visit our Focus Portfolios Internet Pricing Page
http://www.vankampen.com
, Account Questions
(1) Contact the Trustee
(800) 221-7668
, Learning More About Unit Trusts
(1) Contact Van Kampen
(630) 684-6000
(1) Visit our Focus Portfolios Internet Product Page
http://www.vankampen.com
, Additional Information
You may obtain an Information Supplement that
provides more details about your trust and its policies.
(1) Visit the SEC Internet Site
http://www.sec.gov
(1) Contact the Trustee
(800) 221-7668
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Van Kampen
Focus
Portfolios
Prospectus Part II
April 1999
Van Kampen
Focus Portfolios
Municipal Series
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
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Van Kampen Focus Portfolios (SM)
A Division of Van Kampen Funds Inc.
Information Supplement
Van Kampen Focus Portfolios, Municipal Series 322
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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
The Trusts......................................................... 6
Insurance on the Bonds in the Insured Trusts....................... 6
Portfolio Administration........................................... 13
Trustee Information................................................ 14
Termination of the Trust Agreement................................. 14
Description of Ratings............................................. 15
Equivalent Taxable Estimated Current Return Tables................. 17
California Risk Factors............................................ 19
Estimated Cash Flows to Unitholders................................ 26
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 under "Portfolio Diversification" in the
"Summary of Essential Financial Information" 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.
The Trusts
When comparing the Lehman Brothers 15-year municipal bond index to the Lehman
Brothers corporate high-yield bond index, since inception, municipal bonds have
generally outperformed high-yield corporate bonds on a tax-adjusted basis.
Between 1990 and 1998, the after-tax average annual total return of 15-year
municipals was approximately 7%, 7%, 6%, and 7.5%, for 1 year, 3 years, 5 years,
and 9 years, respectively. The high-yield corporate bonds after-tax average
annual total return was approximately -1.5%, 4.5%, 4.5%, and 7%, for 1 year, 3
years, 5 years, and 9 years, respectively. These numbers account for capital
gains on municipal bonds subject to tax and account for capital gains and
interest income on corporate bonds. The 15-year municipals pre-tax average
annual total return was approximately 7.5%, 7.6%, 7%, and 8%, for 1 year, 3
years, 5 years, and 9 years, respectively. The high-yield corporate bonds
pre-tax average annual total return was approximately 2%, 8%, 9%, and 12%, for 1
year, 3 years, 5 years, and 9 years, respectively. These figures are based on
the highest marginal tax rate for each year. These rates were 33% for 1990, 31%
for 1991-1994, and 39.67% for 1995-1998. The capital gains rate used was 28% for
1990-1997 and 20% for 1998. These indices are not managed and do not include
payment of sales charges or fees you would pay. If they had, results would be
different. These numbers show historical performance only and are not meant to
imply or guarantee future results. Bonds in which the Trusts invest will be
different from those used in the indices.
Intermediate municipal bonds, such as those in the Strategic Municipal Trust,
Intermediate Series, may benefit investors because, historically (1) bonds with
an intermediate maturity date have tended to be less sensitive to interest rate
changes than those with longer maturities, (2) municipal bonds have generally
provided lower correlation with equities than most other income investments, and
(3) intermediate municipal bond yields have generally been more stable than
Treasury bond yields.
"Tax Freedom Day" represents the date on which the average American would
finish paying federal, state, and local taxes if all earnings since January 1
were turned over to fulfill annual tax obligations. The average tax payer may
work four months before their annual tax bill is paid. Tax-free investing can
help decrease your tax burden because municipal bonds generally provide income
free from federal income tax and in some cases, state and local taxes. You
should consult your tax adviser before investing.
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 "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, 1998, the insurer had admitted assets of $6.5 billion
(audited), total liabilities of $4.2 billion (audited), and total capital and
surplus of $2.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of June 30, 1999, MBIA had admitted assets of $6.8 billion
(unaudited), total liabilities of $4.5 billion (unaudited), and total capital
and surplus of $2.3 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.
Year 2000 Readiness Disclosure
MBIA Inc. is actively managing a high-priority Year 2000 (Y2K) program. The
company has established an independent Y2K testing lab in its Armonk
headquarters, with a committee of business unit managers overseeing the project.
MBIA has a budget of $1.13 million for its 1998-2000 Y2K efforts. Expenditures
are proceeding as anticipated, and MBIA does not expect the project budget to
materially exceed this amount. MBIA has initiated a comprehensive Y2K plan that
includes assessment, remediation, testing and contingency planning. This plan
covers "mission-critical" internally developed systems, vendor software,
hardware and certain third-party entities through which we conduct our business.
Testing to date indicates that functions critical to the financial guarantee
business, both domestic and international, were Y2K-ready as of December 31,
1998. Additional testing will continue throughout 1999.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA "Aaa"
and short-term loans "MIG-1," both designated to be of the highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA" Prime Grade.
Moody's, Standard & Poor's and Fitch IBCA, Inc. (formerly Fitch Investors
Service, L.P.), all rate the claims paying ability of MBIA as "Triple A."
The Moody's Investors Service, Inc. rating of MBIA should be evaluated
independently of the Standard & Poor's rating of MBIA. No application has been
made to any other rating agency in order to obtain additional ratings on the
Obligations. The ratings reflect the respective rating agency's current
assessment of the creditworthiness of MBIA and its ability to pay claims on its
policies of insurance. Any further explanation as to the significance of the
above ratings may be obtained only from the applicable rating agency.
The above ratings are not recommendations to buy, sell or hold the
Obligations and such ratings may be subject to revision or withdrawal at any
time by the rating agencies. Any downward revision or withdrawal of either or
both ratings may have an adverse effect on the market price of the Obligations.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC") is a
wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. The Corporation is a subsidiary of General Electric Capital
Corporation ("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 June
30, 1999, the total capital and surplus of Financial Guaranty was
$1,285,559,848. 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 September 30, 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 $843,099,000 (unaudited) and $567,000,000 (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 $965,441,000 (unaudited)
and $448,500,000 (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 Strategic Municipal, 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 1999. 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 $126,600. 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>
IM-IT
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 - 25.75 $ 0 - 43.05 15.0% 4.71% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
25.75 - 62.45 43.05 - 104.05 28.0 5.56 6.25 6.94 7.64 8.33 9.03 9.72
62.45 - 130.25 104.05 - 158.55 31.0 5.80 6.52 7.25 7.97 8.70 9.42 10.14
130.25 - 283.15 158.55 - 283.15 36.0 6.25 7.03 7.81 8.59 9.38 10.16 10.94
Over 283.15 Over 283.15 39.6 6.62 7.45 8.28 9.11 9.93 10.76 11.59
<CAPTION>
CALIFORNIA
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 - 25.75 $ 0 - 43.05 20.1% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
25.75 - 62.45 43.05 - 104.05 34.7 6.13 6.89 7.66 8.42 9.19 9.95 10.72
62.45 - 130.25 104.05 - 158.55 37.4 6.39 7.19 7.99 8.79 9.58 10.38 11.18
130.25 - 283.15 158.55 - 283.15 42.0 6.90 7.76 8.62 9.48 10.34 11.21 12.07
Over 283.15 Over 283.15 45.2 7.30 8.21 9.12 10.04 10.95 11.86 12.77
- -----------------
* The State tax brackets are those for 1998. The 1999 brackets will be adjusted
to take into account changes in the California Consumer Price Index. These
adjustments have not yet been released.
</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.
California Risk Factors
Economic Factors. Each California Trust is susceptible to political, economic
or regulatory factors affecting issuers of California municipal obligations (the
"California Municipal Obligations"). These include the possible adverse effects
of certain California constitutional amendments, legislative measures, voter
initiatives and other matters that are described below. The following
information provides only a brief summary of the complex factors affecting the
financial situation in California (the "State") and is derived from sources that
are generally available to investors and are believed to be accurate. No
independent verification has been made of the accuracy or completeness of any of
the following information. It is based in part on information obtained from
various State and local agencies in California or contained in Official
Statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of a Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
Since the recession in California in the early 1990's, California has made a
significant recovery. Deep cuts in the nation's defense budget were the main
reason that California's downturn was so severe. By 1996, nearly 60% of
California's more than 385,000 aerospace jobs had been eliminated. In addition,
California suffered more than two-thirds of all of the nation's job losses
resulting from military base closures.
As 1998 unfolded, the impact of Asia's recession on California began to
emerge. High-technology manufacturing employment-aerospace and
electronics-peaked in March 1998, and by November 1998, had lost almost 15,000
jobs, or nearly 3% of the industries' workforce. Total nonfarm employment
started 1998 with annual growth above 3%, but more recently, the year-to-year
pace has slowed to around 2.7%.
Overall, however, California's economy continued to expand in 1998. Nonfarm
employment growth averaged 3.2% and personal income was up more than 6%. The
jobless rate was below 6% most of the year. Nonresidential construction activity
remained strong, with building permit value up almost 18%. Homebuilding
continued on a moderate recovery path, with permits for new houses reaching
126,000 units, a 13% increase over 1997. The construction industry led
California's employment growth in 1998. From October 1997 to October 1998,
construction jobs increased by more than 9%.
Although weak export demand is likely to persist through at least 1999, there
are other elements in the California economy that will help partially offset the
Asia-related problems. Demand for computer services and software remains
extremely strong, buoyed by the demand to fix Year 2000 problems, the continued
explosive growth of the Internet, and by financial sector needs related to the
new Euro currency. The strength in construction activity will continue to boost
prospects for related manufacturing industries. Although California economic
growth will slow from the pace of 1997 and 1998, gains in employment and income
should continue to outpace the nation.
California's population grew by 574,000 people in 1997 to a total of 32.96
million. This reflects a 1.8% increase of population for the year, compared to
1.0% growth posted in calendar year 1996. California's population is
concentrated in metropolitan areas specifically located in the Los Angeles and
San Diego counties.
California enjoys a large and diverse labor force. For calendar year 1997,
the total civilian labor force was 15,971,000 with 14,965,000 individuals
employed and 1,006,000, or 6.3%, unemployed. In comparison, the unemployment
rate for the United States during the same time was 4.9%.
During 1997, several tax reform and business measures were enacted.
California's Workers' Compensation system which previously had some of the
highest premiums and lowest benefits in the nation, was reformed with a 40%
premium reduction, saving employers more than $4 billion per year. The Bank and
Corporation tax was cut by 5% to 8.84%, thus lowering the cost of doing business
in California by $300 million per year. The tax rate on Subchapter "S"
corporations was reduced from 2.5% to 1.5%, and the requirements for
qualification for Subchapter "S" status were conformed to recent federal law
changes. Personal income taxes were reduced by $1.1 billion in 1997 and when the
tax package is fully implemented in 1999-2000, the personal income tax cut will
total $800 million.
Constitutional Limitations on Taxes and Appropriations
Limitation on Taxes. Certain California municipal obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to the rate of inflation, not to exceed 2% per year or
decline in value, except upon new construction or change of ownership (subject
to a number of exemptions). Taxing entities may, however, raise ad valorem taxes
above the 1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of March
1, 1975, if acquired earlier), subject to certain adjustments. This system has
resulted in widely varying amounts of tax on similarly situated properties.
Several lawsuits have been filed challenging the acquisition-based assessment
system of Proposition 13 and on June 18, 1992, the U.S. Supreme Court announced
a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the voters
of the State in 1986 adopted an initiative statute which imposed significant new
limits on the ability of local entities to raise or levy general taxes, except
by receiving majority local voter approval. Significant elements of this
initiative, "Proposition 62," have been overturned in recent court cases. An
initiative proposed to re-enact the provisions of Proposition 62 as a
constitutional amendment was defeated by the voters in November 1990, but such a
proposal may be renewed in the future.
Appropriations Limits. California and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues, and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as reasonable
user charges or fees, and certain other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979 or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for certain
capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 by Proposition 111 to follow more closely growth in
California's economy.
"Excess" revenues are measured over a two-year cycle. With respect to local
governments, excess revenues must be returned by a revision of tax rates or fee
schedules within the two subsequent fiscal years. The appropriations limit for a
local government may be overridden by referendum under certain conditions for up
to four years at a time. With respect to the State, 50% of any excess revenues
is to be distributed to K-12 school districts and community college districts
(collectively, "K-14 districts") and the other 50% is to be refunded to
taxpayers. With more liberal annual adjustment factors since 1988, and depressed
revenues since 1990 because of the recession, few governments, including the
State, are currently operating near their spending limits, but this condition
may change over time. Local governments may by voter approval exceed their
spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or Article
XIIIB on California Municipal Obligations or the ability of California or local
governments to pay debt service on such California Municipal Obligations. It is
not presently possible to predict the outcome of any pending litigation with
respect to the ultimate scope, impact or constitutionality of either Article
XIIIA or Article XIIIB, or the impact of any such determinations upon State
agencies or local governments, or upon their ability to pay debt service on
their obligations. Future initiatives or legislative changes in laws or the
California Constitution may also affect the ability of the State or local
issuers to repay their obligations.
Obligations of the State of California. Under the California Constitution,
debt service on outstanding general obligation bonds is the second charge to the
General Fund after support of the public school system and public institutions
of higher education. The State had $19.3 billion aggregate principal amount of
general obligation bonds outstanding, and $14.3 billion authorized and unissued,
as of December 31, 1998. Outstanding lease revenue bonds totaled $6.7 billion as
of December 31, 1998, and are estimated to total $6.6 billion as of June 30,
1999.
From July 1, 1997 to July 1, 1998, the State issued approximately $2.6
billion in non-self liquidating general obligation bonds and $1.0 billion in
revenue bonds. Refunding bonds, which are used to refinance existing long-term
debt, accounted for $1.0 billion of the general obligation bonds and $514
million of the revenue bonds.
General Fund general obligation debt service expenditures for fiscal year
1997-98 were $1.865 billion, and are estimated at $1.926
billion for fiscal year 1998-99.
Recent Financial Results. California maintains a Special Fund for Economic
Uncertainties (the "Economic Uncertainties Fund"), derived from General Fund
revenues, as a reserve to meet cash needs of the General Fund. As of December
31, 1998, the General Fund had outstanding internal loans from Special Funds of
$1.1 billion (in addition, there are $1.7 billion of external loans represented
by the 1998-99 Revenue Anticipation Notes, which mature on June 30, 1999). The
revised projected 1997-98 fiscal year balance in the General Fund Reserve for
Economic Uncertainties was $2,594.6 million. The Special Fund for Economic
Uncertainties was $74.6 million as of June 30, 1998.
The Budget. California's solid economic performance during 1998 led to
healthy revenue growth. General Fund collections grew by 11.7% in fiscal year
1997-98 to reach $55.0 billion, an increase of $5.8 billion from the prior year.
For fiscal year 1998-99, the Governor's Budget assumes total General Fund
revenues of $56.3 billion, a 2.4% net increase from 1997-98. This revised
estimate reflects the impact of the tax relief legislation which reduces current
year collections $851 million from the baseline estimate, with a more moderate
revenue loss in the budget year. After accounting for non-economic factors,
underlying General Fund revenue growth for 1998-99 is estimated at 4.0%.
Overall, General Fund revenues and transfers represent nearly 80% of total
revenues. The remaining 20% are special funds dedicated to specific programs.
The three largest revenue sources (personal income, sales, and bank and
corporation) account for about 75% of total revenues with personal income
comprising 50% of the total. The personal income tax in fiscal year 1998 was
$27,859 million, an increase of $4,681 million from fiscal year 1997.
Expenditures for the 1997-98 fiscal year were $53.1 billion, an 8% increase.
As of June 30, 1998, the General Fund balance was $2.8 billion. The estimate for
June 30, 1999 is $1.1 billion. The General Fund ended the 1997-98 fiscal year
with a cash surplus of $935 million, the first time the State has recorded a
surplus without short-term borrowing in the last nine years.
Proposed 1998-99 Budget. The Governor's proposed budget for fiscal year
1998-99 is designed to further economic growth, educational reform, public
safety, and maintain government and environmental quality. K-12 education
remains the State's top funding priority. The Budget includes $350 million to
lengthen the school year to 180 days. The Budget fully funds the fourth and
final year of the Governor's "Compact with Higher Education" and calls for the
development of a new compact with UC and CSU. The Budget provides $50 million in
General Fund and $200 million in a proposed bond to capitalize the
Infrastructure and Development Bank, while will help businesses locate and
expand in California. The Budget also proposes a $7 billion investment plan to
maintain and build the State's school system, water supply, prisons, natural
resources, and other important infrastructure.
Bond Rating. The State's general obligation bonds have received ratings of
"A1" by Moody's Investors Service, "A+" by Standard & Poor's Ratings Group and
"AA+" by Fitch IBCA, Inc. There can be no assurance that such ratings will be
maintained in the future. It should be noted that the creditworthiness of
obligations issued by local California issuers may be unrelated to the
creditworthiness of obligations issued by the State of California, and that
there is no obligation on the part of the State to make payment on such local
obligations in the event of default.
Cash Management Policies. Cash temporarily idle during each fiscal year is
invested in the Pooled Money Investment Account (PMIA). The investment of PIMA
is restricted by law to the following categories: U.S. Government securities,
securities of federally sponsored agencies, domestic corporate bonds, bank
notes, interest-bearing time deposits in California banks and savings and loan
associations, prime commercial paper, repurchase and reverse repurchase
agreements, security loans, bankers' acceptances, negotiable certificates of
deposit, and loans to various bond funds. The average daily investment balance
for the year ended June 30, 1998, amounted to $29.3 billion, with an average
effective yield of 5.7%. For the year ended June 30, 1997, the average daily
investment was $28.3 billion and the average effective yield was 5.6%. Total
earnings of the PMIA for fiscal year 1997-98 amounted to $1.7 billion.
Legal Proceedings. The State is involved in certain legal proceedings
(described in the State's recent financial statements) that, if decided against
the State, may require the State to make significant future expenditures or may
substantially impair revenues. In January of 1997, California experienced major
flooding in six different areas with current estimates of property damage to be
approximately $1.6 to $2 billion. One lawsuit has been filed by 500 homeowners
and more lawsuits are expected. Exposure from all of the anticipated cases
arising from these floods could total approximately $2 billion.
The primary government is a defendant in Ceridian Corporation v. Franchise
Tax Board, a suit which challenges the validity of two sections of the
California tax laws. The first relates to deduction from corporate taxes for
dividends received for insurance companies to the extent the insurance companies
have California activities. The second relates to corporate deduction of
dividends to the extent the earnings of the dividend paying corporation have
already been included in the measure of their California tax. If both sections
of the California Tax law are invalidated, and all dividends become deductible,
then the General fund can become liable for approximately $200-$250 million
annually.
Obligations of Other Issuers
Other Issuers of California Municipal Obligations. There are a number of
state 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 the
obligations backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of the
State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues.
To the extent the State should be constrained by its Article XIIIB
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be further reduced. Any such reductions in
State aid could compound the serious fiscal constraints already experienced by
many local governments, particularly counties. At least one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated that
their budgetary condition is extremely grave. The Richmond Unified School
District (Contra Costa County) entered bankruptcy proceedings in May 1991 but
the proceedings were dismissed. Los Angeles County, the largest in the State,
has reported severe fiscal problems, leading to a nominal $1.2 billion deficit
in its $11 billion budget for the 1995-96 fiscal year. To balance the budget,
the county imposed severe cuts in services, particularly for health care. The
Legislature is considering actions to help alleviate the County's fiscal
problems, but none were completed before August 15, 1995. As a result of its
bankruptcy proceedings (discussed further below) Orange County also implemented
stringent cuts in services and laid off workers.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured by
land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long-Term Lease Obligations. Certain California long-term lease
obligations, though typically payable from the general fund of the municipality,
are subject to "abatement" in the event the facility being leased is unavailable
for beneficial use and occupancy by the municipality during the term of the
lease. Abatement is not a default, and there may be no remedies available to the
holders of the certificates evidencing the lease obligation in the event
abatement occurs. The most common cases of abatement are failure to complete
construction of the facility before the end of the period during which lease
payments have been capitalized and uninsured casualty losses to the facility
(e.g., due to earthquake). In the event abatement occurs with respect to a lease
obligation, lease payments may be interrupted (if all available insurance
proceeds and reserves are exhausted) and the certificates may not be paid when
due.
Several years ago, the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the District's lease. The trial court has
upheld the validity of the lease and the case has been settled. Any judgment in
a future case against the position asserted by the Trustee in the Richmond case
may have adverse implications for lease transactions of a similar nature by
other California entities.
Other Considerations. The repayment of industrial development securities
secured by real property may be affected by California laws limiting foreclosure
rights of creditors. Securities backed by health care and hospital revenues may
be affected by changes in State regulations governing cost reimbursements to
health care providers under Medi-Cal (the State's Medicaid program), including
risks related to the policy of awarding exclusive contracts to certain
hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when taxes
on property in the project area are increased to repay voter-approved bonded
indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and principal
on their obligations remains unclear. Furthermore, other measures affecting the
taxing or spending authority of California or its political subdivisions may be
approved or enacted in the future. Legislation has been or may be introduced
which would modify existing taxes or other revenue-raising measures or which
either would further limit or, alternatively, would increase the abilities of
state and local governments to impose new taxes or increase existing taxes. It
is not presently possible to predict the extent to which any such legislation
will be enacted. Nor is it presently possible to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California, in 1989, and southern
California, in 1994, experienced major earthquakes causing billions of dollars
in damages. The federal government provided more than $13 billion in aid for
both earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in a California Trust could
be affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained by
the inability of (i) an issuer to have obtained earthquake insurance coverage at
reasonable rates; (ii) an insurer to perform on its contracts of insurance in
the event of widespread losses; or (iii) the Federal or State government to
appropriate sufficient funds within their respective budget limitations.
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "County Pooled Fund") filed for protection under
Chapter 9 of the federal Bankruptcy Code, after reports that the County Pooled
Fund had suffered significant market losses in its investments caused a
liquidity crisis for the County Pooled Fund and the County. More than 180 other
public entities, most but not all located in the County, were depositors in the
County Pooled Fund. As of mid-January 1995, the County estimated that the County
Pooled Fund had lost about $1.64 billion, or 23%, of its initial deposits of
around $7.5 billion. The Pooled Fund has been almost completely restructured to
reduce its exposure to changes in County interest rates. Many of the entities
which kept moneys in the County Pooled Fund, including the County, faced cash
flow difficulties because of the bankruptcy filing and may be required to reduce
programs or capital projects. The County and some of these entities have, and
others may in the future, default in payment of their obligations. At that time,
Moody's and Standard & Poor's suspended, reduced to below investment grade
levels, or placed on "Credit Watch" various securities of the County and the
entities participating in the Pooled Fund.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, although
under existing legal precedents, the State may be obligated to ensure that
school districts have sufficient funds to operate.
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>
IM-IT
Monthly
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
October 1999 $ 2.77 $ 2.77
November 1999 - September 2009 4.38 4.38
October 2009 4.22 $110.25 114.47
November 2009 - September 2011 3.85 3.85
October 2011 3.67 127.89 131.56
November 2011 - May 2021 3.25 3.25
June 2021 3.09 44.10 47.19
July 2021 - November 2025 3.06 3.06
December 2025 2.92 110.26 113.18
January 2026 - May 2026 2.59 2.59
June 2026 2.45 110.25 112.70
July 2026 - August 2027 2.12 2.12
September 2027 1.73 110.25 111.98
October 2027 - September 2029 1.65 1.65
October 2029 1.58 55.13 56.71
November 2029 - December 2029 1.40 1.40
January 2030 .99 110.26 111.25
February 2030 - December 2033 .90 .90
January 2034 .76 110.25 111.01
February 2034 - January 2036 .42 .42
February 2036 .28 110.25 110.53
<CAPTION>
Semi-annual
Distribution Dates
(Each December and Estimated Estimated Estimated
June Unless Interest Principal Total
Otherwise Specified) Distribution Distribution Distribution
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
December 1999 $11.63 $ 11.63
June 2000 - June 2009 26.52 26.52
October 2009 $110.25 110.25
December 2009 25.30 25.30
June 2010 - June 2011 23.34 23.34
October 2011 127.89 127.89
December 2011 21.95 21.95
June 2012 - December 2020 19.72 19.72
June 2021 19.55 44.10 63.65
December 2021 - June 2025 18.53 18.53
December 2025 18.39 110.26 128.65
June 2026 15.56 110.25 125.81
December 2026 - June 2027 12.88 12.88
September 2027 110.25 110.25
December 2027 11.07 11.07
June 2028 - June 2029 10.05 10.05
October 2029 55.13 55.13
December 2029 9.47 9.47
January 2030 110.26 110.26
June 2030 5.58 5.58
December 2030 - December 2033 5.50 5.50
January 2034 110.25 110.25
June 2034 2.94 2.94
December 2034 - December 2035 2.60 2.60
February 2036 .72 110.25 110.97
<CAPTION>
CALIFORNIA
Monthly
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
October 1999 $ 2.65 $ 2.65
November 1999 - September 2022 4.19 4.19
October 2022 4.09 $ 82.64 86.73
November 2022 - May 2024 3.85 3.85
June 2024 3.75 82.64 86.39
July 2024 - August 2024 3.52 3.52
September 2024 3.30 165.29 168.59
October 2024 - August 2028 2.78 2.78
September 2028 2.19 165.29 167.48
October 2028 - April 2029 2.07 2.07
May 2029 1.95 90.91 92.86
June 2029 1.11 165.29 166.40
July 2029 - August 2029 .99 .99
September 2029 .89 82.65 83.54
October 2029 - July 2031 .65 .65
August 2031 .43 165.29 165.72
<CAPTION>
Semi-annual
Distribution Dates
(Each January and Estimated Estimated Estimated
July Unless Interest Principal Total
Otherwise Specified) Distribution Distribution Distribution
------------------------------------------------------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
January 2000 $15.36 $ 15.36
July 2000 - July 2022 25.37 25.37
October 2022 $ 82.64 82.64
January 2023 24.25 24.25
July 2023 - January 2024 23.35 23.35
June 2024 82.64 82.64
July 2024 22.91 22.91
September 2024 165.29 165.29
January 2025 18.14 18.14
July 2025 - July 2028 16.88 16.88
September 2028 165.29 165.29
January 2029 13.39 13.39
May 2029 90.91 90.91
June 2029 165.29 165.29
July 2029 10.38 10.38
September 2029 82.65 82.65
January 2030 4.56 4.56
July 2030 - July 2031 3.96 3.96
August 2031 .43 165.29 165.72
</TABLE>
CONTENTS OF REGISTRATION STATEMENT
This Amendment of Registration Statement comprises the following papers and
documents:
The facing 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).
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to the Federal and California 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.
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.
SIGNATURES
The Registrant, Van Kampen Focus Portfolios, Municipal Series 322,
hereby identifies Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 189, Multi Series 213 and Multi-Series 300 and
Van Kampen American Capital Equity Opportunity Trust, Series 89 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, Van Kampen Focus Portfolios, Municipal Series 322 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 16th day of September, 1999.
VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIES 322
By Christine K. Putong
Assistant Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below on September 16,
1999 by the following persons who constitute a majority of the Board of
Directors of Van Kampen Funds Inc.
SIGNATURE TITLE
Richard F. Powers III Chairman and Chief Executive )
Officer )
John H. Zimmerman III President and Chief Operating )
Officer )
William R. Rybak Executive Vice President and )
Chief Financial Officer )
A. Thomas Smith III Executive Vice President, )
General Counsel and Secretary )
Michael H. Santo Executive Vice President )
Christine K. Putong
(Attorney-in-fact*)
- --------------------------------------------------------------------------------
*An executed copy of each of the related powers of attorney is filed
herewith or was filed with the Securities and Exchange Commission in connection
with the Registration Statement on Form S-6 of Van Kampen Focus Portfolios,
Series 136 (File No. 333-70897) and the same are hereby incorporated herein by
this reference.
EXHIBIT 1.1
VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIES 322
TRUST AGREEMENT
Dated: September 16, 1999
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
American Capital Distributors, 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
- General 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.
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
Senior Vice President
(SEAL)
Attest:
By Weston B. Wetherell
Vice President
AMERICAN PORTFOLIO EVALUATION SERVICE, a division of Van Kampen
Investment Advisory Corp.
By JAMES J. BOYNE
Senior Vice President
(SEAL)
Attest:
By Weston B. Wetherell
Vice President
THE BANK OF NEW YORK
By JEFFREY COHEN
Vice President
(SEAL)
Attest:
By ROBERT WEIR
Assistant Treasurer
SCHEDULES TO TRUST AGREEMENT
SECURITIES INITIALLY DEPOSITED
VAN KAMPEN FOCUS PORTFOLIOS, MUNICIPAL SERIES 322
(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
September 16, 1999
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Van Kampen Focus Portfolios, Municipal Series 322
-------------------------------------------------
Gentlemen:
We have served as counsel for Van Kampen Funds Inc., Sponsor and
Depositor of Van Kampen Focus Portfolios, Municipal Series 322 (hereinafter
referred to as the "Fund"), in connection with the preparation, execution and
delivery of a Trust Agreement dated September 16, 1999 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. 333-83355) 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
September 16, 1999
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: Van Kampen Focus Portfolios, Municipal Series 322
- --------------------------------------------------------------------------------
Gentlemen:
We have acted as counsel for Van Kampen Funds Inc., Depositor of Van
Kampen Focus Portfolios, Municipal Series 322 (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 September 16, 1999 (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, liquidation, 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 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. 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.
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.
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 Fund's 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, 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.
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.
Chapman and Cutler has expressed no opinion with respect to taxation
under any other provisions of Federal law. Ownership of the Units may result in
collateral Federal income tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any such
collateral consequences.
We have also examined the income tax laws of the State of California to
determine its applicability to the California Insured Municipals Income Trust,
(the "California Trust") being created as part of the Fund and to the holders of
Units in the California Trust who are full-time residents of the State of
California ("California Unitholders").
In connection therewith, 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 documents as we have deemed pertinent.
The assets of the California Trust will consist of bonds issued by the State of
California or a local government of California (the "California Bonds") or by
the Commonwealth of Puerto Rico or its authority (the "Possession Bonds")
(collectively, the "Bonds"). For purposes of the following opinions, it is
assumed that each asset of the California Trust is debt, the interest on which
is excluded from gross income for federal income tax purposes.
Neither the Sponsor nor its counsel have independently examined the
Bonds to be deposited in and held in the California Trust. However, although we
express no opinion with respect to the issuance of the Bonds, in rendering our
opinion expressed herein, we have assumed that: (i) the Bonds were validly
issued; (ii) the interest thereon is excludable from gross income for federal
income tax purposes; and (iii) interest on the Bonds, if received directly by a
California Unitholder, would be exempt from the income tax imposed by the State
of California that is applicable to individuals, trusts and estates (the
"California Personal Income Tax"). This opinion does not address the taxation of
persons other than full time residents of California. We have assumed that, at
the respective times of issuance of the Bonds, opinions that the Bonds were
validly issued and that interest on the Bonds is excluded from gross income for
Federal income tax purposes were rendered by bond counsel to the respective
issuing authorities. In addition, we have assumed that, with respect to the
California Bonds, bond counsel to the issuing authorities rendered opinions that
the interest on the California Bonds is exempt from the California Personal
Income Tax and, with respect to the Possession Bonds, bond counsel to the
issuing authorities rendered opinions that the Possession Bonds and the interest
thereon is exempt from all state and local income taxation. Neither the Sponsor
nor its counsel has made any review for the California Trust of the proceedings
relating to the issuance of the Bonds or of the basis for the opinions rendered
in connection therewith.
Based upon the foregoing, and upon an investigation of such matters of
law as we considered to be applicable, we are of the opinion that, under
existing provisions of the law of the State of California as of the date hereof:
1. The California Trust is not an association taxable as a
corporation for purposes of the California Bank and Corporation Tax
Law, and each California Unitholder will be treated as the owner of a
pro rata portion of the California Trust, and the income of such
portion of the California Trust will be treated as the income of the
California Unitholders under the California Personal Income Tax.
2. Interest on the Bonds which is exempt from tax under the
California Personal Income Tax when received by the California Trust
and which would be excludable from California taxable income for
purposes of the California Personal Income Tax if received directly by
a California Unitholder, will be excludable from California taxable
income for purposes of the California Personal Income Tax when received
by the California Trust and distributed to a California Unitholder.
3. Each California Unitholder of the California Trust will
generally recognize gain or loss for California Personal Income Tax
purposes if the Trustee disposes of a Bond (whether by redemption, sale
or otherwise) or when the California Unitholder redeems or sells Units
of the California Trust, to the extent that such a transaction results
in a recognized gain or loss to such California Unitholder for federal
income tax purposes. However, there are certain differences between the
recognition of gain or loss for federal income tax purposes and for
California Personal Income Tax purposes, and California Unitholders are
advised to consult their own tax advisors. Tax basis reduction
requirements relating to amortization of bond premium may, under some
circumstances, result in a California Unitholder realizing taxable gain
for California Personal Income Tax purposes when a Unit is sold or
redeemed for an amount equal to or less than its original cost.
4. Under the California Personal Income Tax, interest on
indebtedness incurred or continued by a California Unitholder to
purchase Units in the California Trust is not deductible for purposes
of the California Personal Income Tax.
This opinion relates only to California Unitholders subject to the
California Personal Income Tax. No opinion is expressed with respect to the
taxation of California Unitholders subject to the California Bank and
Corporation Tax Law and such California Unitholders are advised to consult their
own tax advisors. Please note, however, that interest on the underlying Bonds
attributed to a California Unitholder that is subject to the California Bank and
Corporation Tax Law may be includible in its gross income for purposes of
determining its California franchise tax. We have not examined any of the Bonds
to be deposited and held in the California Trust or the proceedings for the
issuance thereof or the opinions of bond counsel with respect thereto, and we
express no opinion with respect to taxation under any other provisions of the
California law. Ownership of the Units may result in collateral California 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
September 16, 1999
Van Kampen Focus Portfolios, Municipal Series 322
C/o The Bank of New York As Trustee
101 Barclay Street, 17 West
New York, New York 10286
Dear Sirs:
We have acted as special counsel for the Van Kampen Focus Portfolios,
Municipal Series 322 (the "Fund") consisting of Insured Municipals Income Trust,
Series 414 and California Insured Municipals Income Trust, Series 182
(individually the "Trust" and in the aggregate the "Trusts") for the purpose 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., 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 number 333-83355) under the
Securities Act of 1933, as amended (respectively 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 exempt, to
the extent indicated in the Prospectus, from income tax, if any, of the State
denominated in the name of that Trust. 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 and units of each of the Trusts (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, in the case of Trusts denominated as "Insured",
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 those 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 with
respect to each of the Trusts..
We understand with respect to the obligations described in the
preceding paragraph which are deposited into a trust denominated as "Insured"
that all insurance, whether purchased by the Depositor, the issuer or a prior
owner, 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.
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 Trust and with the proceeds from the disposition of obligations held in
each Trust 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 of the Trusts 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 in the case of trusts denominated as
"Insured" 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 Depositor, 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:
A business conducted by a trustee or trustees in which interest
or ownership is evidenced by certificate or other written
instrument includes, but is not limited to, an association
commonly referred to as a "business trust" or "Massachusetts
trust". In determining whether a trustee or trustees are
conducting a business, the form of the agreement is of
significance but is not controlling. The actual activities of the
trustee or trustees, not their purposes and powers, will be
regarded as decisive factors in determining whether a trust is
subject to tax under Article 9-A. The mere investment 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 business
conducted by a trustee or trustees. 20 NYCRR 1-2.3(b)(2) (July
11, 1990).
New York cases dealing with the question of whether a trust will be
subject to the franchise tax have also delineated the general rule that where a
trustee merely invests funds and collects and distributes the income therefrom,
the trust is not engaged in business and is not subject to the franchise tax.
Burrell v. Lynch, 274 A.D. 347, 84 N.Y.S.2d 171 (3rd Dept. 1948), order
resettled, 274 A.D. 1083, 85 N.Y.S.2d 705 (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 grantor will also be income to him for New
York income tax purposes. (See TSB-M-78(9)(C), New York Department of Taxation
and Finance, June 23, 1978).
By letter, dated today, Messrs. Chapman and Cutler, counsel for the
Depositor, rendered their opinion that each Unit holder 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 I,
Subchapter J of Chapter 1 of the Code.
Based on the foregoing and on the opinion of Messrs. Chapman and
Cutler, counsel for the Depositor, dated today, upon which we specifically rely,
we are of the opinion that under existing laws, rulings, and court decisions
interpreting the laws of the State and City of New York:
1. Each Trust 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 Trust will be treated as the income of the Unit
holders under the income tax laws of the State and City of New York.
3. Unit holders who are not residents of the State of New York are not
subject to the income tax law thereof with respect to any interest or gain
derived from the Fund or any gain from the sale or other disposition of the
Units, except to the extent that such interest or gain is from property employed
in a business, trade, profession or occupation carried on in the State of New
York.
In addition, we are of the opinion 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 4.1
Interactive Data
FINANCIAL TIMES Information
100 William Street, 15th Floor, New York, NY 10038 USA
Tel: (212) 269-6300 Fax: (212) 771-6445
September 16, 1999
Van Kampen Funds Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Van Kampen Focus Portfolios, Municipal Series 322 (A Unit Investment Trust)
Registered Under the Securities Act of 1933, File No. 333-83355
- --------------------------------------------------------------------------------
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,
Richard D. Yosua
Director
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: Van Kampen Focus Portfolios, Municipal Series 322 consisting of: Insured
Municipals Income Trust, Series 414 and California Insured Municipals
Income Trust, Series 182.
---------------------------------------------------------------------------
Pursuant to your request for a Standard & Poor's rating on the units of
the above-captioned trust, SEC #333-83355 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
October 19, 2000. 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 September 16, 1999 on the statements of
condition and related bond portfolios of Van Kampen Focus Portfolios, Municipal
Series 322 as of September 16, 1999 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
September 16, 1999
