File No. 33-53931
CIK #896688
Securities And Exchange Commission
Washington, D.C. 20549-1004
Amendment No. 1
to
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact Name of Trust: Insured Municipals Income Trust and Investors'
Quality Tax-Exempt Trust, Multi-Series 224
B. Name of Depositor: Van Kampen Merritt Inc.
C. Complete address of Depositor's principal executive offices:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
D. Name and complete address of agents for service:
Chapman and Cutler Van Kampen Merritt Inc.
Attention: Mark J. Kneedy Attention: John C. Merritt, Chairman
111 W. Monroe Street One Parkview Plaza
Chicago, Illinois 60603 Oakbrook Terrace, Illinois 60181
E. Title and amount of securities being registered: 31,899* Units
F. Proposed maximum offering price to the public of the securities being
registered:
($1020 per Unit**): $32,536,980
G. Amount of filing fee, computed at one twenty-ninth of 1 percent of proposed
maximum aggregate offering
price to the public: $11,219.63 ($351.72 previously paid)
H. 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 June 23, 1994 pursuant to Rule 487.
21,266 Units registered for primary distribution.
10,633 Units registered for resale by Depositor of Units previously sold
in primary distribution.
** Estimated solely for the purpose of calculating the registration fee.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 224
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust )
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Introduction
) Summary of Essential Financial
) Information
) Trust Administration
3. Name and address of Trustee ) Introduction
) Summary of Essential Financial
) Information
) Trust Administration
4. Name and address of principal ) Underwriting
underwriter )
5. Organization of trust ) Introduction
6. Execution and termination of ) Introduction
Trust Indenture and Agreement ) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. General Description of the Trust and Securities of the Trust
10. General information regarding ) Introduction
trust's securities and rights ) Unitholder Explanations
of security holders ) Trust Information
) Trust Administration
11. Type of securities comprising ) Introduction
units ) Trust Information
) Trust Portfolios
12. Certain information regarding ) *
periodic payment certificates )
13. (a) Load, fees, charges and ) Introduction
expenses ) Summary of Essential Financial
) Information
) Unitholder Explanations
) Trust Information
) Trust Administration
(b) Certain information regard- ) *
ing periodic payment plan )
certificates )
(c) Certain percentages ) Introduction
) Summary of Essential Financial
) Information
) Unitholder Explanations
(d) Certain other fees, ) Unitholder Explanations
expenses or charges ) Trust Administration
payable by holders )
(e) Certain profits to be ) Unitholder Explanations
received by depositor, ) Underwriting
principal underwriter, ) Notes to Portfolios
trustee or affiliated )
persons )
(f) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Unitholder Explanations
15. Receipt and handling of payments ) *
from purchasers )
16. Acquisition and disposition of ) Introduction
underlying securities ) Unitholder Explanations
) Trust Administration
17. Withdrawal or redemption ) Unitholder Explanations
) Trust Administration
18. (a) Receipt and disposition ) Introduction
of income ) Unitholder Explanations
(b) Reinvestment of distribu- ) *
tions )
(c) Reserves or special funds ) Unitholder Explanations
) Trust Administration
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Unitholder Explanations
) Trust Administration
20. Certain miscellaneous provisions ) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Trust Portfolios
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
trust indenture or agreement )
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of Depositor ) Trust Administration
26. Fees received by Depositor ) Trust Administration
27. Business of Depositor ) Trust Administration
28. Certain information as to )
officials and affiliated ) *
persons of Depositor )
29. Companies owning securities of ) *
Depositor )
30. Controlling persons of Depositor ) *
31. Compensation of Directors ) *
32. Compensation of Directors ) *
33. Compensation of Employees ) *
34. Compensation to other persons ) Unitholder Explanations
IV. Distribution and Redemption of Securities
35. Distribution of trust's ) Introduction
securities by states ) Settlement of Bonds in the Trusts
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
(b) Underwriting agreements ) Unitholder Explanations
(c) Selling agreements )
39. (a) Organization of principal )
underwriter )
) Trust Administration
(b) N.A.S.D. membership by )
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Trust Administration
underwriter )
(b) Branch offices of principal ) *
underwriter )
(c) Salesmen of principal ) *
underwriter )
42. Ownership of securities of the ) *
trust )
43. Certain brokerage commissions )
received by principal ) *
underwriter )
44. (a) Method of valuation ) Introduction
) Summary of Essential Financial
) Information
) Unitholder Explanations
) Trust Administration
(b) Schedule as to offering ) *
price )
(c) Variation in offering price ) Unitholder Explanations
to certain persons )
45. Suspension of redemption rights ) *
46. (a) Redemption valuation ) Unitholder Explanations
) Trust Administration
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Unitholder Explanations
in underlying securities ) Trust Administration
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of ) Trust Administration
trustee )
49. Fees and expenses of trustee ) Summary of Essential Financial
) Information
) Trust Administration
50. Trustee's lien ) Trust Administration
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's )
securities ) *
VII. Policy of Registrant
52. (a) Provisions of trust agree- )
ment with respect to )
replacement or elimi- ) Trust Administration
nation of portfolio )
securities )
(b) Transactions involving )
elimination of underlying ) *
securities )
(c) Policy regarding substitu- ) Trust Administration
tion or elimination of )
underlying securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust ) Trust Information
) Other Matters
VIII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55. )
)
56. Certain information regarding ) *
)
57. Periodic payment certificates )
58. )
59. Financial statements (Instruc- ) Other Matters
tions 1(c) to Form S-6) )
__________________________________
* Inapplicable, omitted, answer negative or not required
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This Prospectus shall not constitute an
offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any State.
PRELIMINARY PROSPECTUS DATED JUNE 23, 1994
SUBJECT TO COMPLETION
June 23, 1994 Van Kampen Merritt
INSURED MUNICIPALS INCOME TRUST AND
INVESTORS' QUALITY TAX-EXEMPT TRUST, MULTI-SERIES 224
Florida IM-IT 81
Michigan IM-IT 117
Missouri IM-IT 81
Pennsylvania IM-IT Intermediate Laddered Maturity Series 5
Tennessee IM-IT 27
National Quality 86
In the opinion of counsel, interest to the Fund and to Unitholders, with
certain exceptions, is excludable under existing law from gross income for
Federal income taxes. In addition, the interest income of each State Trust is,
in the opinion of counsel, exempt to the extent indicated from state and local
taxes, when held by residents of the state where the issuers of Bonds in such
Trust are located. Capital gains, if any, are subject to Federal tax.
THE FUND. The objectives of the Fund are Federal and, in the case of a
State Trust, state tax-exempt income and conservation of capital through an
investment in a diversified portfolio of tax-exempt bonds. The Fund consists
of six underlying separate unit investment trusts designated as Florida
Insured Municipals Income Trust, Series 81 (the "Florida IM-IT Trust"),
Michigan Insured Municipals Income Trust, Series 117 (the "Michigan IM-IT
Trust"), Missouri Insured Municipals Income Trust, Series 81 (the "Missouri
IM-IT Trust"), Pennsylvania IM-IT Intermediate Laddered Maturity Series 5 (the
"Pennsylvania IM-IT Intermediate Laddered Maturity Trust"), Tennessee Insured
Municipals Income Trust, Series 27 (the "Tennessee IM-IT Trust") and
Investors' Quality Tax-Exempt Trust, Series 86 (the "National Quality Trust").
The various trusts are collectively referred to herein as the "Trusts", the
Florida IM-IT, Michigan IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate
Laddered Maturity and Tennessee IM-IT Trusts are sometimes collectively
referred to herein as the "State Trusts", while the Florida IM-IT, Michigan
IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate Laddered Maturity and
Tennessee IM-IT Trusts are sometimes collectively referred to herein as the
"Insured Trusts", the Pennsylvania IM-IT Intermediate Laddered Maturity Trust
is sometimes referred to herein as the "State Intermediate Laddered Maturity
Trust" and the National Quality Trust is sometimes referred to herein as the
"Quality Trust". Each Trust initially consists of delivery statements relating
to contracts to purchase securities and, thereafter, will consist of such
securities as may continue to be held (the "Bonds" or "Securities"). Such
Securities are interest-bearing obligations issued by or on behalf of
municipalities and other governmental authorities, the interest on which is,
in the opinion of recognized bond counsel to the issuing governmental
authority, exempt from all Federal income taxes under the existing law. In
addition, the interest income of each State Trust is, in the opinion of
counsel, exempt to the extent indicated from state and local taxes, when held
by residents of the state where the issuers of Bonds in such Trust are
located.
"AAA" RATING FOR THE INSURED TRUSTS ONLY. Insurance guaranteeing the
payments of principal and interest, when due, on the Securities in the
portfolio of each Insured Trust has been obtained from a municipal bond
insurance company either by such Trust or by the issuer of the Bonds involved,
by a prior owner of the Bonds or by the Sponsor prior to the deposit of such
Bonds in an Insured Trust. See "Unitholder Explanations--Insurance on the
Bonds in the Insured Trusts" on page 22. Insurance obtained by an Insured
Trust applies only while Bonds are retained in such Trust while insurance
obtained on Preinsured Bonds is effective so long as such Bonds are
outstanding. The Trustee, upon the sale of a Bond insured under an insurance
policy obtained by an Insured Trust, has a right to obtain from the insurer
involved permanent insurance for such Bond upon the payment of a single
predetermined insurance premium and any expenses related thereto from the
proceeds of the sale of such Bond. INSURANCE RELATES ONLY TO THE BONDS IN A
TRUST AND NOT TO THE UNITS OFFERED HEREBY OR TO THE MARKET VALUE THEREOF. As a
result of such insurance, the Units of each Insured Trust have received a
rating of "AAA" by Standard & Poor's Corporation. Standard & Poor's
Corporation has indicated that this rating is not a recommendation to buy,
hold or sell Units nor does it take into account the extent to which expenses
of each Insured Trust or sales by each Insured Trust of Bonds for less than
the purchase price paid by such Trust will reduce payments to Unitholders of
the interest and principal required to be paid on such Bonds. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts". No representation
is made as to any insurer's ability to meet its commitments.
PUBLIC OFFERING PRICE. The Public Offering Price of the Units of each
Trust during the initial offering period is equal to the aggregate offering
price of the Securities in such Trust's portfolio and cash, if any, in the
Principal Account held or owned by such Trust Fund plus the applicable sales
charge plus Purchased Interest and accrued interest, if any. After the initial
public offering period, the secondary market Public Offering Price of each
Trust will be equal to the aggregate bid price of the Securities in such Trust
and cash, if any, in the Principal Account held or owned by such Trust Fund
plus the applicable sales charge plus Purchased Interest and accrued interest,
if any. Sales charges for the Trusts in the initial market, expressed both as
a percentage of the Public Offering Price (excluding Purchased Interest) and
as a percentage of the aggregate offering price of the Securities, are set
forth in footnote (2) under "Summary of Essential Financial Information". For
sales charges in the secondary market, see "Unitholder Explanations--Public
Offering". If the Securities in each Trust were available for direct purchase
by investors, the purchase price of the Securities would not include the sales
charge included in the Public Offering Price of the Units. During the initial
offering period, the sales charge is reduced on a graduated scale for sales
involving at least 100 Units. If Units were available for purchase at the
close of business on the day before the Date of Deposit , the Public Offering
Price per Unit would have been that amount set forth in the "Summary of
Essential Financial Information" for each Trust. See "Unitholder
Explanations--Public Offering".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
2 Introduction
ESTIMATED CURRENT RETURN AND ESTIMATED LONG-TERM RETURN. The annual
Estimated Current Return and Estimated Long-Term Return to Unitholders as of
the close of business on the day before the Date of Deposit were as set forth
under "Per Unit Information" for each Trust. The methods of calculating
Estimated Current Return and Estimated Long-Term Return are set forth in the
footnotes to the "Per Unit Information" for each Trust.
OBJECTIVES OF THE FUND. The objectives of the Fund are income exempt from
Federal income tax and, in the case of a State Trust, Federal and state income
tax (if any) and conservation of capital through an investment in diversified
portfolios of Federal and state tax-exempt obligations. There is, of course,
no guarantee that the Fund will achieve its objectives. The Fund may be an
appropriate investment vehicle for investors who desire to participate in a
portfolio of tax-exempt fixed income securities with greater diversification
than they might be able to acquire individually. In addition, securities of
the type deposited in the Fund are often not available in small amounts.
DISTRIBUTIONS. Purchasers of Units will receive distributions on a
monthly basis. See "Unitholder Explanations--Settlement of Bonds in the
Trusts". Record dates will be the first day of each month. Distributions will
be made on the fifteenth day of the month subsequent to the respective record
dates.
MARKET FOR UNITS. Although not obligated to do so, the Sponsor, Van
Kampen Merritt Inc., intends to, and certain of the other Underwriters may,
maintain a secondary market for the Units at prices based upon the aggregate
bid prices of the Securities in the respective Trusts plus Purchased Interest;
however, during the initial offering period such prices will be based upon the
aggregate offering prices of the Securities plus Purchased Interest. If such a
market is not maintained and no other over-the-counter market is available, a
Unitholder will be able to dispose of his Units only through redemption at
prices based upon the bid prices of the underlying Securities plus Purchased
Interest (see "Unitholder Explanations--Public Offering--Redemption of Units"
and "Unitholder Explanations-- Public Offering--Market for Units").
REINVESTMENT OPTION. Unitholders have the opportunity to have their
distributions reinvested into an open-end, management investment company as
described herein. See "Unitholder Explanations--Public Offering-- Reinvestment
Option".
<PAGE>
Summary of Essential Financial Information 3
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES 224
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION
AT THE CLOSE OF BUSINESS ON THE DAY BEFORE THE DATE OF DEPOSIT: JUNE 22, 1994
SPONSOR: VAN KAMPEN MERRITT INC.
EVALUATOR: AMERICAN PORTFOLIO EVALUATION SERVICES
(A DIVISION OF A SUBSIDIARY OF THE SPONSOR)
TRUSTEE: THE BANK OF NEW YORK
<CAPTION>
FLORIDA MICHIGAN MISSOURI
GENERAL INFORMATION IM-IT TRUST IM-IT TRUST IM-IT TRUST
<S> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust.................. $ 3,000,000 $ 3,050,000 $ 3,935,000
Number of Units...................................................... 3,056 3,070 4,029
Fractional Undivided Interest in the Trust per Unit.................. 1/3,056 1/3,070 1/4,029
Principal Amount (Par Value) of Securities per Unit <F1>............. $ 981.68 $ 993.49 $ 976.67
Public Offering Price:
Aggregate Offering Price of Securities in Portfolio.............. $ 2,879,139 $ 2,891,780 $ 3,796,231
Aggregate Offering Price of Securities per Unit.................. $ 942.13 $ 941.95 $ 942.23
Sales Charge <F2>................................................ $ 48.54 $ 48.53 $ 48.54
Purchased Interest <F3>.......................................... $ 28,521 $ 29,239 $ 37,179
Purchased Interest per Unit <F3>................................. $ 9.33 $ 9.52 $ 9.23
Public Offering Price per Unit <F3>.............................. $ 1,000.00 $ 1,000.00 $ 1,000.00
Redemption Price per Unit, including Purchased Interest <F3>......... $ 943.93 $ 943.72 $ 944.12
Secondary Market Repurchase Price per Unit, including Purchased
Interest <F3>...................................................... $ 951.46 $ 951.47 $ 951.46
Excess of Public Offering Price per Unit Over Redemption Price per
Unit............................................................... $ 56.07 $ 56.28 $ 55.88
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption
Price per Unit..................................................... $ 7.53 $ 7.75 $ 7.34
Minimum Value of the Trust under which Trust Agreement may be
terminated......................................................... $ 600,000 $ 610,000 $ 787,000
Minimum Principal Distribution.......... $1.00 per Unit
First Settlement Date................... June 30, 1994
Evaluator's Annual Supervisory Fee...... Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee....... $0.30 per $1,000 principal
amount of Bonds <F4>
Evaluations for purpose of sale, purchase or redemption of Units are made
as of 4:00 P.M. Eastern time on days of trading on the New York Stock
Exchange next following receipt of an order for a sale or purchase of
Units or receipt by The Bank of New York of Units tendered for redemption.
<FN>
<F1>Many unit investment trusts comprised of municipal securities issue a
number of units such that each unit represents approximately $1,000
principal amount of underlying securities. The Sponsor, on the other hand,
in determining the number of Units for each Trust, other than IM-IT
Limited Maturity, IM-IT Intermediate, State Intermediate Laddered Maturity
and IM-IT Short Intermediate Trusts, has elected not to follow this format
but rather to provide that number of Units which will establish as close
as possible as of the Date of Deposit a Public Offering Price per Unit of
$1,000. For IM-IT Limited Maturity, IM-IT Intermediate, State Intermediate
Laddered Maturity and IM-IT Short Intermediate Trusts, on the other hand,
each unit represents $1,000 principal amount of underlying securities in
such Trust on the Date of Deposit.
<F2>Sales charges for the Trusts, expressed as a percentage of the Public
Offering Price per Unit (excluding Purchased Interest) and in parenthesis
as a percentage of the aggregate offering price of the Securities, are as
follows: a State Trust (other than a State Intermediate Laddered Maturity
Trust) - 4.9% (5.152%); an IM-IT Limited Maturity Trust - 4.3% (4.493%);
an IM-IT Intermediate Trust - 3.9% (4.058%); an IM-IT Short Intermediate
Trust or a State Intermediate Laddered Maturity Trust - 3.0% (3.093%).
<F3>Purchased Interest is a portion of the unpaid interest that has accrued on
the Bonds from the later of the last payment date on the Bonds or the date
of issuance thereof through the First Settlement Date and is included in
the calculation of the Public Offering Price. Purchased Interest will be
distributed to Unitholders as Units are redeemed or Securities
<PAGE>
4 Summary of Essential Financial Information
mature or are called. Anyone ordering Units for settlement after the First
Settlement Date will pay accrued interest from such date to the date of
settlement (normally five business days after order) less distributions
from the Interest Account subsequent to the First Settlement Date. For
purchases settling on the First Settlement Date, no accrued interest will
be added to the Public Offering Price other than the Purchased Interest
already included therein. After the initial offering period, the Sponsor's
Repurchase Price per Unit will be determined as described under the
caption "Public Offering-- Market for Units".
<F4>Such fee is based on the outstanding principal amount of Securities in
each Trust on the Date of Deposit for the first year and as of the close
of business on January 1 for each year thereafter.
</TABLE>
<PAGE>
Summary of Essential Financial Information 5
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES 224
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION (CONTINUED)
AT THE CLOSE OF BUSINESS ON THE DAY BEFORE THE DATE OF DEPOSIT: JUNE 22, 1994
SPONSOR: VAN KAMPEN MERRITT INC.
EVALUATOR: AMERICAN PORTFOLIO EVALUATION SERVICES
(A DIVISION OF A SUBSIDIARY OF THE SPONSOR)
TRUSTEE: THE BANK OF NEW YORK
<CAPTION>
PENNSYLVANIA
IM-IT
INTERMEDIATE
LADDERED TENNESSEE NATIONAL
GENERAL INFORMATION MATURITY TRUST IM-IT TRUST QUALITY TRUST
<S> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust.................. $ 3,000,000 $ 3,000,000 $ 5,000,000
Number of Units...................................................... 3,000 3,013 5,098
Fractional Undivided Interest in the Trust per Unit.................. 1/3,000 1/3,013 1/5,098
Principal Amount (Par Value) of Securities per Unit <F1>............. $ 1,000.00 $ 995.69 $ 980.78
Public Offering Price:
Aggregate Offering Price of Securities in Portfolio.............. $ 2,951,598 $ 2,839,200 $ 4,799,160
Aggregate Offering Price of Securities per Unit.................. $ 983.87 $ 942.32 $ 941.38
Sales Charge <F2>................................................ $ 30.42 $ 48.55 $ 48.50
Purchased Interest <F3>.......................................... $ 24,215 $ 27,521 $ 51,583
Purchased Interest per Unit <F3>................................. $ 8.07 $ 9.13 $ 10.12
Public Offering Price per Unit <F3>.............................. $ 1,022.36 $ 1,000.00 $ 1,000.00
Redemption Price per Unit, including Purchased Interest <F3>......... $ 984.30 $ 943.94 $ 944.31
Secondary Market Repurchase Price per Unit, including Purchased
Interest <F3>...................................................... $ 991.94 $ 951.45 $ 951.50
Excess of Public Offering Price per Unit Over Redemption Price per
Unit............................................................... $ 38.06 $ 56.06 $ 55.69
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption
Price per Unit..................................................... $ 7.64 $ 7.51 $ 7.19
Minimum Value of the Trust under which Trust Agreement may be
terminated......................................................... $ 600,000 $ 600,000 $ 1,000,000
Minimum Principal Distribution.......... $1.00 per Unit
First Settlement Date................... June 30, 1994
Evaluator's Annual Supervisory Fee...... Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee....... $0.30 per $1,000 principal
amount of Bonds <F4>
Evaluations for purpose of sale, purchase or redemption of Units are made
as of 4:00 P.M. Eastern time on days of trading on the New York Stock
Exchange next following receipt of an order for a sale or purchase of
Units or receipt by The Bank of New York of Units tendered for redemption.
<FN>
<F1>Many unit investment trusts comprised of municipal securities issue a
number of units such that each unit represents approximately $1,000
principal amount of underlying securities. The Sponsor, on the other hand,
in determining the number of Units for each Trust, other than IM-IT
Limited Maturity, IM-IT Intermediate, State Intermediate Laddered Maturity
and IM-IT Short Intermediate Trusts, has elected not to follow this format
but rather to provide that number of Units which will establish as close
as possible as of the Date of Deposit a Public Offering Price per Unit of
$1,000. For IM-IT Limited Maturity, IM-IT Intermediate, State Intermediate
Laddered Maturity and IM-IT Short Intermediate Trusts, on the other hand,
each unit represents $1,000 principal amount of underlying securities in
such Trust on the Date of Deposit.
<F2>Sales charges for the Trusts, expressed as a percentage of the Public
Offering Price per Unit (excluding Purchased Interest) and in parenthesis
as a percentage of the aggregate offering price of the Securities, are as
follows: a State Trust (other than a State Intermediate Laddered Maturity
Trust) - 4.9% (5.152%); an IM-IT Limited Maturity Trust - 4.3% (4.493%);
an IM-IT Intermediate Trust - 3.9% (4.058%); an IM-IT Short Intermediate
Trust or a State Intermediate Laddered Maturity Trust - 3.0% (3.093%).
<PAGE>
6 Summary of Essential Financial Information
<F3>Purchased Interest is a portion of the unpaid interest that has accrued on
the Bonds from the later of the last payment date on the Bonds or the date
of issuance thereof through the First Settlement Date and is included in
the calculation of the Public Offering Price. Purchased Interest will be
distributed to Unitholders as Units are redeemed or Securities mature or
are called. Anyone ordering Units for settlement after the First
Settlement Date will pay accrued interest from such date to the date of
settlement (normally five business days after order) less distributions
from the Interest Account subsequent to the First Settlement Date. For
purchases settling on the First Settlement Date, no accrued interest will
be added to the Public Offering Price other than the Purchased Interest
already included therein. After the initial offering period, the Sponsor's
Repurchase Price per Unit will be determined as described under the
caption "Public Offering-- Market for Units".
<F4>Such fee is based on the outstanding principal amount of Securities in
each Trust on the Date of Deposit for the first year and as of the close
of business on January 1 for each year thereafter.
</TABLE>
<PAGE>
Unitholder Explanations 7
SETTLEMENT OF BONDS IN THE TRUSTS
THE FUND. Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 224 (the "Fund"), was created under the laws of
the State of New York pursuant to a Trust Indenture and Agreement (the "Trust
Agreement"), dated the Date of Deposit, among Van Kampen Merritt Inc., as
Sponsor, American Portfolio Evaluation Services, a division of Van Kampen
Merritt Investment Advisory Corp., as Evaluator, and The Bank of New York, as
Trustee.
The Fund consists of six separate portfolios of delivery statements
relating to contracts to purchase 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 under existing law. All issuers of Securities in
a State Trust are located in the State for which such Trust is named or in
United States territories or possessions and their public authorities;
consequently, in the opinion of recognized bond counsel to such State issuers,
the related interest earned on such Securities is exempt to the extent
indicated from state and local taxes of such State. With the exception of the
New York and Pennsylvania Trusts, Units of such Trusts may be purchased only
by residents of the State for which such Trust is named. Units of a New York
Trust may be purchased by residents of New York, Connecticut, Florida and
Massachusetts. Units of a Pennsylvania Trust may be purchased by residents of
Pennsylvania, Connecticut, Florida, Maryland, New York, Ohio and West
Virginia. Offerees in the States of Indiana, Virginia and Washington may
purchase Units of the National Quality Trust only. On the Date of Deposit, the
Sponsor deposited with the Trustee the aggregate principal amount of
Securities in each Trust as indicated under "General Information--Principal
Amount (Par Value) of Securities in Trust" in the "Summary of Essential
Financial Information". Such Securities consist of delivery statements
relating to contracts for the purchase of certain interest-bearing obligations
and cash, cash equivalents and/or irrevocable letters of credit issued by a
financial institution in the amount required for such purchases. Thereafter,
the Trustee, in exchange for the Securities so deposited, delivered to the
Sponsor the certificates evidencing the ownership of the number of Units in
each Trust as indicated under "Summary of Essential Financial Information."
Unless otherwise terminated as provided herein, the Trust Agreement for any
State Trust (other than a State Intermediate Laddered Maturity Trust) will
terminate at the end of the calendar year prior to the fiftieth anniversary of
its execution, and the Trust Agreement for any IM-IT Limited Maturity Trust,
IM-IT Intermediate Trust, State Intermediate Laddered Maturity Trust or IM-IT
Short Intermediate Trust will terminate at the end of the calendar year prior
to the twentieth anniversary of its execution.
The portfolio of any State Trust (other than a State Intermediate
Laddered Maturity 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 dollar-weighted average maturity of the Bonds in any
IM-IT Intermediate Trust, State Intermediate Laddered Maturity Trust and IM-IT
Short Intermediate Trust is less than or equal to 10 years, 10 years and 5
years, respectively.
The portfolio of any State Intermediate Laddered Maturity Trust is
structured so that approximately 20% of the Bonds contained in such portfolio
will mature each year, commencing 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 a State Intermediate Laddered Maturity Trust.
However, the flexibility provided by the return of principal may at the same
time eliminate a Unitholder's ability to reinvest the amount returned at a
rate as high as the implicit yield on the obligations which matured.
Certain of the Bonds in certain of the Trusts may be "zero coupon" bonds.
See footnote (6) in "Notes to Portfolios". Zero coupon bonds are purchased at
a deep discount because the buyer receives only the right to receive a final
payment at the maturity of the bond and does not receive any periodic interest
payments. The effect of owning deep discount bonds which do not make current
interest payments (such as the zero coupon bonds) is that a
<PAGE>
8 Unitholder Explanations
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 in certain of the Trusts may have been purchased on
a "when, as and if issued" or "delayed delivery" basis. See footnote (5) in
"Notes to Portfolios". The delivery of any such Securities may be delayed or
may not occur. Interest on these Securities begins accruing to the benefit of
Unitholders on their respective dates of delivery. To the extent any
Securities are actually delivered to the Fund after their respective expected
dates of delivery, Unitholders who purchase their Units prior to the date such
Securities 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
Securities during the interval between their purchase of Units and the actual
delivery of such Securities. As a result of any such adjustment, the Estimated
Current Returns during the first year would be slightly lower than those
stated herein 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 under "Per Unit Information" for the applicable Trust. Holders of
the Units will be "at risk" with respect to all Securities in the portfolios
including "when, as and if issued" and "delayed delivery" Securities (i.e.,
may derive either gain or loss from fluctuations in the evaluation of such
Securities) from the date they commit for Units. For a discussion of the
Sponsor's obligations in the event of the failure of any contract for the
purchase of any of the Securities and limited right to substitute other
tax-exempt bonds to replace any failed contract, see "Replacement Bonds"
below.
Each Unit initially offered represents the fractional undivided interest
in the principal and net income of a Trust indicated under "Summary of
Essential Financial Information". To the extent that any Units are redeemed by
the Trustee, the fractional undivided interest in a Trust represented by each
unredeemed Unit will increase, although the actual interest in such Trust
represented by such fraction will remain unchanged. Units will remain
outstanding until redeemed upon tender to the Trustee by Unitholders, which
may include the Sponsor or the Underwriters, or until the termination of the
Trust Agreement.
OBJECTIVES AND SECURITIES SELECTION. The objectives of the Fund are
income exempt from Federal income taxation and, in the case of a State Trust,
Federal and state income taxation and conservation of capital through an
investment in diversified portfolios of Federal and state tax-exempt
obligations. A State Intermediate Laddered Maturity Trust has additional
objectives of providing protection against changes in interest rates and
investment flexibility through an investment in a laddered portfolio of
intermediate-term interest-bearing obligations with maturities ranging from
approximately 5 to 10 years in which roughly 20% of the obligations contained
in such portfolio will mature each year commencing in approximately the fifth
year of the Trust. There is, of course, no guarantee that the Trusts will
achieve their respective objectives. The Fund may be an appropriate investment
vehicle for investors who desire to participate in a portfolio of tax-exempt
fixed income securities with greater diversification than they might be able
to acquire individually. In addition, securities of the type deposited in the
Fund are often not available in small amounts.
Insurance guaranteeing the timely payment, when due, of all principal and
interest on the Bonds in each Insured Trust has been obtained by such Trust
from either AMBAC Indemnity Corporation ("AMBAC Indemnity"), Financial
Guaranty Insurance Company ("Financial Guaranty" or "FGIC") or a combination
thereof (collectively, the "Portfolio Insurers"), or by the issuer of such
Bonds, by a prior owner of such Bonds, or by the Sponsor prior to the deposit
of such Bonds in such Trust from (1) AMBAC Indemnity or one of its
subsidiaries, American Municipal Bond Assurance Corporation ("AMBAC") or MGIC
Indemnity Corporation ("MGIC Indemnity"), (2) Financial Guaranty, (3)
Municipal Bond Investors Assurance Corporation ("MBIA"), (4) Bond Investors
Guaranty Insurance Company ("BIG"), (5) National Union Fire Insurance Company
of Pittsburgh, PA. ("National Union"), (6) Capital Guaranty Insurance Company
("Capital Guaranty"), (7) Capital Markets Assurance Corporation ("CapMAC")
and/or (8) Financial Security Assurance Inc. ("Financial Security" or "FSA")
(collectively, the "Preinsured Bond Insurers") (see
<PAGE>
Unitholder Explanations 9
"Unitholder Explanations--Insurance on the Bonds in the Insured Trusts").
Insurance obtained by an Insured Trust is effective only while the Bonds thus
insured are held in such Trust. The Trustee has the right to acquire permanent
insurance from a Portfolio Insurer with respect to each Bond insured by the
respective Portfolio Insurer under a Trust portfolio insurance policy.
Insurance relating to Bonds insured by the issuer, by a prior owner of such
Bonds or by the Sponsor is effective so long as such Bonds are outstanding.
Bonds insured under a policy of insurance obtained by the issuer, by a prior
owner of such Bonds or by the Sponsor from one of the Preinsured Bond Insurers
(the "Preinsured Bonds") are not additionally insured by an Insured Trust. No
representation is made as to any insurer's ability to meet its commitments.
Neither the Public Offering Price nor any evaluation of Units for
purposes of repurchases or redemptions reflects any element of value for the
insurance obtained by an Insured Trust, if any, unless Bonds are in default in
payment of principal or interest or in significant risk of such default. See
"Unitholder Explanations--Public Offering--Offering Price". On the other hand,
the value, if any, of Preinsured Bond insurance is reflected and included in
the market value of such Bonds.
In order for bonds to be eligible for insurance, they must have credit
characteristics which would qualify them for at least the Standard & Poor's
Corporation rating of "BBB-" or at least the Moody's Investors Service, Inc.
rating of "Baa", which in brief represent the lowest ratings for securities of
investment grade (see "Other Matters--Description of Securities Ratings").
Insurance is not a substitute for the basic credit of an issuer, but
supplements the existing credit and provides additional security therefor. If
an issue is accepted for insurance, a non-cancellable policy for the prompt
payment of interest and principal on the bonds, when due, is issued by the
insurer. Any premium or premiums relating to Preinsured Bond insurance is paid
by the issuer, by a prior owner of such Bonds or by the Sponsor and a monthly
premium is paid by an Insured Trust for the portfolio insurance, if any,
obtained by such Trust. The Trustee has the right to obtain permanent
insurance from a Portfolio Insurer in connection with the sale of a Bond
insured under the insurance policy obtained from the respective Portfolio
Insurer by an Insured Trust upon the payment of a single predetermined
insurance premium 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. All Bonds
insured by the Portfolio Insurers and the Preinsured Bond Insurers receive a
"AAA" rating by Standard & Poor's Corporation. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts".
In selecting Securities for the Trusts the following facts, among others,
were considered by the Sponsor: (a) either the Standard & Poor's Corporation
rating of the Securities was in no case less than "BBB-" in the case of the
Insured Trusts and "A-" in the case of the Quality Trusts, or the Moody's
Investors Service, Inc. rating of the Securities was in no case less than
"Baa" in the case of the Insured Trusts and "A" in the case of the Quality
Trusts, including provisional or conditional ratings, respectively, or, if not
rated, the Securities had, in the opinion of the Sponsor, credit
characteristics sufficiently similar to the credit characteristics of
interest-bearing tax-exempt obligations that were so rated as to be acceptable
for acquisition by the Fund (see "Other Matters--Description of Securities
Ratings"), (b) the prices of the Securities relative to other bonds of
comparable quality and maturity, (c) the diversification of Securities as to
purpose of issue and location of issuer and (d) with respect to the Insured
Trusts, the availability and cost of insurance for the prompt payment of
principal and interest, when due, on the Securities. Subsequent to the Date of
Deposit, a Security 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 such Security from the portfolio of a Trust but may be
considered in the Sponsor's determination as to whether or not to direct the
Trustee to dispose of the Security (see "Trust Administration--Fund
Administration and Expenses--Portfolio Administration").
To the best knowledge of the Sponsor, there is no litigation pending as
of the Date of Deposit in respect of any Securities 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 Securities 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
Securities 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 Security on the date of issuance to the effect that
<PAGE>
10 Unitholder Explanations
such Securities 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 Securities.
PORTFOLIO CONCENTRATIONS. Certain of the Bonds in certain of the Trusts
may be general obligations of a governmental entity that are backed by the
taxing power of such entity. In view of this an investment in such a Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. 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. See "General" for each Trust.
Certain of the Bonds in certain of the Trusts 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. In view of this an investment in such a
Trust should be made with an understanding of the characteristics of such
issuers and the risks which such an investment may entail. 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. See
"General" for each Trust.
Certain of the Bonds in certain of the Trusts may be health care revenue
bonds. In view of this an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. Ratings of bonds issued for health care facilities
are often based on feasibility studies that contain projections of occupancy
levels, revenues and expenses. A facility's gross receipts and net income
available for debt service may be affected by future events and conditions
including, among other things, demand for services and the ability of the
facility to provide the services required, physicians' confidence in the
facility, management capabilities, competition with other health care
facilities, efforts by insurers and governmental agencies to limit rates,
legislation establishing state rate-setting agencies, expenses, the cost and
possible unavailability of malpractice insurance, the funding of Medicare,
Medicaid and other similar third party payor programs, government regulation
and the termination or restriction of governmental financial assistance,
including that associated with Medicare, Medicaid and other similar third
party payor programs. Pursuant to recent Federal legislation, Medicare
reimbursements are currently calculated on a prospective basis utilizing a
single nationwide schedule of rates. Prior to such legislation Medicare
reimbursements were based on the actual costs incurred by the health facility.
The current legislation may adversely affect reimbursements to hospitals and
other facilities for services provided under the
<PAGE>
Unitholder Explanations 11
Medicare program. Such adverse changes also may adversely affect the ratings
of Securities held in the portfolios of the Fund; however, because of the
insurance obtained by each of the Insured Trusts, the "AAA" rating of the
Units of each of the Insured Trusts would not be affected. See "General" for
each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of
public utility issuers, including those selling wholesale and retail electric
power and gas. In view of this an investment in such a Trust should be made
with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. General problems of such issuers would
include the difficulty in financing large construction programs in an
inflationary period, the limitations on operations and increased costs and
delays attributable to environmental considerations, the difficulty of the
capital market in absorbing utility debt, the difficulty in obtaining fuel at
reasonable prices and the effect of energy conservation. All of such issuers
have been experiencing certain of these problems in varying degrees. In
addition, Federal, state and municipal governmental authorities may from time
to time review existing, and impose additional, regulations governing the
licensing, construction and operation of nuclear power plants, which may
adversely affect the ability of the issuers of certain of the Bonds in the
portfolio to make payments of principal and/or interest on such Bonds. See
"General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations of
issuers whose revenues are derived from the sale of water and/or sewerage
services. In view of this an investment in such a Trust should be made with an
understanding of the characteristics of such issuers and the risks which such
an investment may entail. 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. All of such issuers have been experiencing
certain of these problems in varying degrees. See "General" for each Trust.
Certain of the Bonds in certain of the Trusts may be industrial revenue
bonds ("IRBs"). In view of this an investment in such a Trust should be made
with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. 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. See "General" for each Trust.
Certain of the Bonds in certain of the Trusts 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. In view of this an investment in such a Trust should be made
with an understanding of the characteristics of such issuers and the risks
which such an investment may entail. 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
<PAGE>
12 Unitholder Explanations
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. See "General" for each Trust.
Certain of the Bonds in certain of the Trusts 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. In view of this an investment in such a Trust should be made with
an understanding of the characteristics of such issuers and the risks which
such an investment may entail. 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. All of such
issuers have been experiencing certain of these problems in varying degrees.
See "General" for each Trust.
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. In view of this an investment in
such a Trust should be made with an understanding of the characteristics of
such issuers and the risks which such an investment may entail. The major
portion of an airport's gross operating income is generally derived from fees
received from signatory airlines pursuant to use agreements which consist of
annual payments for leases, occupancy of certain terminal space and service
fees. Airport operating income may therefore be affected by the ability of the
airlines to meet their obligations under the use agreements. The air transport
industry is experiencing significant variations in earnings and traffic, due
to increased competition, excess capacity, increased costs, deregulation,
traffic constraints and other factors, and several airlines are experiencing
severe financial difficulties. The Sponsor cannot predict what effect these
industry conditions may have on airport revenues which are dependent for
payment on the financial condition of the airlines and their usage of the
particular airport facility. Similarly, payment on Bonds related to other
facilities is dependent on revenues from the projects, such as user fees from
ports, tolls on turnpikes and bridges and rents from buildings. Therefore,
payment may be adversely affected by reduction in revenues due to such factors
as increased cost of maintenance, decreased use of a facility, lower cost of
alternative modes of transportation, scarcity of fuel and reduction or loss of
rents. See "General" for each Trust.
Certain of the Bonds in certain of the Trusts may be obligations which
are payable from and secured by revenues derived from the operation of
resource recovery facilities. In view of this an investment in such a Trust
should be made with an understanding of the characteristics of such issuers
and the risks which such an investment may entail. 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; 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 such a Trust prior to the stated maturity of the Bonds. See "General" for
each Trust.
REPLACEMENT BONDS. Because certain of the Securities in the Fund may from
time to time under certain circumstances be sold or redeemed or will mature in
accordance with their terms and because the proceeds from such events will be
distributed to Unitholders and will not be reinvested, no assurance can be
given that any Trust will
<PAGE>
Unitholder Explanations 13
retain for any length of time its present size and composition. Neither the
Sponsor nor the Trustee shall be liable in any way for any default, failure or
defect in any Security. In the event of a failure to deliver any Security that
has been purchased for the Fund under a contract, including those Securities
purchased on a "when, as and if issued" basis ("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 corpus of the Fund.
The 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 (i) must be tax-exempt bonds issued by
states or territories of the United States or political subdivisions thereof
and, in the case of replacement of bonds in a State Trust, shall have the
benefit of an exemption from state taxation of interest to an extent equal to
or greater than that of the bonds they replace, (ii) must have a fixed
maturity date of at least 10 years in the case of a State Trust (other than a
State Intermediate Laddered Maturity Trust) or, in the case of an IM-IT
Limited Maturity, IM-IT Intermediate, State Intermediate Laddered Maturity or
IM-IT Short Intermediate Trust, must have a fixed maturity date within the
range set forth under "Unitholder Explanations--Settlement of Bonds in the
Trusts--The Fund", (iii) must be purchased at a price that results in a yield
to maturity and in a current return, in each case as of the Date of Deposit,
at least equal to that of the Failed Bonds, (iv) shall not be "when, as and if
issued" bonds, (v) must be rated "BBB-" or better in the case of the Insured
Trusts and "A-" or better in the case of the Quality Trusts by Standard &
Poor's Corporation or "Baa" or better in the case of the Insured Trusts and
"A" or better in the case of the Quality Trusts by Moody's Investors Service,
Inc. and (vi) with respect to each Insured Trust, must be insured by one of
the Preinsured Bond Insurers or be eligible for (and when acquired be insured
under) the insurance obtained by such Insured Trust. Whenever a Replacement
Bond has been acquired for the Fund, the Trustee shall, within five days
thereafter, notify all Unitholders of the affected Trust of the acquisition of
the Replacement Bond and shall, on the next monthly distribution date which is
more than 30 days thereafter, make a pro rata distribution of the amount, if
any, by which the cost to the affected Trust of the Failed Bond exceeded the
cost of the Replacement Bond plus accrued interest. Once the original corpus
of a Trust is acquired, the Trustee will have no power to vary the investment
of the Trust; i.e., the Trust will have no managerial power to take advantage
of market variation to improve a Unitholder's investment.
If the right of limited substitution described in the preceding paragraph
shall not be utilized to acquire Replacement Bonds in the event of a failed
contract, the Sponsor will refund the sales charge attributable to such Failed
Bonds to all Unitholders of the affected Trust and distribute the principal,
Purchased Interest and accrued interest (at the coupon rate of such Failed
Bonds to the date the Failed Bonds are removed from the Fund) attributable to
such Failed Bonds not more than 30 days after such removal or such earlier
time as the Trustee in its sole discretion deems to be in the interest of the
Unitholders. All such interest paid to a Unitholder which accrued after the
expected date of settlement for purchase of his Units will be paid by the
Sponsor and accordingly will not be treated as tax-exempt income. In the event
a Replacement Bond should not be acquired by the Fund, the Estimated Net
Annual Interest Income per Unit for the affected Trust would be reduced and
the Estimated Current Return and Estimated Long-Term Return thereon might be
lowered. In addition, Unitholders should be aware that they may not be able at
the time of receipt of such principal to reinvest such proceeds in other
securities at a yield equal to or in excess of the yield which such proceeds
were earning to Unitholders in the affected Trust.
BOND REDEMPTIONS. Certain of the Bonds in certain of the Trusts 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
<PAGE>
14 Unitholder Explanations
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 "Portfolio" for each Trust and footnote (3) in the "Notes
to Portfolios". See also the discussion of single family mortgage and
multi-family revenue bonds above for more information on the call provisions
of such bonds.
DISTRIBUTIONS. Distributions of interest received by the Fund, pro rated
on an annual basis, will be made monthly. The first such distribution will be
in the amount indicated under 'Per Unit Information' for the applicable Trust
and will be made on the fifteenth day of the month indicated under "Initial
Distribution" therein to Unitholders of record on the first day of such month.
Distribution of funds from the Principal Account, if any, will also be made
monthly, except under certain special circumstances (see "Unitholder
Explanations--Public Offering--Distributions of Interest and Principal").
CERTIFICATES. The Trustee is authorized to treat as the record owner of
Units that person who is registered as such owner on the books of the Trustee.
Ownership of Units of each Trust is evidenced by separate registered
certificates executed by the Trustee and the Sponsor. Certificates are
transferable by presentation and surrender to the Trustee properly endorsed or
accompanied by a written instrument or instruments of transfer. A Unitholder
must sign exactly as his name appears on the face of the certificate with the
signature guaranteed by a participant in the Securities Transfer Agents
Medallion Program ("STAMP") or such other signature guaranty program in
addition to, or in substitution for, STAMP, as may be accepted by the Trustee.
In certain instances the Trustee may require additional documents such as, but
not limited to, trust instruments, certificates of death, appointments as
executor or administrator or certificates of corporate authority. Certificates
will be issued in denominations of one Unit or any multiple thereof.
Although no such charge is now made or contemplated, the Trustee may
require a Unitholder to pay a reasonable fee for each certificate re-issued
(other than as a result of a change in plan of distribution) or transferred
and to pay any governmental charge that may be imposed in connection with each
such transfer or interchange. Destroyed, stolen, mutilated or lost
certificates will be replaced upon delivery to the Trustee of satisfactory
indemnity, evidence of ownership and payment of expenses incurred. Mutilated
certificates must be surrendered to the Trustee for replacement.
<PAGE>
Unitholder Explanations 15
ESTIMATED CURRENT RETURNS AND ESTIMATED LONG-TERM RETURNS
As of the close of business on the day before the Date of Deposit the
Estimated Current Return and the Estimated Long-Term Return were as set forth
in the "Per Unit Information" for each Trust. 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 Trustee and the Evaluator
and with the principal prepayment, redemption, maturity, exchange or sale of
Securities while the Public Offering Price will vary with changes in the
offering price of the underlying Securities and with changes in the Purchased
Interest; therefore, 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 all of the Securities in a Trust and
(2) takes into account the expenses and sales charge associated with each
Trust Unit. Since the market values and estimated retirements of the
Securities 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 of the Securities contracted for by the
Sponsor for deposit in the Fund, it may be necessary for the Sponsor or
Trustee to pay on the settlement dates for delivery of such Securities amounts
covering accrued interest on such Securities which exceed (1) the amounts paid
by Unitholders and (2) the amounts which will be made available through cash
furnished by the Sponsor on the Date of Deposit, which amount of cash may
exceed the interest which would accrue to the First Settlement Date. The
Trustee has agreed to pay for any amounts necessary to cover any such excess
and will be reimbursed therefor, without interest, when funds become available
from interest payments on the particular Securities with respect to which such
payments may have been made. Also, since interest on any "when, as and if
issued" Securities does not begin accruing as tax-exempt interest income to
the benefit of Unitholders until their respective dates of delivery, the
Trustee may, in order to maintain (or in some cases approach) for the
Unitholders the same estimated net annual interest incomes during the first
year of the Trusts' operations as is indicated under "Per Unit Information"
for the applicable Trust, reduce its fee (and to the extent necessary pay
Trust expenses) in an amount equal to that indicated under "Per Unit
Information" for the applicable Trust.
INTEREST EARNING SCHEDULE
CALCULATION OF ESTIMATED NET ANNUAL INTEREST INCOME. The estimated net
annual interest income is based on 360 days. To account for the estimated net
annual interest income per Unit in a Trust, it is necessary to use the
following information.
The beginning interest date for each Trust is June 30, 1994. The first
record date for each Trust (August 1, 1994) is 31 days from such date. The
daily rates of estimated net annual interest income per Unit are $.14984,
$.15318, $.14819, $.12875, $.14650 and $.16315 for the Florida IM-IT, Michigan
IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate Laddered Maturity,
Tennessee IM-IT and National Quality Trusts, respectively. This amounts to
$4.65, $4.75, $4.59, $3.99, $4.54 and $5.06 for the Florida IM-IT, Michigan
IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate Laddered Maturity,
Tennessee IM-IT and National Quality Trusts, respectively.
<PAGE>
16 Unitholder Explanations
Utilizing the preceding information, the following procedure illustrates
the calculation of first year estimated net annual interest income per Unit
for the Florida IM-IT Trust:
The Florida IM-IT Trust accrues
$4.65 to the first record date plus
$45.00 which is 10 normal distributions at $4.50, and finally adding
$4.30 which has accrued from June 1, 1995 until June 30, 1995 which
completes the 360 day cycle (29 days times the daily factor)
Total $53.95 interest earned / $1,000.00 (Date of Deposit Public Offering
Price) = 5.40% Estimated Current Return as of the Date of
Deposit.
PURCHASED AND ACCRUED INTEREST
PURCHASED INTEREST. Purchased Interest is a portion of the unpaid
interest that has accrued on the Securities from the later of the last payment
date on the Securities or the date of issuance thereof through the First
Settlement Date and is included in the calculation of the Public Offering
Price. Purchased Interest will be distributed to Unitholders as Units are
redeemed or Securities mature or are called. See "Summary of Essential
Financial Information" for the amount of Purchased Interest per Unit for each
Trust. Purchased Interest is an element of the price Unitholders will receive
in connection with the sale or redemption of Units prior to the termination of
the Trust.
ACCRUED INTEREST. Accrued interest is an accumulation of unpaid interest
on securities which generally is paid semi-annually, although the Trust
accrues such interest daily. Because of this, the Trust always has an amount
of interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the Trust the amount, if any, of accrued interest
paid on their Units.
As indicated in "Purchased Interest", accrued interest as of the First
Settlement Date includes Purchased Interest. In an effort to reduce the amount
of Purchased Interest which would otherwise have to be paid by Unitholders,
the Trustee may advance a portion of such accrued interest to the Sponsor as
the Unitholder of record as of the First Settlement Date. Consequently, the
amount of accrued interest to be added to the Public Offering Price of Units
will include only accrued interest from the First Settlement Date to the date
of settlement (other than the Purchased Interest already included therein),
less any distributions from the Interest Account subsequent to the First
Settlement Date. See "Public Offering--Distributions of Interest and
Principal".
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the Purchased Interest and accrued interest from
the purchaser of his Units. Since the Trustee has the use of the funds
(including Purchased Interest) held in the Interest Account for distributions
to Unitholders and since such Account is non-interest-bearing to Unitholders,
the Trustee benefits thereby.
PUBLIC OFFERING
GENERAL. Units are offered at the Public Offering Price which includes
Purchased Interest. During the initial offering period the Public Offering
Price is based on the offering prices of the Securities in each Trust and
includes a sales charge of 4.9% of the Public Offering Price (excluding
Purchased Interest) (5.152% of the aggregate offering price of the Securities)
for a State Trust (other than a State Intermediate Laddered Maturity Trust),
4.3% of the Public Offering Price (excluding Purchased Interest) (4.493% of
the aggregate offering price of the Securities) for an IM-IT Limited Maturity
Trust, 3.9% of the Public Offering Price (excluding Purchased Interest)
(4.058% of the aggregate offering price of the Securities) for an IM-IT
Intermediate Trust and 3.0% of the Public Offering Price (excluding Purchased
Interest) (3.093% of the aggregate offering price of the Securities) for an
IM-IT Short Intermediate Trust or a State Intermediate Laddered Maturity
Trust. After the initial public offering period, the secondary market Public
<PAGE>
Unitholder Explanations 17
Offering Price is based on the bid prices of the Securities in each Trust and
includes a sales charge determined in accordance with the table set forth
below, which is based upon the dollar weighted average maturity of each Trust
plus in each case Purchased Interest and accrued interest, if any. For
purposes of computation, Bonds will be deemed to mature on their expressed
maturity dates unless: (a) the Bonds have been called for redemption or funds
or securities have been placed in escrow to redeem them on an earlier call
date, in which case such call date will be deemed to be the date upon which
they mature; or (b) such Bonds are subject to a "mandatory tender", in which
case such mandatory tender will be deemed to be the date upon which they
mature.
The effect of this method of sales charge computation will be that
different sales charge rates will be applied to each Trust based upon the
dollar weighted average maturity of such Trust's Portfolio, in accordance with
the following schedule:
<TABLE>
<CAPTION>
YEARS TO MATURITY SALES CHARGE YEARS TO MATURITY SALES CHARGE
<S> <C> <C> <C>
1................... 1.523% 9.................... 4.712%
2................... 2.041 10................... 4.932
3................... 2.564 11................... 4.932
4................... 3.199 12................... 4.932
5................... 3.842 13................... 5.374
6................... 4.058 14................... 5.374
7................... 4.275 15................... 5.374
8................... 4.493 16 to 30............. 6.045
</TABLE>
The sales charges in the above table are expressed as a percentage of the
aggregate bid prices of the Securities in a Trust. Expressed as a percent of
the Public Offering Price (excluding Purchased Interest), the sales charge on
a Trust consisting entirely of a portfolio of Bonds with 15 years to maturity
would be 5.10%. The sales charge applicable to quantity purchases during the
initial offering period is, however, reduced on a graduated basis to any
person acquiring 100 or more Units as follows:
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF SALES
CHARGE REDUCTION PER UNIT
STATE (OTHER THAN A
STATE INTERMEDIATE
LADDERED MATURITY
AGGREGATE NUMBER OF TRUST) AND NATIONAL
UNITS PURCHASED QUALITY TRUSTS OTHER TRUSTS
<S> <C> <C>
100-249 Units................................... $ 4.00 $ 4.00
250-499 Units................................... $ 6.00 $ 6.00
500-999 Units................................... $ 14.00 $ 9.00
1,000 or more Units............................. $ 19.00 $ 11.00
</TABLE>
Any such reduced sales charge shall be the responsibility of the selling
Underwriter, broker, dealer or agent. The Sponsor will, however, increase the
concession or agency commission for such quantity purchases. See "Public
Offering--Unit Distribution". This reduced sales charge structure will apply
on all purchases by the same person from any one Underwriter or dealer of
units of Van Kampen Merritt-sponsored unit investment trusts which are being
offered in the initial offering period (a) on any one day (the "Initial
Purchase Date") or (b) on any day subsequent to the Initial Purchase Date, if
(1) the units purchased are of a unit investment trust purchased on the
Initial Purchase Date, and (2) the person purchasing the units purchased a
sufficient amount of units on the Initial Purchase Date to qualify for a
reduced sales charge on such date. 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
<PAGE>
18 Unitholder Explanations
it is necessary to accumulate all purchases made on the Initial Purchase Date
and all purchases made in accordance with (b) above. Units purchased in the
name of the spouse of a purchaser or in the name of a child of such purchaser
under 21 years of age will be deemed for the purposes of calculating the
applicable sales charge to be additional purchases by the purchaser. The
reduced sales charges will also be applicable to a trustee or other fiduciary
purchasing securities for one or more trust estate or fiduciary accounts.
Employees of Van Kampen Merritt Inc. and its subsidiaries may purchase Units
of the Trust at the current Public Offering Price less the underwriting
commission during the initial offering period, and less the dealer's
concession for secondary market transactions. Registered representatives of
selling Underwriters may purchase Units of the Fund at the current Public
Offering Price less the underwriting commission during the initial offering
period, and less the dealer's concession for secondary market transactions.
Registered representatives of selling brokers, dealers, or agents may purchase
Units of the Fund at the current Public Offering Price less the dealer's
concession during the initial offering period and for secondary market
transactions.
OFFERING PRICE. Public Offering Price of the Units will vary from the
amounts stated under "Summary of Essential Financial Information" in
accordance with fluctuations in the prices of the underlying Securities in
each Trust.
As indicated above, the price of the Units as of the date the Securities
were deposited in each Trust was determined by adding to the aggregate
offering price of the Securities of a Trust an amount equal to the applicable
sales charge expressed as a percentage of the aggregate offering price of the
Securities plus Purchased Interest and dividing the sum so obtained by the
number of Units outstanding. This computation produced a gross underwriting
commission equal to such sales charge expressed as a percentage of the Public
Offering Price (excluding Purchased Interest). Such price determination as of
the close of business on the day before the Date of Deposit was made on the
basis of an evaluation of the Securities in each Trust prepared by Interactive
Data Services, Inc., a firm regularly engaged in the business of evaluating,
quoting or appraising comparable securities. After the close of business on
the day before the Date of Deposit and during the period of initial offering,
the Evaluator will appraise or cause to be appraised daily the value of the
underlying Securities of each Trust as of 4:00 P.M. Eastern time on days the
New York Stock Exchange is open for business and will adjust the Public
Offering Price of the Units commensurate with such appraisal. Such Public
Offering Price will be effective for all orders received at or prior to 4:00
P.M. Eastern time on each such day. Orders received by the Trustee, Sponsor or
any Underwriter for purchases, sales or redemptions after that time, or on a
day when the New York Stock Exchange is closed, will be held until the next
determination of price. For secondary market sales the Public Offering Price
per Unit will be equal to the aggregate bid price of the Securities in the
Trust plus an amount equal to the applicable secondary market sales charge
expressed as a percentage of the aggregate bid price of the Securities plus
Purchased Interest and dividing the sum so attained by the number of Units
then outstanding. This computation produces a gross commission equal to such
sales charge expressed as a percentage of the Public Offering Price (excluding
Purchased Interest). For secondary market purposes such appraisal and
adjustment with respect to a Trust will be made by the Evaluator as of 4:00
P.M. Eastern time on days in which the New York Stock Exchange is open for
each day on which any Unit of such Trust is tendered for redemption, and it
shall determine the aggregate value of any Trust as of 4:00 P.M. Eastern time
on such other days as may be necessary.
The aggregate price of the Securities in each Trust has been and will be
determined on the basis of bid prices or offering prices, as is appropriate,
(a) on the basis of current market prices for the Securities obtained from
dealers or brokers who customarily deal in bonds comparable to those held by
the Fund; (b) if such prices are not available for any particular Securities,
on the basis of current market prices for comparable bonds; (c) by causing the
value of the Securities 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 Securities 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 such 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 such default (the "Defaulted Bonds") the value of the
insurance guaranteeing interest and principal payments. The value of the
insurance will be equal to the difference between (i)
<PAGE>
Unitholder Explanations 19
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 such Defaulted Bonds not covered by Permanent Insurance. In addition, the
Evaluator will consider the ability of the affected Portfolio Insurer to meet
its commitments under any Trust insurance policy, including the commitments to
issue Permanent Insurance. It is the position of the Sponsor that this is a
fair method of valuing the Bonds and the insurance obtained by an Insured
Trust and reflects a proper valuation method in accordance with the provisions
of the Investment Company Act of 1940.
No value has been ascribed to insurance obtained by an Insured Trust, if
any, as of the date of this Prospectus.
The initial or primary Public Offering Price of the Units is equal to the
offering price per Unit of the underlying Securities in each Trust plus the
applicable sales charge plus Purchased Interest and interest accrued but
unpaid from the First Settlement Date to the date of settlement. The secondary
market Public Offering Price is equal to the bid price per Unit of the
Securities in each Trust plus the applicable sales charge plus Purchased
Interest and accrued interest. The offering price of Securities in each Trust
may be expected to average approximately 0.5%-1% more than the bid price of
such Securities. On the Date of Deposit, the offering side evaluations of the
Securities in the Trusts were higher than the bid side evaluations of such
Securities by the respective amounts indicated under footnote (5) in "Notes to
Portfolios".
Although payment is normally made five business days following the order
for purchase, payment may be made prior thereto. 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. Delivery of certificates representing Units
so ordered will be made five business days following such order or shortly
thereafter. See "Redemption of Units" below for information regarding the
ability to redeem Units ordered for purchase.
MARKET FOR UNITS. During the initial public offering period, the Sponsor
and/or certain of the Underwriters intend to offer to purchase Units at a
price equivalent to the Public Offering Price which is based upon the
aggregate offering price per Unit of the underlying Securities in each Trust
and the amount of Purchased Interest for each Trust plus accrued interest to
the date of settlement less the related sales commission. Afterward, although
they are not obligated to do so, the Sponsor intends to, and certain of the
other Underwriters may, maintain a market for the Units offered hereby and to
offer continuously to purchase such Units at prices, subject to change at any
time, based upon the aggregate bid prices of the Securities in the portfolio
of each Trust plus Purchased Interest plus interest accrued to the date of
settlement and plus any principal cash on hand, less any amounts representing
taxes or other governmental charges payable out of the Trust and less any
accrued Trust expenses. If the supply of Units exceeds demand or if some other
business reason warrants it, the Sponsor and/or the Underwriters may either
discontinue all purchases of Units or discontinue purchases of Units at such
prices. In the event that a market is not maintained for the Units and the
Unitholder cannot find another purchaser, a Unitholder of any Trust desiring
to dispose of his Units may be able to dispose of such Units only by tendering
them to the Trustee for redemption at the Redemption Price, which is based
upon the aggregate bid price of the Securities in the portfolio of such Trust
plus Purchased Interest and any accrued interest. The aggregate bid prices of
the underlying Securities in a Trust are expected to be less than the related
aggregate offering prices. See "Redemption of Units" below. A Unitholder who
wishes to dispose of his Units should inquire of his broker as to current
market prices in order to determine whether there is in existence any price in
excess of the Redemption Price and, if so, the amount thereof.
DISTRIBUTIONS OF INTEREST AND PRINCIPAL. Interest received by the Fund,
including that part of the proceeds of any disposition of Securities which
represents Purchased Interest and/or accrued interest, is credited by the
Trustee to the Interest Account for the appropriate Trust. Other receipts are
credited to the Principal Account for the appropriate Trust. Interest received
by the Fund after deduction of amounts sufficient to reimburse the Trustee,
without interest, for any amounts advanced and paid to the Sponsor as the
Unitholder of record as of the First Settlement Date (see "Public
Offering--Offering Price" above) will be distributed on or shortly after the
fifteenth day of each month on a pro rata basis to Unitholders of record of a
Trust as of the preceding record date who are entitled to distributions at
<PAGE>
20 Unitholder Explanations
that time. All distributions will be net of applicable expenses. The pro rata
share of cash in the Principal Account of a Trust will be computed as of the
date set forth under "Per Unit Information" for the applicable Trust, and
thereafter as of the record date, and distributions to the Unitholders as of
such record date will be made on or shortly after the fifteenth day of such
month. Proceeds received from the disposition of any of the Securities after
such record date and prior to the following distribution date will be held in
the Principal Account and not distributed until the next distribution date.
The Trustee is not required to pay interest on funds held in any Principal or
Interest Account (but may itself earn interest thereon and therefore benefits
from the use of such funds) nor to make a distribution from the Principal
Account unless the amount available for distribution therein shall equal at
least $1.00 per Unit.
The distribution to the Unitholders of a Trust as of each record date
after the First Settlement Date will be made on the following distribution
date or shortly thereafter and shall consist of an amount substantially equal
to such portion of the Unitholder's pro rata share of the estimated net Annual
interest Income in the Interest Account of such Trust after deducting
estimated expenses. Because interest payments are not received by the Fund at
a constant rate throughout the year, such interest distribution may be more or
less than the amount credited to such Interest Account as of the record date.
For the purpose of minimizing fluctuations in the distributions from an
Interest Account, the Trustee is authorized to advance such amounts as may be
necessary to provide interest distributions of approximately equal amounts.
The Trustee shall be reimbursed, without interest, for any such advances from
funds in the applicable Interest Account on the ensuing record date. Persons
who purchase Units between a record date and a distribution date will receive
their first distribution on the second distribution date after the purchase.
As of the first day of each month, the Trustee will deduct from the
Interest Account and, to the extent funds are not sufficient therein, from the
Principal Account, amounts necessary to pay the expenses of the Fund (as
determined on the basis set forth under "Trust Administration--Fund
Administration and Expenses"). The Trustee also may withdraw from said
Accounts such amounts, if any, as it deems necessary to establish a reserve
for any governmental charges payable out of the Fund. Amounts so withdrawn
shall not be considered a part of the Fund's assets until such time as the
Trustee shall return all or any part of such amounts to the appropriate
Accounts. In addition, the Trustee may withdraw from the Interest and
Principal Accounts such amounts as may be necessary to cover purchases of
Replacement Bonds and redemptions of Units by the Trustee.
REINVESTMENT OPTION. Unitholders of all unit investment trusts sponsored
by Van Kampen Merritt Inc. (except Unitholders of a New York IM-IT Trust or a
New York IM-IT Intermediate Laddered Maturity Trust), may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of any of the open ended mutual funds
(except for B shares) listed under "Trust Administration--Sponsor" which are
registered in the Unitholder's state of residence. New York IM-IT Trust and
New York IM-IT Intermediate Laddered Maturity Trust Unitholders, other than
those residing in the Commonwealth of Massachusetts, may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of First Investors New York Insured Tax
Free Fund, Inc., a fund which invests primarily in securities exempt from
federal and New York state and city income tax. Such mutual funds are
hereinafter collectively referred to as the "Reinvestment Funds".
Each Reinvestment Fund has investment objectives which differ in certain
respects from those of the Trusts. The prospectus relating to each
Reinvestment Fund describes the investment policies of such fund and sets
forth the procedures to follow to commence reinvestment. A Unitholder may
obtain a prospectus for the respective Reinvestment Funds from Van Kampen
Merritt Inc. at One Parkview Plaza, Oakbrook Terrace, Illinois 60181. Texas
residents who desire to reinvest may request that a broker-dealer registered
in Texas send the prospectus relating to the respective fund.
After becoming a participant in a reinvestment plan, each distribution of
interest income, capital gains and/or principal on the participant's Units
will, on the applicable distribution date, automatically be applied, as
directed by such person, as of such distribution date by the Trustee to
purchase shares (or fractions thereof) of the applicable Reinvestment Fund at
a net asset value as computed as of the close of trading on the New York Stock
Exchange on such date, plus a sales charge of $1.00 per $100 of reinvestment
except if the participant selects the First Investors New York Insured Tax
Free Fund, Inc., in which case the sales charge will be $1.50 per $100 of
reinvestment, or
<PAGE>
Unitholder Explanations 21
except if the participant selects the Van Kampen Merritt Money Market Fund or
the Van Kampen Merritt Tax Free Money Fund in which case no sales charge
applies. A minimum of one-half of such sales charge would be paid to Van
Kampen Merritt Inc. for all Reinvestment Funds except First Investors New York
Insured Tax Free Fund, Inc., in which case such sales charge would be paid to
First Investors Management Company, Inc.
Confirmations of all reinvestments by a Unitholder into a Reinvestment
Fund will be mailed to the Unitholder by such Reinvestment Fund.
A participant may at any time prior to five days preceding the next
succeeding distribution date, by so notifying the Trustee in writing, elect to
terminate his or her reinvestment plan and receive future distributions of his
or her Units in cash. There will be no charge or other penalty for such
termination. Each Reinvestment Fund, its sponsor and investment adviser shall
have the right to terminate at any time the reinvestment plan relating to such
fund.
REDEMPTION OF UNITS. A Unitholder may redeem all or a portion of his
Units by tender to the Trustee, at its Unit Investment Trust Division, 101
Barclay Street, 20th Floor, New York, New York 10286, of the certificates
representing the Units to be redeemed, duly endorsed or accompanied by proper
instruments of transfer with signature guaranteed (or by providing
satisfactory indemnity, as in connection with lost, stolen or destroyed
certificates) and by payment of applicable governmental charges, if any. Thus,
redemption of Units cannot be effected until certificates representing such
Units have been delivered to the person seeking redemption or satisfactory
indemnity provided. No redemption fee will be charged. On the seventh calendar
day following such tender, or if the seventh calendar day is not a business
day, on the first business day prior thereto, the Unitholder will be entitled
to receive in cash an amount for each Unit equal to the Redemption Price per
Unit next computed after receipt by the Trustee of such tender of Units. The
"date of tender" is deemed to be the date on which Units are received by the
Trustee, except that as regards Units received after 4:00 P.M. Eastern time on
days of trading on the New York Stock Exchange, the date of tender is the next
day on which such Exchange is open for trading and such Units will be deemed
to have been tendered to the Trustee on such day for redemption at the
Redemption Price computed on that day.
Under regulations issued by the Internal Revenue Service, the Trustee
will be required to withhold a specified percentage of the principal amount of
a Unit redemption if the Trustee has not been furnished the redeeming
Unitholder's tax identification number in the manner required by such
regulations. Any amount so withheld is transmitted to the Internal Revenue
Service and may be recovered by the Unitholder only when filing a return.
Under normal circumstances the Trustee obtains the Unitholder's tax
identification number from the selling broker. However, at any time a
Unitholder elects to tender Units for redemption, such Unitholder should
provide a tax identification number to the Trustee in order to avoid this
possible "back-up withholding" in the event the Trustee has not been
previously provided such number.
Purchased Interest and accrued interest paid on redemption shall be
withdrawn from the Interest Account of such Trust or, if the balance therein
is insufficient, from the Principal Account of such Trust. All other amounts
will be withdrawn from the Principal Account of such Trust. The Trustee is
empowered to sell underlying Securities of a Trust in order to make funds
available for redemption. Units so redeemed shall be cancelled.
The Redemption Price per Unit (as well as the secondary market Public
Offering Price) will be determined on the basis of the bid price of the
Securities in each Trust, while the initial and primary Public Offering Price
of Units will be determined on the basis of the offering price of the
Securities in each Trust, as of 4:00 P.M. Eastern time on days of trading on
the New York Stock Exchange on the date any such determination is made. On the
Date of Deposit the Public Offering Price per Unit (which is based on the
offering prices of the Bonds and Purchased Interest in each Trust and includes
the sales charge) exceeded the value at which Units could have been redeemed
(based upon the current bid prices of the Securities and Purchased Interest in
such Trust) by the amount shown under "Summary of Essential Financial
Information". While the Trustee has the power to determine the Redemption
Price per Unit when Units are tendered for redemption, such authority has been
delegated to the Evaluator which determines the price per Unit on a daily
basis. The Redemption Price per Unit is the pro rata share of each Unit in
each Trust on the basis of (i) the cash on hand in such Trust or moneys in the
process of being collected, (ii) the value of the Securities in such Trust
based on the bid prices of the Securities therein, except for cases in which
the value of insurance has been included, (iii) Purchased Interest for each
Trust and (iv) interest accrued thereon, less (a) amounts representing taxes
<PAGE>
22 Unitholder Explanations
or other governmental charges payable out of such Trust and (b) the accrued
expenses of such Trust. The Evaluator may determine the value of the
Securities in each Trust by employing any of the methods set forth in "Public
Offering--Offering Price". In determining the Redemption Price per Unit no
value will be assigned to the portfolio insurance maintained on the Bonds in
an Insured Trust unless such Bonds are in default in payment of principal or
interest or in significant risk of such default. For a description of the
situations in which the Evaluator may value the insurance obtained by the
Insured Trusts, see "Public Offering--Offering Price" above.
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 Securities
represented by the Units so redeemed. As stated above, the Trustee may sell
Securities to cover redemptions. When Securities are sold, the size and
diversity of the affected Trust will be reduced. Such sales may be required at
a time when Securities 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 Securities and
Exchange Commission determines that trading on that Exchange is restricted or
an emergency exists, as a result of which disposal or evaluation of the
Securities in the Trusts is not reasonably practicable, or for such other
periods as the Securities and Exchange Commission may by order permit. Under
certain extreme circumstances the Sponsor may apply to the Securities and
Exchange Commission for an order permitting a full or partial suspension of
the right of Unitholders to redeem their Units.
REPORTS PROVIDED. The Trustee shall furnish Unitholders of a Trust in
connection with each distribution a statement of the amount of interest and
the amount of other receipts (received since the preceding distribution), if
any, being distributed expressed in each case as a dollar amount representing
the pro rata share of each Unit of a Trust outstanding. For as long as the
Trustee deems it to be in the best interests of the Unitholders, the accounts
of each Trust shall be audited, not less frequently than annually, by
independent certified public accountants and the report of such accountants
shall be furnished by the Trustee to Unitholders of such Trusts upon request.
Within a reasonable period of time after the end of each calendar year, the
Trustee shall furnish to each person who at any time during the calendar year
was a registered Unitholder of a Trust a statement (i) as to the Interest
Account: interest received (including amounts representing interest received
upon any disposition of Securities) and the percentage of such interest by
states in which the issuers of the Securities are located, the amount of
Purchased Interest, deductions for applicable taxes and for fees and expenses
of such Trust, for purchases of Replacement Bonds and for redemptions of
Units, if any, and the balance remaining after such distributions and
deductions, expressed in each case both as a total dollar amount and as a
dollar amount representing the pro rata share of each Unit outstanding on the
last business day of such calendar year; (ii) as to the Principal Account: the
dates of disposition of any Securities and the net proceeds received therefrom
(excluding any portion representing accrued interest), the amount paid for
purchases of Replacement Bonds and for redemptions of Units, if any,
deductions for payment of applicable taxes and fees and expenses of the
Trustee, the amount of "when issued" interest treated as a return of capital,
if any, and the balance remaining after such distributions and deductions
expressed both as a total dollar amount and as a dollar amount representing
the pro rata share of each Unit outstanding on the last business day of such
calendar year; (iii) a list of the Securities held and the number of Units
outstanding on the last business day of such calendar year; (iv) the
Redemption Price per Unit based upon the last computation thereof made during
such calendar year; and (v) amounts actually distributed during such calendar
year from the Interest and Principal Accounts, separately stated, expressed
both as total dollar amounts and as dollar amounts representing the pro rata
share of each Unit outstanding.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities in a Trust furnished to it by the Evaluator.
INSURANCE ON THE BONDS IN THE INSURED TRUSTS
Insurance has been obtained by each Insured Trust or by the issuer of
such Bonds, or 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
<PAGE>
Unitholder Explanations 23
principal, when due, in respect of the Bonds in such Trust. See "Unitholder
Explanations--Settlement of Bonds in the Trusts--Objectives and Securities
Selection". 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 referred to below 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). Any portfolio insurance premium
for an Insured Trust, which is an obligation of such Trust, is paid by each
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 as
they fall due. For the purposes of insurance obtained by an Insured Trust,
"when due" generally means the stated 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 Bonds 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". 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 "Public Offering--Redemption of Units") 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
<PAGE>
24 Unitholder Explanations
such Trust would not need to hold such Bonds until their respective maturities
in order to realize the benefits of such Trust's portfolio insurance (see
"Trust Administration--Amendment or Termination").
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". 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" herein
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
"Unitholder Explanations--Settlement of Bonds in the Trusts--Objectives and
Securities Selection".
AMBAC Indemnity Corporation ("AMBAC Indemnity") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin and licensed to do business in 50 states,
the District of Columbia and the Commonwealth of Puerto Rico, with admitted
assets of approximately $1,936,000,000 (unaudited) and statutory capital of
approximately $1,096,000,000 (unaudited) as of September 30, 1993. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and statutory
contingency reserve. AMBAC Indemnity is a wholly owned subsidiary of AMBAC
Inc., a 100% publicly-held company. Moody's Investors Service, Inc. and
Standard & Poor's Corporation have both assigned a triple-A claims-paying
ability rating to AMBAC Indemnity.
Copies of its financial statements prepared in accordance with statutory
accounting standards are available from AMBAC Indemnity. The address of AMBAC
Indemnity's administrative offices and its telephone number are One State
Street Plaza, 17th Floor, New York, New York, 10004 and (212) 668-0340.
AMBAC Indemnity has entered into quota share reinsurance agreements under
which a percentage of the insurance underwritten pursuant to certain municipal
bond insurance programs of AMBAC Indemnity has been and will be assumed by a
number of foreign and domestic unaffiliated reinsurers.
Municipal Bond Investors Assurance Corporation ("MBIA") is the principal
operating subsidiary of MBIA Inc., a New York Stock Exchange listed company.
MBIA Inc. is not obligated to pay the debts of or claims against MBIA. MBIA is
a limited liability corporation rather than a several liability association.
MBIA is domiciled in the State of New York and licensed to do business in all
fifty states, the District of Columbia and the Commonwealth of Puerto Rico. As
of March 31, 1994 MBIA had admitted assets of $3.2 billion (unaudited), total
liabilities of $2.2 billion (unaudited), and total capital and surplus of $998
million (unaudited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. Copies
of MBIA's year end financial statements prepared in accordance with statutory
accounting practices are available from MBIA. The address of MBIA is 113 King
Street, Armonk, New York 10504.
Effective December 31, 1989, MBIA Inc. acquired Bond Investors Group,
Inc. On January 5, 1990, MBIA acquired all of the outstanding stock of Bond
Investors Group, Inc., the parent of Bond Investors Guaranty Insurance Company
(BIG), now known as MBIA Insurance Corp. of Illinois. Through a reinsurance
agreement, BIG has ceded all
<PAGE>
Unitholder Explanations 25
of its net insured risks, as well as its unearned premium and contingency
reserves, to MBIA and MBIA has reinsured BIG's net outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA
"Aaa" and short term loans "MIG 1," both designated to be of the highest
quality.
Standard & Poor's Corporation rates all new issues insured by MBIA "AAA"
Prime Grade.
The Moody's Investors Service, Inc. rating of MBIA should be evaluated
independently of the Standard & Poor's Corporation rating of MBIA. No
application has been made to any other rating agency in order to obtain
additional ratings on the Bonds. 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 Bonds,
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 Bonds.
Financial Guaranty Insurance Company ("Financial Guaranty" or "FGIC") is
a wholly-owned subsidiary of FGIC Corporation (the "Corporation"), a Delaware
holding company. The Corporation is a wholly-owned subsidiary of General
Electric Capital Corporation ("GECC"). Neither the Corporation nor GECC is
obligated to pay the debts of or the claims against Financial Guaranty.
Financial Guaranty is domiciled in the State of New York and is subject to
regulation by the State of New York Insurance Department. As of December 31,
1993, the total capital and surplus of Financial Guaranty was approximately
$777,000,000. Copies of Financial Guaranty's financial statements, prepared on
the basis of statutory accounting principles, and the Corporation's financial
statements, prepared on the basis of generally accepted accounting principles,
may be obtained by writing to Financial Guaranty at 115 Broadway, New York,
New York 10006, Attention: Communications Department, telephone number: (212)
312-3000 or to the New York State Insurance Department at 160 West Broadway,
18th Floor, New York, New York 10013, Attention: Property Companies Bureau,
telephone number: (212) 621-0389.
In addition, Financial Guaranty Insurance Company is currently licensed
to write insurance in all 50 states and the District of Columbia.
Financial Security Assurance, Inc. ("Financial Security" or "FSA") is a
monoline insurance company incorporated on March 16, 1984 under the laws of
the State of New York. The operations of Financial Security commenced on July
25, 1985, and Financial Security received its New York State insurance license
on September 23, 1985. Financial Security and its two wholly owned
subsidiaries are licensed to engage in the financial guaranty insurance
business in 49 states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged exclusively in the
business of writing financial guaranty insurance, principally in respect of
asset-backed and other collateralized securities offered in domestic and
foreign markets. Financial Security and its subsidiaries also write financial
guaranty insurance in respect of municipal and other obligations and reinsure
financial guaranty insurance policies written by other leading insurance
companies. In general, financial guaranty insurance consists of the issuance
of a guaranty of scheduled payments of an issuer's securities, thereby
enhancing the credit rating of those securities, in consideration for payment
of a premium to the insurer.
Financial Security is approximately 91.6% owned by U S WEST, Inc. and
8.4% owned by The Tokio Marine and Fire Insurance Co., Ltd. ("Tokio Marine").
Neither U S WEST, Inc. nor Tokio Marine is obligated to pay the debts of or
the claims against Financial Security. Financial Security is domiciled in the
State of New York and is subject to regulation by the State of New York
Insurance Department. As of March 31, 1993, the total policyholders' surplus
and contingency reserves and the total unearned premium reserve, respectively,
of Financial Security and its consolidated subsidiaries were, in accordance
with generally accepted accounting principles, approximately $479,110,000
(unaudited) and $220,078,000 (unaudited), and the total shareholders' equity
and the total unearned premium reserve, respectively, of Financial Security
and its consolidated subsidiaries were, in accordance with generally accepted
accounting principles, approximately $628,119,000 (unaudited) and $202,493,000
(unaudited). Copies of
<PAGE>
26 Unitholder Explanations
Financial Security's financial statements may be obtained by writing to
Financial Security at 350 Park Avenue, New York, New York, 10022, Attention:
Communications Department. Its telephone number is (212) 826-0100.
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written by Financial Security or either of its subsidiaries are
reinsured among such companies on an agreed-upon percentage substantially
proportional to their respective capital, surplus and reserves, subject to
applicable statutory risk limitations. In addition, Financial Security
reinsures a portion of its liabilities under certain of its financial guaranty
insurance policies with unaffiliated reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is
utilized by Financial Security as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit
Financial Security's obligations under any financial guaranty insurance
policy.
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc., and "AAA" by Standard & Poor's Corporation, Nippon
Investors Service Inc., Duff & Phelps Inc. and Australian Ratings Pty. Ltd.
Such ratings reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
Capital Guaranty Insurance Company ("Capital Guaranty") is a "Aaa/AAA"
rated monoline stock insurance company incorporated in the State of Maryland,
and is a wholly owned subsidiary of Capital Guaranty Corporation, a Maryland
insurance holding company. Capital Guaranty Corporation is a publicly owned
company whose shares are traded on the New York Stock Exchange.
Capital Guaranty is authorized to provide insurance in 49 states, the
District of Columbia and three U.S. territories. Capital Guaranty focuses on
insuring municipal securities and our policies guaranty the timely payment of
principal and interest when due for payment on new issue and secondary market
issue municipal bond transactions. Capital Guaranty's claims-paying ability is
rated "Triple-A" by both Moody's and Standard & Poor's.
As of March 31, 1994, Capital Guaranty had more than $12.5 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$196,042,817 (unaudited), and the total admitted assets were $288,052,110
(unaudited) as reported to the Insurance Department of the State of Maryland
as of March 31, 1994. Financial statements for Capital Guaranty Insurance
Company, that have been prepared in accordance with statutory insurance
accounting standards, are available upon request. The address of Capital
Guaranty's headquarters and its telephone number are Steuart Tower, 22nd
Floor, One Market Plaza, San Francisco, CA 94105-1413 and (415) 995-8000.
CapMAC is a New York-domiciled monoline stock insurance company which
engages only in the business of financial guarantee and surety insurance.
CapMAC is licensed in 50 states in addition to the District of Columbia, the
Commonwealth of Puerto Rico and the territory of Guam. CapMAC insures
structured asset-backed, corporate, municipal and other financial obligations
in the domestic and foreign capital markets. CapMAC may also provide financial
guarantee reinsurance for structured asset-backed, corporate and municipal
obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's"), "AAA" by Standard & Poor's Corporation ("Standard &
Poor's"), "AAA" by Duff & Phelps, Inc. ("Duff & Phelps") and "AAA" by Nippon
Investors Inc. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
CapMAC is wholly owned by CapMAC Holdings Inc. ("Holdings"), a company
that is owned by a group of institutional and other investors, including
CapMAC's management and employees.
Neither Holdings nor any of its stockholders is obligated to pay any
claims under any surety bond issued by CapMAC or any debts of CapMAC or to
make additional capital contributions.
CapMAC is regulated by the Superintendent of Insurance of the State of
New York. In addition, CapMAC is subject to regulation by the insurance
departments of the other jurisdictions in which it is licensed. CapMAC is
subject to periodic regulatory examinations by the same regulatory
authorities.
<PAGE>
Unitholder Explanations 27
CapMAC is bound by insurance laws and regulations regarding capital
transfers, limitations upon dividends, investment of assets, changes in
control, transactions with affiliates and consolidations and acquisitions. The
amount of exposure per risk that CapMAC may retain, after giving effect to
reinsurance, collateral or other security, is also regulated. Statutory and
regulatory accounting practices may prescribe appropriate rates at which
premiums are earned and the levels of reserves required. In addition, various
insurance laws restrict the incurrence of debt, regulate permissible
investments of reserves, capital and surplus, and govern the form of surety
bonds.
CapMAC's obligations under the Surety Bond(s) may be reinsured. Such
reinsurance does not relieve CapMAC of any of its obligations under the Surety
Bond(s).
THE SURETY BOND IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE
SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As of December 31, 1993 and 1992, CapMAC had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $168 million and $163 million, respectively, and had not
incurred any debt obligations. Article 69 of the New York State Insurance Law
requires CapMAC to establish and maintain the contingency reserve, which is
available to cover claims under surety bonds issued by CapMAC.
In addition to its qualified statutory capital and other reinsurance
available to pay claims under its surety bonds, CapMAC has entered into a Stop
Loss Reinsurance Agreement (the "Stop Loss Agreement") with Winterthur Swiss
Insurance Company (the "Reinsurer"), which is rated AAA by Standard & Poor's
and Aaa by Moody's, pursuant to which the Reinsurer will be required to pay
any losses incurred by CapMAC during the term of the Stop Loss Agreement on
the surety bonds covered under the Stop Loss Agreement in excess of a
specified amount of losses incurred by CapMAC under such surety bonds (such
specified amount initially being $100 million and increasing annually by an
amount equal to 66 2/3% of the increase in CapMAC's statutory capital and
surplus) up to an aggregate limit payable under the Stop Loss Agreement of $50
million. The Stop Loss Agreement has a term of seven years, is extendable for
one-year periods and is subject to early termination upon the occurrence of
certain events.
CapMAC also has available a $100,000,000 standby corporate liquidity
facility (the "Liquidity Facility") provided by a syndicate of banks rated
A1+/P1 by Standard & Poor's and Moody's, respectively, having a term of 360
days. Under the Liquidity Facility CapMAC will be able, subject to satisfying
certain conditions, to borrow funds from time to time in order to enable it to
fund any claim payments or payments made in settlement or mitigation of claims
payments under its surety bonds, including the Surety Bond.
Copies of CapMAC's financial statements prepared in accordance with
statutory accounting standards, which differ from generally accepted
accounting principles, and filed with the Insurance Department of the State of
New York are available upon request. CapMAC is located at 885 Third Avenue,
New York, New York 10022, and its telephone number is (212) 755-1155.
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, AMBAC Indemnity and Financial Guaranty 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, AMBAC Indemnity and
Financial Guaranty 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 Corporation has assigned to the Units of each
Insured Trust its "AAA" investment rating. See "Description of Securities
Ratings". The obtaining of this rating by an Insured Trust should not be
construed as an
<PAGE>
28 Unitholder Explanations
approval of the offering of the Units by Standard & Poor's Corporation or as a
guarantee of the market value of such Trust or of the Units.
On the date of this Prospectus, the Estimated Current Return on the
Securities in the Missouri IM-IT Trust was 5.34% after payment of the
insurance premium or premiums payable by such Trust, while the Estimated
Long-Term Return on such Trust was 5.38%. The Estimated Current Return on an
identical portfolio without the insurance obtained by the above-mentioned
Trust would have been 5.34% on such date, while the Estimated Long-Term Return
on an identical portfolio without the insurance obtained by the above
mentioned Trust would have been 5.38%.
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 Securities in such portfolio had Standard & Poor's Corporation
"AAA" rating and yet at the same time to have the protection of insurance of
prompt payment of interest and principal, when due, 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 Corporation)
may or may not have a higher yield than uninsured bonds rated "AAA" by
Standard & Poor's Corporation. In selecting such Bonds for an Insured Trust,
the Sponsor has applied the criteria hereinbefore described.
In the event of nonpayment of interest or principal, when due, in respect
of a Bond, AMBAC Indemnity shall make such payment not later than 30 days and
Financial Guaranty shall make such payment within one business day after the
respective insurer has been notified that such nonpayment has occurred or is
threatened (but not earlier than the date such payment is due). The insurer,
as regards any payment it may make, will succeed to the rights of the Trustee
in respect thereof. All policies issued by the Portfolio Insurers and the
Preinsured Bond Insurers are substantially identical insofar as obligations to
an Insured Trust are concerned.
The Internal Revenue Service has issued a letter ruling which holds in
effect that insurance proceeds representing maturing interest on defaulted
municipal obligations paid to holders of insured bonds, under policy
provisions substantially identical to the policies described herein, will be
excludable from Federal gross income under Section 103(a)(1) of the Internal
Revenue Code to the same extent as if such payments were made by the issuer of
the municipal obligations. Holders of Units in an Insured Trust should discuss
with their tax advisers the degree of reliance which they may place on this
letter ruling. However, Chapman and Cutler, counsel for the Sponsor, has given
an opinion to the effect such payment of proceeds would be excludable from
Federal gross income if, and to the same extent as, such interest would have
been so excludable if paid by the issuer of the defaulted obligations. See
"Other Matters--Federal Tax Status".
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.
<PAGE>
Unitholder Explanations 29
The Bonds in the Insured Trusts are insured as follows:
<TABLE>
<CAPTION>
BONDS INSURED BONDS INSURED
UNDER AMBAC UNDER FINANCIAL
INDEMNITY GUARANTY PREINSURED
TRUST PORTFOLIO INSURANCE PORTFOLIO INSURANCE BONDS TOTAL
<S> <C> <C> <C> <C>
Florida IM-IT....................................... 0% 0% 100% 100%
Michigan IM-IT...................................... 0% 0% 100% 100%
Missouri IM-IT...................................... 4% 0% 96% 100%
Pennsylvania IM-IT Intermediate
Laddered Maturity.................................. 0% 0% 100% 100%
Tennessee IM-IT..................................... 0% 0% 100% 100%
</TABLE>
The breakdown of the Preinsured Bonds is as follows: Florida IM-IT
Trust--AMBAC Indemnity 18%, Financial Guaranty 23%, MBIA 42% and FSA 17%;
Michigan IM-IT Trust--AMBAC Indemnity 30%, Financial Guaranty 57% and MBIA
13%; Missouri IM-IT Trust--Financial Guaranty 28%, MBIA 60% and FSA 8%;
Pennsylvania IM-IT Intermediate Laddered Maturity Trust--AMBAC Indemnity 20%,
MBIA 60% and FSA 20%; Tennessee IM-IT Trust-- AMBAC Indemnity 42%, Capital
Guaranty 8%, Financial Guaranty 25% and MBIA 25%.
<PAGE>
30 Florida IM-IT-- Series 81
FLORIDA IM-IT TRUST
GENERAL. The Florida IM-IT Trust consists of 8 issues of Securities. One
of the Bonds in the Florida IM-IT Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total Florida IM-IT Trust) as follows: Health Care, 3 (25%); Certificates of
Participation, 1 (17%); General Purpose, 1 (17%); General Obligations, 1
(16%); Transportation, 1 (15%) and Retail Electric/Gas, 1 (10%). No Bond issue
has received a provisional rating.
SPECIAL CONSIDERATIONS. Florida's economy has in the past been highly
dependent on the construction industry and construction related manufacturing.
This dependency has declined in recent years and continues to do so as a
result of continued diversification of the State's economy. For example, in
1980 total contract construction employment as a share of total non-farm
employment was just over seven percent and in 1993 the share had edged
downward to five percent. This trend is expected to continue as Florida's
economy continues to diversify. Florida, nevertheless, has a dynamic
construction industry with single and multi-family housing starts accounting
for 8.5% of total U.S. housing starts in 1993 while the State's population is
5.3% of the U.S. total population. Florida's housing starts since 1980 have
represented an average of 11.0% of the U.S.'s total annual starts, and since
1980 total housing starts have averaged 156,450 a year.
A driving force behind the State's construction industry has been the
State's rapid rate of population growth. Although Florida currently is the
fourth most populous state (with an estimated population of 13.4 million), its
annual population growth is now projected to decline as the number of people
moving into the State is expected to hover near the mid 250,000 range annually
throughout the 1990s. This population trend should provide fuel for business
and home builders to keep construction activity lively in Florida for some
time to come. However, other factors do influence the level of construction in
the State. For example, Federal tax reform in 1986 and other changes to the
Federal income tax code have eliminated tax deductions for owners of two or
more residential real estate properties and have lengthened depreciation
schedules on investment and commercial properties. Economic growth and
existing supplies of commercial buildings and homes also contribute to the
level of construction activity in the State.
Since 1980, the State's job creation rate is almost twice the rate for
the nation as a whole, and its growth rate in new non-agricultural jobs is the
fastest of the 11 most populous states and second only to California in the
absolute number of new jobs created. Contributing to the State's rapid rate of
growth in employment and income is international trade. Since 1980, the
State's unemployment rate has generally been below that of the U.S. In recent
years, however, as the State's economic growth has slowed from its previous
highs, the State's unemployment rate has tracked above the national average.
The average in Florida since 1980 has been 6.5% while the national average is
7.1%. According to the U.S. Department of Commerce, the Florida Department of
Labor and Employment Security, and the Florida Consensus Economic Estimating
Conference (together the "Organization") the State's unemployment rate was
8.2% during 1992. As of January, 1994, the Organization estimates that the
unemployment rate will be 6.7% for 1993-94 and 6.1% in 1994-95.
The rate of job creation in Florida's manufacturing sector has exceeded
that of the U.S. From the beginning of 1980 through 1993, the State added over
50,100 new manufacturing jobs, an 11.7% increase. During the same period,
national manufacturing employment declined ten out of the fourteen years, for
a loss of 2,977,000 jobs.
Total non-farm employment in Florida is expected to increase 2.7% in
1993-94 and rise 3.8% in 1994-95. Trade and services, the two largest figures,
account for more than half of the total non-farm employment. Employment in the
service sectors should experience an increase of 3.9% in 1993-94, while
growing 4.9% in 1994-95. Trade is expected to expand 2.2% in 1994 and 3.4% in
1995. The service sector is now the State's largest employment category.
Tourism is one of Florida's most important industries. Approximately 40.9
million tourists visited the State in 1992, as reported by the Florida
Department of Commence. In terms of business activities and state tax
revenues, tourists in Florida in 1992 represented an estimated 4.5 million
additional residents. Visitors to the State tend to arrive
<PAGE>
Florida IM-IT-- Series 81 31
equally by air and car. The State's tourism industry over the years has become
more sophisticated, attracting visitors year-round and, to a degree, reducing
its seasonality. Tourist arrivals are expected to decline by almost two
percent this year, but recover next year with 5.0% growth. By the end of the
State's current fiscal year, 41.0 million domestic and international tourists
are expected to have visited the State. In 1994-95, tourist arrivals should
approximate 43.0 million.
The State's per capita personal income in 1992 of $19,947 was slightly
below the national average of $19,841 and significantly ahead of that for the
southeast United States, which was $17,661. Real personal income in the State
is estimated to increase 5.5% in 1993-94 and 4.7% in 1994-95. By the end of
1994-95, real personal income per capita in the State is projected to average
6.7% higher than its 1992-93 level.
Compared to other states, Florida has a proportionately greater
retirement age population which comprises 18.3% (as of April 1, 1991) of the
State's population and is forecast to grow at an average annual rate of over
1.96% through the 1990s. Thus, property income (dividends, interest, and rent)
and transfer payments (Social Security and pension benefits, among other
sources of income) are a relatively more important source of income. For
example, Florida's total wages and salaries and other labor income in 1992 was
61% of total income, while a similar figure for the nation for 1992 was 72.0%.
Transfer payments are typically less sensitive to the business cycle than
employment income and, therefore, act as stabilizing forces in weak economic
periods. While many of the U.S.'s senior citizens choose the State as their
place of retirement, the State is also recognized as attracting a significant
number of working age people. Since 1982, the prime working age population
(18-44) has grown at an average annual rate of 3.3%.
In fiscal year 1991-92, approximately 64% of the State's total direct
revenue to its three operating funds was derived from State taxes, with
federal grants and other special revenue accounting for the balance. State
sales and use tax, corporate income tax, and beverage tax amounted to 68%, 7%
and 5%, respectively, of total receipts by the General Revenue Fund during
fiscal year 1991-92. In that same year, expenditures for education, health and
welfare, and public safety amounted to 53%, 30% and 13.3%, respectively, of
total expenditures from the General Revenue Fund.
Hurricane Andrew left some parts of south Florida devastated.
Post-Hurricane Andrew clean up and rebuilding have changed the outlook for the
State's economy. Single and multi-family housing starts in 1993-94 are
projected to reach a combined level of 118,000, and to increase to 134,300
next year. Lingering recessionary effects on consumers and tight credit are
two of the reasons for relatively slow core construction activity, as well as
lingering effects from the 1986 tax reform legislation discussed above.
However, construction is one of the sectors most severely affected by
Hurricane Andrew. Low interest rates and pent up demand combined with improved
consumer confidence should lead to improved housing starts. The construction
figures above include additional housing starts as a result of destruction by
Hurricane Andrew. Total construction expenditures are forecasted to increase
15.6% this year and increase 13.3% next year.
The State Constitution and statutes mandate that the State budget, as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believes a deficit will occur in any State fund, by statute, he must certify
his opinion to the Administrative Commission, which then is authorized to
reduce all State agency budgets and releases by a suffficient amount to
prevent a deficit in any fund. Additionally, the State Constitution prohibits
issuance of State obligations to fund State operations.
Estimated fiscal year 1993-94 General Revenue plus Working Capital funds
available total $13,582.7 million, an 8.4% increase over 1992-93. This
reflects a transfer of $190 million, out of an estimated $220.0 million in
non-recurring revenue due to Andrew, to a hurricane relief trust fund. Of the
total General Revenue plus Working Capital funds available to the State,
$12,943.5 million of that is Estimated Revenues (excluding the Andrew impact)
which represents an increase of 7.3% over the previous year's Estimated
Revenues. With effective General Revenues plus Working Capital Fund
appropriations at $13,276.9 million, unencumbered reserves at the end of
1993-94 are estimated at $305.8 million. Estimated, fiscal year 1994-95
General Revenue plus Working Capital funds available total $14,293.5 million,
a 5.2% increase over 1993-94. This amount reflects a transfer of $159.00
million in non-recurring revenue due to Hurricane Andrew, to a hurricane
relief trust fund. The $13,877.2 million in Estimated Revenues (excluding the
Hurricane Andrew impact) represent an increase of 7.2% over the previous
year's
<PAGE>
32 Florida IM-IT-- Series 81
Estimated Revenues. The massive effort to rebuild and replace destroyed or
damaged property in the wake of Andrew is responsible for the substantial
positive revenue impacts shown here. Most of the impact is in the increase in
the State's sales tax.
In fiscal year 1992-93, approximately 62% of the State's total direct
revenue to its three operating funds were derived from State taxes, with
Federal grants and other special revenue accounting for the balance. State
sales and use tax, corporate income tax, intangible personal property tax, and
beverage tax amounted to 68%, 7%, 4%, and 4%, respectively, of total General
Revenue Funds available during fiscal 1992-93. In that same year, expenditures
for education, health and welfare, and public safety amounted to approximately
49%, 30%, and 11%, respectively, of total expenditures from the General
Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's
single largest source of tax receipts. Slightly less than 10% of the State's
sales and use tax is designated for local governments and is distributed to
the respective counties in which collected for such use by such counties and
the municipalities therein. In addition to this distribution, local
governments may (by referendum) assess a 0.5% or a 1.0% discretionary sales
tax within their county. Proceeds from this local option sales tax are
earmarked for funding local infrastructure programs and acquiring land for
public recreation or conservation or protection of natural resources as
provided under Florida law. Certain charter counties have other taxing powers
in addition, and non-consolidated counties with a population in excess of
800,000 may levy a local option sales tax to fund indigent health care. It
alone cannot exceed 0.5% and when combined with the infrastructure surtax
cannot exceed 1.0%. For the fiscal year ended June 30, 1993, sales and use tax
receipts (exclusive of the tax on gasoline and special fuels) totalled
$9,426.0 million, an increase of 12.5% over fiscal year 1991-92.
The second largest source of State tax receipts is the tax on motor
fuels. However, these revenues are almost entirely dedicated trust funds for
specific purposes and are not included in the State's General Revenue Fund.
The State imposes an alcoholic beverage wholesale tax (excise tax) on
beer, wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $442.2 million in fiscal year ending June 30, 1993.
Alcoholic beverage tax receipts declined 1.6% over the previous year. The
revenues collected from this tax are deposited into the State's General
Revenue Fund.
The State imposes a corporate income tax. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30, 1993, receipts from this source were $846.6 million, an increase of
5.6% from fiscal year 1991-92.
The State imposes a documentary stamp tax on deeds and other documents
relating to realty, corporate shares, bonds, certificates of indebtedness,
promissory notes, wage assignments, and retail charge accounts. The
documentary stamp tax collections totaled $639.0 million during fiscal year
1992-93, a 27.0% increase from the previous fiscal year. Beginning in fiscal
year 1992-93, 71.29% of these taxes are to be deposited to the General Revenue
Fund.
The State imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts utilities tax collections are
credited to the State's Public Education Capital Outlay and Debt Service Trust
Fund. In fiscal year 1992-93, this amounted to $447.9 million.
The State imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens in Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida
real property. The annual rate of tax is 2 mils. Second, the State imposes a
non-recurring 2 mil tax on mortgages and other obligations secured by liens on
Florida real property. In fiscal year 1992-93, total intangible personal
property tax collections were $783.4 million, a 33% increase over the prior
year. Of the tax proceeds, 66.5% are distributed to the General Revenue Fund.
The State began its own lottery in 1988. State law requires that lottery
revenues be distributed 50% to the public in prizes, 38% for use in enhancing
education, and the balance, 12.0% for costs of administering the lottery.
Fiscal year 1992-93 lottery ticket sales totalled $2.13 billion, providing
education with $810.4 million.
<PAGE>
Florida IM-IT-- Series 81 33
The State's severance tax applies to oil, gas, and sulphur production, as
well as the severance of phosphate rock and other solid minerals. Total
collections from severance taxes total $64.5 million during fiscal year
1992-93, down 4.0% from the previous year. Currently, 60.0% of this amount is
transferred to the General Revenue Fund.
The State has continuously been dependent on the highly cyclical
construction and construction related manufacturing industries. While that
dependency has decreased, the State is still somewhat at the mercy of the
construction and construction related manufacturing industries. The
construction industry is driven to a great extent by the State's rapid growth
in population. There can be no assurance that population growth will in fact
continue throughout the 1990's in which case there could be an adverse impact
on the State's economy through the loss of construction and construction
related manufacturing jobs. Also, while interest rates remain low currently,
an increase in interest rates could significantly adversely impact the
financing of new construction within the State, thereby adversely impacting
unemployment and other economic factors within the State. In addition,
available commercial office space has tended to remain high over the past few
years. So long as this glut of commercial rental space continues, construction
of this type of space will likely continue to remain slow.
At the end of fiscal 1993, approximately $5.61 billion in principal
amount of debt secured by the full faith and credit of the State was
outstanding. In addition, since July 1, 1993, the State issued about $873.0
million in principal amount of full faith and credit bonds.
The State Constitution and statutes mandate that the State budget, as a
whole, and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believe a deficit will occur in any State fund, by statute, he must certify
his opinion to the Administrative Commission, which then is authorized to
reduce all State agency budgets and releases by a sufficient amount to prevent
a deficit in any fund. Additionally, the State Constitution prohibits issuance
of State obligations to fund State operations.
Currently under litigation are several issues relating to State actions
or State taxes that put at risk substantial amounts of General Revenue Fund
monies. Accordingly, there is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on
Florida's financial position.
Florida law provides preferential tax treatment to insurers who maintain
a home office in the State. Certain insurers challenged the constitutionality
of this tax preference and sought a refund of taxes paid. Recently, the State
Supreme Court ruled in favor of the State. Similar issues have been raised in
other cases where insurers have challenged taxes imposed on premiums received
for certain motor vehicle service agreements. These four cases and pending
refund claims total about $150 million.
Florida maintains a bond rating of Aa and AA from Moody's Investors
Service and Standard & Poor's Corporation, respectively, on the majority of
its general obligation bonds, although the rating of a particular series of
revenue bonds relates primarily to the project, facility, or other revenue
sources from which such series derives funds for repayment. While these
ratings and some of the information presented above indicate that Florida is
in satisfactory economic health, there can be no assurance that there will not
be a decline in economic conditions or that particular Municipal Obligations
purchased by the Fund will not be adversely affected by any such changes.
The sources for the information presented above include official
statements and financial statements of the State of Florida. While the Sponsor
has not independently verified this information, the Sponsor has no reason to
believe that the information is not correct in all material respects.
TAX STATUS. For a discussion of the Federal tax status of income earned
on Florida IM-IT Trust units, see "Other Matters--Federal Tax Status".
The Bonds were accompanied by opinions of Bond Counsel to the respective
issuers thereof to the effect that the Bonds were exempt from the Florida
intangibles tax. Neither the Sponsor nor its counsel have independently
reviewed such opinions or examined the Bonds to be deposited in and held by
the Florida IM-IT Trust and have assumed the correctness as of the date of
deposit of the opinions of Bond Counsel.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under
existing law:
<PAGE>
34 Florida IM-IT-- Series 81
For Florida state income tax purposes, the Florida IM-IT Trust will
not be subject to the Florida income tax imposed by Chapter 220, Florida
Statutes. In addition, Florida does not impose any income taxes at the
local level.
Because Florida does not impose an income tax on individuals,
non-corporate Unitholders residing in Florida will not be subject to any
Florida income taxation on income realized by the Florida IM-IT Trust.
Any amounts paid to the Florida IM-IT Trust or to non-corporate
Unitholders residing in Florida under an insurance policy issued to the
Florida IM-IT Trust or the Sponsor which represent maturing interest on
defaulted obligations held by the Trustee will not be subject to the
Florida income tax imposed by Chapter 220, Florida Statutes.
Corporate Unitholders with commercial domiciles in Florida will be
subject to Florida income or franchise taxation on income realized by
the Florida IM-IT Trust and on payments of interest pursuant to any
insurance policy. Other corporate Unitholders will be subject to Florida
income or franchise taxation on income realized by the Florida IM-IT
Trust (or on payments of interest pursuant to any insurance policy) only
to the extent that the income realized does not constitute "non-business
income" as defined by Chapter 220.
Units will be subject to Florida estate tax only if held by Florida
residents. However, the Florida estate tax is limited to the amount of
the credit for state death taxes provided for in Section 2011 of the
Internal Revenue Code.
Neither the Bonds nor the Units will be subject to the Florida ad
valorem property tax, the Florida intangibles personal property tax or
Florida sales or use tax.
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit................................................................ $ 56.00
Less: Estimated Annual Expense per Unit <F1>............................................................. $ 2.05
Less: Annual Premium on Portfolio Insurance per Unit..................................................... --
Estimated Net Annual Interest Income per Unit............................................................ $ 53.95
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 53.95
Divided by 12............................................................................................ $ 4.50
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .14984
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F2><F3><F4>........................................... 5.40%
ESTIMATED LONG-TERM RETURN <F2><F3><F4>........................................................................ 5.44%
Initial Distribution (August 1994)............................................................................. $ 4.65
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F4>.................................................................... $ 4.50
PURCHASED INTEREST <F5>........................................................................................ $ 9.33
Trustee's Annual Fee................... $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> Excluding insurance costs.
<F2> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F3> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<PAGE>
Florida IM-IT-- Series 81 35
<F4> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F5> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
36 Florida IM-IT-- Series 81
<TABLE>
FLORIDA INSURED MUNICIPALS INCOME TRUST
SERIES 81 (IM-IT AND QUALITY MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
NAME OF ISSUER, TITLE, INTEREST RATE AND FLORIDA
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR REDEMPTION IM-IT
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> RATING<F2> FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C>
$ 500,000 Florida State Division of Bond Finance Department, Department
of General Services, Revenue Bonds (Department of Natural
Resources-Preservation 2000) Series 1993A (FSA Insured) 2003 @ 101
#5.80% Due 7/1/2013.......................................... AAA 2012 @ 100 S.F. $ 491,245
250,000 Volusia County, Florida, Health Facilities Authority, Hospital
Facilities Revenue Refunding and Improvement Bonds (Memorial
Health System) Series 1994 (AMBAC Indemnity Insured) 2004 @ 102
#5.75% Due 11/15/2013........................................ AAA 2009 @ 100 S.F. 244,125
500,000 Dade County, Florida, School District, General Obligation
School Bonds, Series 1994A (MBIA Insured) 2004 @ 102
6.125% Due 6/1/2014.......................................... YAAA 2011 @ 100 S.F. 510,560
500,000 Seminole County, Florida, School Board Certificates of
Participation, Master Lease Program, Series 1994A (MBIA
Insured) 2004 @ 102
#6.125% Due 7/1/2014......................................... AAA 2010 @ 100 S.F. 507,790
250,000 Lakeland, Florida, Hospital System Revenue Refunding Bonds
(Lakeland Regional Medical Center) Series 1992B (FGIC
Insured) 2002 @ 102
#5.75% Due 11/15/2015........................................ AAA 2013 @ 100 S.F. 243,755
450,000 State of Florida, Department of Transportation, Turnpike
Revenue Refunding Bonds, Series 1993A (FGIC Insured) 2003 @ 101
#5.25% Due 7/1/2022.......................................... AAA 2020 @ 100 S.F. 401,193
250,000 Orange County Health Facilities Authority (Florida) Hospital
Revenue Bonds (Orlando Regional Healthcare System Project)
Series 1993A (MBIA Insured) 2002 @ 102
#6.00% Due 11/1/2024......................................... AAA 2015 @ 100 S.F. 249,498
300,000 Florida State Municipal Power Agency, Revenue Refunding Bonds
(Stanton II Project) AMBAC Indemnity Insured 2003 @ 100
#4.50% Due 10/1/2027......................................... AAA 2017 @ 100 S.F. 230,973
$ 3,000,000 $ 2,879,139
</TABLE>
All of the Bonds in the portfolio are insured by one of the Preinsured Bond
Insurers as indicated in the Bond name. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
Michigan IM-IT-- Series 117 37
MICHIGAN IM-IT TRUST
GENERAL. The Michigan IM-IT Trust consists of 9 issues of Securities.
Four of the Bonds in the Michigan IM-IT Trust are general obligations of the
governmental entities issuing them and are backed by the taxing power thereof.
The remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total Michigan IM-IT Trust) as follows: General Obligations, 4 (37%); General
Purpose, 2 (34%); Health Care, 1 (13%); Multi-Family Mortgage Revenue, 1 (13%)
and Higher Education, 1 (3%). No Bond issue has received a provisional rating.
SPECIAL CONSIDERATIONS. Investors should be aware that the economy of the
State of Michigan has, in the past, proven to be cyclical, due primarily to
the fact that the leading sector of the State's economy is the manufacturing
of durable goods. While the State's efforts to diversify its economy have
proven successful, as reflected by the fact that the share of employment in
the State in the durable goods sector has fallen from 33.1 percent in 1960 to
17.9 percent in 1990, durable goods manufacturing still represents a sizable
portion of the State's economy. As a result, any substantial national economic
downturn is likely to have an adverse effect on the economy of the State and
on the revenues of the State and some of its local governmental units.
In May 1986, Moody's Investors Service raised the State's general
obligation bond rating to "A1". In October 1989, Standard & Poor's Corporation
raised its rating on the State's general obligation bonds to "AA".
The State's economy could continue to be affected by changes in the auto
industry, notably consolidation and plant closings resulting from competitive
pressures and over-capacity. Such actions could adversely affect State
revenues and the financial impact on the local units of government in the
areas in which plants are closed could be more severe.
General Motors Corporation has announced the scheduled closing of several
of its plants in Michigan in 1993 and 1994. The impact these closures will
have on the State's revenues and expenditures is not currently known. The
impact on the financial condition of the municipalities in which the plants
are located may be more severe than the impact on the State itself.
In recent years, the State has reported its financial results in
accordance with generally accepted accounting principles. For each of the five
fiscal years ending with the fiscal year ended September 30, 1989, the State
reported positive year-end General Fund balances and positive cash balances in
the combined General Fund/School Aid Fund. For the fiscal years ending
September 30, 1990 and 1991, the State reported negative year-end General Fund
Balances of $310.4 million and $169.4 million, respectively, but ended the
1992 fiscal year with its general fund in balance and ended the 1993 fiscal
year with a small general fund surplus. A positive cash balance in the
combined General Fund/School Aid Fund was recorded at September 30, 1990. In
the 1991 thru 1993 fiscal years the State experienced deteriorating cash
balances which necessitated short term borrowing and the deferral of certain
scheduled cash payments. The State borrowed $900 million for cash flow
purposes in the 1993 fiscal year, which was repaid on September 30, 1993. The
State's Budget Stabilization Fund received a $283 million transfer from the
General Fund in the 1993 State fiscal year, bringing the fund balance to $303
million at September 30, 1993.
The Michigan Constitution of 1963 limits the amount of total revenues of
the State raised from taxes and certain other sources to a level for each
fiscal year equal to a percentage of the State's personal income for the prior
calendar year. In the event that the State's total revenues exceeds the limit
by 1 percent or more, the Michigan Constitution of 1963 requires that the
excess be refunded to taxpayers.
On March 15, 1994, Michigan voters approved a school finance reform
amendment to the State's Constitution which, among other things, increases the
State sales tax rate from 4% to 6% and places a cap on property assessment
increases for all property taxes. Such approval triggers the effectiveness of
legislation under which the State's income tax rate will be cut from 4.6% to
4.4%, some property taxes will be reduced and school funding will be provided
from a combination of property taxes and state revenues, some of which will be
provided from other new or increased State taxes. The legislation also
contains other proposals that may reduce or alter the revenues of local units
of government, and tax increment bonds could be particularly affected. While
the ultimate impact of the
<PAGE>
38 Michigan IM-IT-- Series 117
constitutional amendment and related legislation cannot yet be accurately
predicted, investors should be alert to the potential effect of such measures
upon the operations and revenues of Michigan local units of government.
Although all or most of the Bonds in the Michigan IM-IT Trust are revenue
obligations or general obligations of local governments or authorities rather
than general obligations of the State of Michigan itself, there can be no
assurance that any financial difficulties the State may experience will not
adversely affect the market value or marketability of the Bonds or the ability
of the respective obligors to pay interest on or principal of the Bonds,
particularly in view of the dependency of local governments and other
authorities upon State aid and reimbursement programs and, in the case of
bonds issued by the State Building Authority, the dependency of the State
Building Authority on the receipt of rental payments from the State to meet
debt service requirements upon such bonds. In the 1991 fiscal year, the State
deferred certain scheduled cash payments to municipalities, school districts,
universities and community colleges. While such deferrals were made up at
specified later dates, similar future deferrals could have an adverse impact
on the cash position of some local governmental units. Additionally, the State
reduced revenue sharing payments to municipalities below that level provided
under formulas by $10.9 million in the 1991 fiscal year, up $34.4 million in
the 1992 fiscal year, $45.5 million in the 1993 fiscal year and $64.6 million
(budgeted) in the 1994 fiscal year.
The Michigan IM-IT Trust may contain general obligation bonds of local
units of government pledging the full faith and credit of the local unit which
are payable from the levy of ad valorem taxes on taxable property within the
jurisdiction of the local unit. Such bonds issued prior to December 22, 1978,
or issued after December 22, 1978 with the approval of the electors of the
local unit, are payable from property taxes levied without limitation as to
rate or amount. With respect to bonds issued after December 22, 1978, and
which were not approved by the electors of the local unit, the tax levy of the
local unit for debt service purposes is subject to constitutional, statutory
and charter tax rate limitations. In addition, several major industrial
corporations have instituted challenges of their ad valorem property tax
assessments in a number of local municipal units in the State. If successful,
such challenges could have an adverse impact on the ad valorem tax bases of
such units which could adversely affect their abiltiy to raise funds for
operation and debt service requirements.
TAX STATUS. For a discussion of the Federal tax status of income earned
on Michigan IM-IT Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Miller, Canfield, Paddock and Stone, special counsel to
the Fund for Michigan tax matters, under existing Michigan law:
The Michigan IM-IT Trust and the owners of Units will be treated for
purposes of the Michigan income tax laws and the Single Business Tax in
substantially the same manner as they are for purposes of the Federal income
tax laws, as currently enacted. Accordingly, we have relied upon the opinion
of Messrs. Chapman and Cutler as to the applicability of Federal income tax
under the Internal Revenue Code of 1986 to the Michigan IM-IT Trust and the
Holders of Units.
Under the income tax laws of the State of Michigan, the Michigan IM-IT
Trust is not an association taxable as a corporation; the income of the
Michigan IM-IT Trust will be treated as the income of the Unitholders and be
deemed to have been received by them when received by the Michigan IM-IT
Trust. Interest on the underlying Bonds which is exempt from tax under these
laws when received by Michigan IM-IT Trust will retain its status as tax
exempt interest to the Unitholders.
For purposes of the foregoing Michigan tax laws, each Unitholder will be
considered to have received his pro rata share of Bond interest when it is
received by the Michigan IM-IT Trust, and each Unitholder will have a taxable
event when the Michigan IM-IT Trust disposes of a Bond (whether by sale,
exchange, redemption or payment at maturity) or when the Unitholder redeems or
sells his Certificate to the extent the transaction constitutes a taxable
event for Federal income tax purposes. The tax cost of each unit to a
Unitholder will be established and allocated for purposes of these Michigan
tax laws in the same manner as such cost is established and allocated for
Federal income tax purposes.
<PAGE>
Michigan IM-IT-- Series 117 39
Under the Michigan Intangibles Tax, the Michigan IM-IT Trust is not
taxable and the pro rata ownership of the underlying Bonds, as well as the
interest thereon, will be exempt to the Unitholders to the extent the Michigan
IM-IT Trust consists of obligations of the State of Michigan or its political
subdivisions or municipalities, or of obligations of possessions of the United
States.
The Michigan Single Business Tax replaced the tax on corporate and
financial institution income under the Michigan Income Tax, and the Intangible
Tax with respect to those intangibles of persons subject to the Single
Business Tax the income from which would be considered in computing the Single
Business Tax. Persons are subject to the Single Business Tax only if they are
engaged in "business activity", as defined in the Act. Under the Single
Business Tax, both interest received by the Michigan IM-IT Trust on the
underlying Bonds and any amount distributed from the Michigan IM-IT Trust to a
Unitholder, if not included in determining taxable income for Federal income
tax purposes, is also not included in the adjusted tax base upon which the
Single Business Tax is computed, of either the Michigan IM-IT Trust or the
Unitholders. If the Michigan IM-IT Trust or the Unitholders have a taxable
event for Federal income tax purposes when the Michigan IM-IT Trust disposes
of a Bond (whether by sale, exchange, redemption or payment at maturity) or
the Unitholder redeems or sells his Certificate, an amount equal to any gain
realized from such taxable event which was included in the computation of
taxable income for Federal income tax purposes (plus an amount equal to any
capital gain of an individual realized in connection with such event but
excluded in computing that individual's Federal taxable income) will be
included in the tax base against which, after allocation, apportionment and
other adjustments, the Single Business Tax is computed. The tax base will be
reduced by an amount equal to any capital loss realized from such a taxable
event, whether or not the capital loss was deducted in computing Federal
taxable income in the year the loss occurred. Unitholders should consult their
tax advisor as to their status under Michigan law.
Any proceeds paid under an insurance policy issued to the Trustee of the
Trust, or paid under individual policies obtained by issuers of Bonds, which,
when received by the Unitholders, represent maturing interest on defaulted
obligations held by the Trustee, will be excludable from the Michigan income
tax laws and the Single Business Tax if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the defaulted
obligations. While treatment under the Michigan Intangibles Tax is not
premised upon the characterization of such proceeds under the Internal Revenue
Code, the Michigan Department of Treasury should adopt the same approach as
under the Michigan income tax laws and the Single Business Tax.
As the Tax Reform Act of 1986 eliminates the capital gain deduction for
tax years beginning after December 31, 1986, the federal adjusted gross
income, the computation base for the Michigan Income Tax, of a Unitholder will
be increased accordingly to the extent such capital gains are realized when
the Michigan IM-IT Trust disposes of a Bond or when the Unitholder redeems or
sells a Unit, to the extent such transaction constitutes a taxable event for
Federal income tax purposes.
<PAGE>
40 Michigan IM-IT-- Series 117
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit................................................................ $ 57.14
Less: Estimated Annual Expense per Unit <F1>............................................................. $ 2.00
Less: Annual Premium on Portfolio Insurance per Unit..................................................... --
Estimated Net Annual Interest Income per Unit............................................................ $ 55.14
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 55.14
Divided by 12............................................................................................ $ 4.60
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .15318
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F2><F3><F4>........................................... 5.51%
ESTIMATED LONG-TERM RETURN <F2><F3><F4>........................................................................ 5.60%
Initial Distribution (August 1994)............................................................................. $ 4.75
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F4>.................................................................... $ 4.60
PURCHASED INTEREST <F5>........................................................................................ $ 9.52
Trustee's Annual Fee................... $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> Excluding insurance costs.
<F2> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F3> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<F4> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F5> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
Michigan IM-IT-- Series 117 41
<TABLE>
MICHIGAN INSURED MUNICIPALS INCOME TRUST
SERIES 117 (IM-IT AND QUALITY MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
NAME OF ISSUER, TITLE, INTEREST RATE AND MICHIGAN
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR REDEMPTION IM-IT
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> RATING<F2> FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C>
$ 100,000 Board of Control, Saginaw Valley State University (Michigan)
General Revenue Bonds, Series 1993 (MBIA Insured) 2003 @ 102
#5.375% Due 7/1/2016......................................... AAA 2010 @ 100 S.F. $ 90,664
515,000 Michigan Municipal Bond Authority, Local Government Loan
Program Refunding Revenue Bonds, Series 1993B (AMBAC
Indemnity Insured) 2003 @ 102
#5.70% Due 11/1/2016......................................... AAA 2010 @ 100 S.F. 486,608
400,000 Michigan State Hospital Finance Authority, Hospital Revenue
Refunding Bonds (Oakwood Hospital Obligated Group) Series
1993A (FGIC Insured) 2003 @ 102
#5.625% Due 11/1/2018........................................ AAA 2014 @ 100 S.F. 369,904
35,000 Romulus Community Schools, County of Wayne, State of Michigan,
Unlimited Tax-General Obligation Refunding Bonds, Series 1993
(FGIC Insured)
#0.00% Due 5/1/2019.......................................... AAA 7,443<F6>
500,000 State of Michigan, State Trunk Line Funds, Series 1994A (FGIC
Insured) 2004 @ 102
#5.75% Due 11/15/2020........................................ AAA 2017 @ 100 S.F. 476,690
500,000 Lincoln Consolidated School District, Counties of Washtenaw and
Wayne, State of Michigan, 1994 School Building and Site
Refunding Bonds (General Obligation-Unlimited Tax) FGIC
Insured 2004 @ 102
#5.85% Due 5/1/2021.......................................... YAAA 2019 @ 100 S.F. 479,705
400,000 Michigan State Housing Development Authority, Rental Housing
Revenue Bonds, Series 1993A (AMBAC Indemnity Insured) 2003 @ 102
5.90% Due 4/1/2023........................................... AAA 2018 @ 100 S.F. 385,944
300,000 Hudsonville Public Schools, Counties of Ottawa and Allegan,
State of Michigan, 1994 School Building and Site and
Refunding Bonds (General Obligation-Unlimited Tax) Series B
(FGIC Insured) 2004 @ 102
#6.10% Due 5/1/2024.......................................... YAAA 2020 @ 100 S.F. 297,411
300,000 Zeeland Public Schools, Counties of Ottawa and Allegan, State
of Michigan, 1994 School Building and Site and Refunding
Bonds (General Obligation-Unlimited Tax) Series B (MBIA
Insured) 2004 @ 102
#6.10% Due 5/1/2024.......................................... YAAA 2020 @ 100 S.F. 297,411
$ 3,050,000 $ 2,891,780
</TABLE>
All of the Bonds in the portfolio are insured by one of the Preinsured Bond
Insurers as indicated in the Bond name. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
42 Missouri IM-IT-- Series 81
MISSOURI IM-IT TRUST
GENERAL. The Missouri IM-IT Trust consists of 11 issues of Securities.
Two of the Bonds in the Missouri IM-IT Trust are general obligations of the
governmental entities issuing them and are backed by the taxing power thereof.
The remaining issues are payable from the income of a specified project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total Missouri IM-IT Trust) as follows: Water and Sewer, 3 (34%); Health Care,
2 (19%); Public Building, 1 (13%); Wholesale Electric, 1 (13%); General
Obligations, 2 (11%); Multi-Family Mortgage Revenue, 1 (6%) and Escrowed to
Maturity, 1 (4%). No Bond issue has received a provisional rating.
SPECIAL CONSIDERATIONS. The following discussion regarding constitutional
limitations and the economy of the State of Missouri is included for the
purpose of providing general information that may or may not affect issuers of
the Bonds in Missouri.
In November 1981, the voters of Missouri adopted a tax limitation
amendment to the constitution of the State of Missouri (the "Amendment"). The
Amendment prohibits increases in local taxes, licenses, or fees by political
subdivisions without approval of the voters of such political subdivision. The
Amendment also limits the growth in revenues and expenditures of the State to
the rate of growth in the total personal income of the citizens of Missouri.
The limitation may be exceeded if the General Assembly declares an emergency
by a two-thirds vote. The Amendment did not limit revenue growth at the state
level in fiscal 1982 through 1988 with the exception of fiscal 1984.
Management Report No. 85-20, which was issued on March 5, 1985 by State
Auditor Margaret Kelly, indicates that state revenues exceeded the allowable
increase by $30.52 million in fiscal 1984, and a taxpayer lawsuit has been
filed pursuant to the Amendment seeking a refund of the revenues in excess of
the limit.
The economy of Missouri is diverse and includes manufacturing, retail and
wholesale trade, services, agriculture, tourism and mining. In recent years,
growth in the wholesale and retail trade had offset the more slowly growing
manufacturing and agricultural sectors of the economy. In 1991, the
unemployment rate in Missouri was 6.6%, and according to preliminary
seasonally adjusted figures, the rate dropped to 5.4% in December 1992. There
can be no assurance that the general economic conditions or the financial
circumstances of Missouri or its political subdivisions will not adversely
affect the market value of the Bonds or the ability of the obligor to pay debt
service on such Bonds.
Currently, Moody's Investors Service rates Missouri general obligation
bonds "Aaa" and Standard & Poor's Corporation rates Missouri general
obligation bonds "AAA". Although these ratings indicate that the State of
Missouri is in relatively good economic health, there can be, of course, no
assurance that this will continue or that particular bond issues may not be
adversely affected by changes in the State or local economic or political
conditions.
The foregoing information constitutes only a brief summary of some of the
general factors which may impact certain issuers of Bonds and does not purport
to be a complete or exhaustive description of all adverse conditions to which
the issuers of obligations held by the Missouri IM-IT Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of the Bonds, could affect or could have an adverse impact on the
financial condition of the State and various agencies and political
subdivisions located in the State. The Sponsor is unable to predict whether or
to what extent such factors or other factors may affect the issuers of the
Bonds, the market value or marketability of the Bonds or the ability of the
respective issuers of the Bonds acquired by the Missouri IM-IT Trust to pay
interest on or principal of the Bonds.
TAX STATUS. For a discussion of the Federal tax status of income earned
on Missouri IM-IT Trust Units, see "Other Matters--Federal Tax Status".
The assets of the Missouri IM-IT Trust will consist of debt obligations
issued by or on behalf of the State of Missouri (the "State") or counties,
municipalities, authorities or political subdivisions thereof (the "Missouri
Bonds") or by the Commonwealth of Puerto Rico, Guam and the United States
Virgin Islands (the "Possession Bonds") (collectively, the "Bonds").
Neither the Sponsor nor its counsel have independently examined the Bonds
to be deposited in and held in the Missouri IM-IT Trust. However, although no
opinion is expressed herein regarding such matters, it is assumed that: (i)
<PAGE>
Missouri IM-IT-- Series 81 43
the Bonds were validly issued, (ii) the interest thereon is excludable from
gross income for Federal income tax purposes and (iii) interest on the
Missouri Bonds, if received directly by a Unitholder, would be exempt from the
Missouri income tax applicable to individuals and corporations ("Missouri
state income tax"). The opinion set forth below does not address the taxation
of persons other than full time residents of Missouri.
In the opinion of Chapman and Cutler, counsel to the Sponsor under
existing law:
(1) The Missouri IM-IT Trust is not an association taxable as a
corporation for Missouri income tax purposes, and each Unitholder of
the Missouri IM-IT Trust will be treated as the owner of a pro rata
portion of the Missouri IM-IT Trust and the income of such portion of
the Missouri IM-IT Trust will be treated as the income of the
Unitholder for Missouri state income tax purposes.
(2) Interest paid and original issue discount, if any, on the Bonds
which would be exempt from the Missouri state income tax if received
directly by a Unitholder will be exempt from the Missouri state income
tax when received by the Missouri IM-IT Trust and distributed to such
Unitholder; however, no opinion is expressed herein regarding taxation
of interest paid and original issue discount, if any, on the Bonds
received by the Missouri IM-IT Trust and distributed to Unitholders
under any other tax imposed pursuant to Missouri law, including but
not limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
(3) To the extent that interest paid and original issue discount, if
any, derived from the Missouri IM-IT Trust by a Unitholder with
respect to Possession Bonds is excludable from gross income for
Federal income tax purposes pursuant to 48 U.S.C. (S)745, 48 U.S.C.
(S)1423a, and 48 U.S.C. (S)1403, such interest paid and original issue
discount, if any, will not be subject to the Missouri state income
tax; however, no opinion is expressed herein regarding taxation of
interest paid and original issue discount, if any, on the Bonds
received by the Missouri IM-IT Trust and distributed to Unitholders
under any other tax imposed pursuant to Missouri law, including but
not limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
(4) Each Unitholder of the Missouri IM-IT Trust will recognize gain or
loss for Missouri state income tax purposes if the Trustee disposes of
a bond (whether by redemption, sale, or otherwise) or if the
Unitholder redeems or sells Units of the Missouri IM-IT Trust to the
extent that such a transaction results in a recognized gain or loss to
such Unitholder for Federal income tax purposes. Due to the
amortization of bond premium and other basis adjustments required by
the Internal Revenue Code, a Unitholder under some circumstances, may
realize taxable gain when his or her Units are sold or redeemed for an
amount equal to their original cost.
(5) Any insurance proceeds paid under policies which represent maturing
interest on defaulted obligations which are excludable from gross
income for Federal income tax purposes will be excludable from the
Missouri state income tax to the same extent as such interest would
have been paid by the issuer of such Bonds held by the Missouri IM-IT
Trust; however, no opinion is expressed herein regarding taxation of
interest paid and original issue discount, if any, on the Bonds
received by the Missouri IM-IT Trust and distributed to Unitholders
under any other tax imposed pursuant to Missouri law, including but
not limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
(6) The Missouri state income tax does not permit a deduction of
interest paid or incurred on indebtedness incurred or continued to
purchase or carry Units in the Trust, the interest on which is exempt
from such Tax.
(7) The Missouri IM-IT Trust will not be subject to the Kansas City,
Missouri Earnings and Profits Tax and each Unitholder's share of
income of the Bonds held by the Missouri IM-IT Trust will not
generally be subject to the Kansas City, Missouri Earnings and Profits
Tax or the City of St. Louis Earnings Tax (except in the case of
certain Unitholders, including corporations, otherwise subject to the
St. Louis City Earnings Tax).
<PAGE>
44 Missouri IM-IT-- Series 81
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME <F1>
Estimated Annual Interest Income per Unit................................................................ $ 55.21
Less: Estimated Annual Expense per Unit <F2>............................................................. $ 1.82
Less: Annual Premium on Portfolio Insurance per Unit..................................................... $ .04
Estimated Net Annual Interest Income per Unit............................................................ $ 53.35
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 53.35
Divided by 12............................................................................................ $ 4.45
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .14819
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F1><F3><F4><F5>....................................... 5.34%
ESTIMATED LONG-TERM RETURN <F3><F4><F5>........................................................................ 5.38%
Initial Distribution (August 1994)............................................................................. $ 4.59
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F5>.................................................................... $ 4.45
PURCHASED INTEREST <F6>........................................................................................ $ 9.23
Trustee's Annual Fee <F1>.............. $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> During the first year the Trustee will reduce its fee by approximately
$.16 per Unit (which amount is the estimated interest to be earned per
Unit prior to the expected delivery dates for the "when, as and if
issued" Bonds included in this Trust). Should such estimated interest
exceed such amount, the Trustee will reduce its fee up to its annual fee.
After the first year, the Trustee's fee will be that amount indicated
above. Estimated annual interest income per Unit will be increased to
$55.37. Estimated Annual Expense per Unit (excluding insurance) will be
increased to $1.98; and estimated net annual interest income per Unit
will remain the same as shown. See "Estimated Current Returns and
Estimated Long-Term Returns". Based on the outstanding principal amount
of Securities as of the Date of Deposit, the Trustee's annual fee would
be $3,856.
<F2> Excluding insurance costs.
<F3> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F4> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<F5> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F6> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
Missouri IM-IT-- Series 81 45
<TABLE>
MISSOURI INSURED MUNICIPALS INCOME TRUST
SERIES 81 (IM-IT AND QUALITY MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
NAME OF ISSUER, TITLE, INTEREST RATE AND MISSOURI
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR REDEMPTION IM-IT
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> RATING<F2> FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C>
$ 500,000 St. Louis Municipal Finance Corporation II, Leasehold Revenue
Improvement Bonds, Series 1994 (City of St. Louis, Missouri,
Lessee) Civil Courts Building Project (FGIC Insured) 2004 @ 102
#5.75% Due 8/1/2013.......................................... YAAA 2007 @ 100 S.F. $ 493,945
150,000 Ste. Genevieve County, Missouri, Reorganized School District
R-2, General Obligation School Bonds (Unlimited Tax) MBIA
Insured**
#5.75% Due 3/1/2014.......................................... AAA 2004 @ 100 148,137
620,000 The City of St. Louis, Missouri, Water Revenue Refunding and
Improvement Bonds, Series 1994 (FGIC Insured) 2004 @ 102
#6.00% Due 7/1/2014.......................................... AAA 2008 @ 100 S.F. 628,370
150,000 Greene County, Missouri, Single-family Mortgage Revenue Bonds,
Series 1984 (Escrowed to Maturity)
#0.00% Due 3/1/2016.......................................... A 39,671<F6>
215,000 Duckett Creek Sewer District of St. Charles County, Missouri,
Sewerage System Refunding Revenue Bonds, Series 1992C (MBIA
Insured) 2002 @ 100
#6.25% Due 10/1/2016......................................... AAA 2009 @ 100 S.F. 220,912
500,000 Public Water Supply District No. 2 of Jefferson County,
Missouri, Water Supply System Refunding Revenue Bonds, Series
1992 (MBIA Insured) 2003 @ 102
#6.10% Due 1/1/2017.......................................... AAA 2007 @ 100 S.F. 510,245
300,000 Commonwealth of Puerto Rico, Public Improvement Refunding Bonds
(Unlimited Tax-General Obligation) Series 1993 (FSA
Insured)** 2003 @ 101.5
#5.25% Due 7/1/2018.......................................... AAA 2014 @ 100 S.F. 270,963
500,000 City of Sikeston, Missouri, Electric System Revenue Refunding
Bonds, Series 1992 (MBIA Insured) 2002 @ 102
#6.25% Due 6/1/2022.......................................... AAA 2013 @ 100 S.F. 512,495
250,000 The Industrial Development Authority of the County of St.
Louis, Missouri, Mortgage Revenue Refunding Bonds, Series
1993A (FHA Insured Mortgage Loan-Douglass Manor Apartments
Section 8 Assisted Project) MBIA Insured 2002 @ 102
5.875% Due 1/1/2023.......................................... AAA 2004 @ 100 S.F. 247,005
250,000 Missouri State Health and Educational Facilities Authority,
Health Facilities Revenue Bonds (Children's Mercy Hospital
Project) Series 1993 (MBIA Insured) 2003 @ 101
#5.65% Due 5/15/2023......................................... AAA 2013 @ 100 S.F. 239,293
500,000 The Industrial Development Authority of the County of Jackson,
State of Missouri, Health Care System Revenue Bonds (St.
Mary's Hospital of Blue Springs Issue) Series 1994 (MBIA
Insured)** 2004 @ 102
#5.75% Due 7/1/2024.......................................... AAA 2015 @ 100 S.F. 485,195
$ 3,935,000 $ 3,796,231
</TABLE>
All of the Bonds in the portfolio are insured either by one of the Preinsured
Bond Insurers (as indicated in the Bond name) or under the portfolio insurance
policy obtained by the Trust from AMBAC Indemnity. See "Unitholder
Explanations Insurance on the Bonds in the Insured Trusts".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
46 Pennsylvania IM-IT Intermediate Laddered Maturity Series 5
PENNSYLVANIA IM-IT INTERMEDIATE LADDERED MATURITY TRUST
GENERAL. The Pennsylvania IM-IT Intermediate Laddered Maturity Trust
consists of 6 issues of Securities. Two of the Bonds in the Pennsylvania IM-IT
Intermediate Trust are general obligations of the governmental entities
issuing them and are backed by the taxing power thereof. The remaining issues
are payable from the income of a specific project or authority and are not
supported by the issuer's power to levy taxes. These issues are divided by
purpose of issues (and percentage of principal amount to total Pennsylvania
IM-IT Intermediate Laddered Maturity Trust) as follows: General Obligations, 2
(40%); Certificates of Participation, 1 (20%); Water and Sewer, 1 (20%);
Health Care, 1 (19%) and Public Education, 1 (1%). No Bond issue has received
a provisional rating. All of the obligations in the Pennsylvania IM-IT
Intermediate Laddered Maturity Trust mature within approximately 5-10 years of
the Date of Deposit. Commencing in approximately the fifth year of the Trust,
roughly 20% of the Bonds contained in the Trust will mature each year. The
dollar weighted average maturity of the Bonds in the Trust is 7 years.
SPECIAL CONSIDERATIONS. Investors should be aware of certain factors that
might affect the financial conditions of the Commonwealth of Pennsylvania.
Pennsylvania historically has been identified as a heavy industry state
although that reputation has changed recently as the industrial composition of
the Commonwealth diversified when the coal, steel and railroad industries
began to decline. The major new sources of growth in Pennsylvania are in the
service sector, including trade, medical and the health services, education
and financial institutions. Pennsylvania's agricultural industries are also an
important component of the Commonwealth's economic structure, accounting for
more than $3.5 billion in crop and livestock products annually, while
agribusiness and food related industries support $38 billion in economic
activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1 percent
during the recessionary period from 1980 to 1983. In 1984, the declining trend
was reversed as employment grew by 2.9 percent over 1983 levels. From 1983 to
1990, Commonwealth employment continued to grow each year, increasing an
additional 14.3 percent. For the last two years, unemployment in the
Commonwealth has declined 1.9 percent. The growth in employment experienced in
Pennsylvania is comparable to the growth in employment in the Middle Atlantic
Region which has occurred during this period.
Back to back recessions in the early 1980's reduced the manufacturing
sector's employment levels moderately during 1980 and 1981, sharply during
1982, and even further in 1983. Non-manufacturing employment has increased
steadily since 1980 to its 1992 level of 81.3 percent of total Commonwealth
employment. Consequently, manufacturing employment constitutes a diminished
share of total employment within the Commonwealth. Manufacturing, contributing
18.7 percent of 1992 non-agricultural employment, has fallen behind both the
services sector and the trade sector as the largest single source of
employment within the Commonwealth. In 1992 the services sector accounted for
29.3 percent of all non-agricultural employment while the trade sector
accounted for 22.7 percent.
From 1983 to 1989, Pennsylvania's annual average unemployment rate
dropped from 11.8 percent to 4.5 percent, falling below the national rate in
1986 for the first time in over a decade. Pennsylvania's annual average
unemployment rate remained below the national average from 1986 until 1990.
Slower economic growth caused the unemployment rate in the Commonwealth to
rise to 6.9 percent in 1991 and 7.5 percent in 1992. As of February 1994, the
seasonally adjusted unemployment rate for the Commonwealth was 5.1 percent
compared to 6.5 percent for the United States.
The five year period from fiscal 1989 through fiscal 1993 was marked by
public health and welfare costs growing at a rate double the growth for all
the state expenditures. Rising caseloads, increased utilization of services
and rising prices joined to produce the rapid rise of public health and
welfare costs at a time when a national recession caused tax revenues to
stagnate and even decline. During the period from fiscal 1989 through fiscal
1993, public health and welfare costs rose by an average annual rate of 10.9
percent while tax revenues were growing at an average annual rate of 5.5
percent. Consequently, spending on other budget programs was restrained to a
growth rate below 5.0 percent and sources of revenues other than taxes became
larger components of fund revenues. Among those sources are transfers from
other funds and hospital and nursing home pooling of contributions to use as
federal matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in the
economy. A $2.7 billion tax increase enacted for fiscal 1992 brought financial
stability to the General Fund. That tax increase included several taxes with
<PAGE>
Pennsylvania IM-IT Intermediate Laddered Maturity Series 5 47
retroactive effective dates which generated some one-time revenues during
fiscal 1992. The absence of those revenues in fiscal 1993 contributed to the
decline in tax revenues shown for fiscal 1993.
It should be noted that the creditworthiness of obligations issued by
local Pennsylvania issuers may be unrelated to the creditworthiness of
obligations issued by the Commonwealth of Pennsylvania, and there is no
obligation on the part of the Commonwealth to make payment on such local
obligations in the event of default.
Financial information for the General Fund is maintained on a budgetary
basis of accounting. A budgetary basis of accounting is used for the purpose
of ensuring compliance with the enacted operating budget and is governed by
applicable statutes of the Commonwealth and by administrative procedures. The
Commonwealth also prepares annual financial statements in accordance with
generally accepted accounting principles ("GAAP"). The budgetary basis
financial information maintained by the Commonwealth to monitor and enforce
budgetary control is adjusted at fiscal year-end to reflect appropriate
accruals for financial reporting in conformity with GAAP.
Fiscal 1991 Financial Results. GAAP Basis: During fiscal 1991 the General
Fund experienced an $861.2 million operating deficit resulting in a fund
balance deficit of $980.9 million at June 30, 1991. The operating deficit was
a consequence of the effect of a national recession that restrained budget
revenues and pushed expenditures above budgeted levels. At June 30, 1991, a
negative unreserved-undesignated balance of $1,146.2 million was reported.
During fiscal 1991 the balance in the Tax Stabilization Reserve Fund was used
to maintain vital state spending.
Budgetary Basis: A deficit of $453.6 million was recorded by the General
Fund at June 30, 1991. The deficit was a consequence of higher than budgeted
expenditures and lower than estimated revenues during the fiscal year brought
about by the national economic recession that began during the fiscal year.
The budgetary basis deficit at June 30, 1991 was carried into the 1992 fiscal
year and funded in the fiscal 1992 budget. A number of actions were taken
throughout the fiscal year by the Commonwealth to mitigate the effects of the
recession on budget revenues and expenditures. Actions taken, together with
normal appropriation lapses, produced $871 million in expenditure reductions
and revenue increases for the fiscal year. The most significant of these
actions were a $214 million transfer from the Pennsylvania Industrial
Development Authority, a $134 million transfer from the Tax Stabilization
Reserve Fund, and a pooled financing program to match federal Medicaid funds
replacing $145 million of state funds.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992 the General
Fund reported a $1.1 billion operating surplus. This operating surplus was
achieved through legislated tax rate increases and tax base broadening
measures enacted in August 1991 and by controlling expenditures through
numerous cost reduction measures implemented throughout the fiscal year. As a
result of the fiscal 1992 operating surplus, the fund balance has increased to
$87.5 million and the unreserved-undesignated deficit has dropped to $138.6
million from its fiscal 1991 level of $1,146.2 million.
Budgetary Basis: Eliminating the budget deficit carried into fiscal 1992
from fiscal 1991 and providing revenues for fiscal 1992 budgeted expenditures
required tax revisions that are estimated to have increased receipts for the
1992 fiscal year by over $2.7 billion. Total revenues for the fiscal year were
$14,516.8 million, a $2,654.5 million increase over cash revenues during
fiscal 1991. Originally based on forecasts for an economic recovery, the
budget revenue estimates were revised downward during the fiscal year to
reflect continued recessionary economic activity. Largely due to the tax
revisions enacted for the budget, corporate tax receipts totalled $3,761.2
million, up from $2,656.3 million in fiscal 1991, sales tax receipts increased
by $302 million to $4,499.7 million, and personal income tax receipts totalled
$4,807.4 million, an increase of $1,443.8 million over receipts in fiscal
1991.
As a result of the lowered revenue estimate during the fiscal year,
increased emphasis was placed on restraining expenditure growth and reducing
expenditure levels. A number of cost reductions were implemented during the
fiscal year and contributed to $296.8 million of appropriation lapses. These
appropriation lapses were responsible for the $8.8 million surplus at fiscal
year-end, after accounting for the required ten percent transfer of the
surplus to the Tax Stabilization Reserve Fund.
Spending increases in the fiscal 1992 budget were largely accounted for
by increases for education, social services and corrections programs.
Commonwealth funds for the support of public schools were increased by 9.8
percent to provide a $438 million increase to $4.9 billion for fiscal 1992.
The fiscal 1992 budget provided additional funds for basic and special
education and included provisions designed to help restrain the annual
increase of special education costs, an area of recent rapid cost increases.
Child welfare appropriations supporting county operated child welfare programs
were increased $67 million, more than 31.5 percent over fiscal 1991. Other
social service
<PAGE>
48 Pennsylvania IM-IT Intermediate Laddered Maturity Series 5
areas such as medical and cash assistance also received significant funding
increases as costs have risen quickly as a result of the economic recession
and high inflation rates of medical care costs. The costs of corrections
programs, reflecting the marked increase in the prisoner population, increased
by 12 percent. Economic development efforts, largely funded from bond proceeds
in fiscal 1991, were continued with General Fund appropriations for fiscal
1992.
The budget included the use of several Medicaid pooled financing
transactions. These pooling transactions replaced $135 million of Commonwealth
funds, allowing total spending under the budget to increase by an equal
amount.
Fiscal 1993 Financial Results--GAAP Basis. The fund balance of the
General Fund increased by $611.4 million during the fiscal year, led by an
increase in the unreserved balance of $576.8 million over the prior fiscal
year balance. At June 30, 1993, the fund balance totaled $698.9 and the
unreserved/undesignated balance totaled $64.4 million. A continuing recovery
of the Commonwealth's financial condition from the effects of the national
economic recession of 1990 and 1991 is demonstrated by this increase in the
balance and a return to a positive unreserved/ undesignated balance. The
previous positive unreserved/undesignated balance was recorded in fiscal 1987.
For the second consecutive fiscal year the increase in the
unreserved/undesignated balance exceeded the increase recorded in the
budgetary basis unappropriated surplus during the fiscal year.
Budgetary Basis. The 1993 fiscal year closed with revenues higher than
anticipated and expenditures about as projected, resulting in an ending
unappropriated balance surplus (prior to the ten percent transfer to the Tax
Stabilization Reserve Fund) of $242.3 million, slightly higher than estimated
in May 1993. Cash revenues were $41.5 million above the budget estimate and
totaled $14.633 billion representing less than a one percent increase over
revenues for the 1992 fiscal year. A reduction in the personal income tax rate
in July 1992 and revenues from retroactive corporate tax increases received in
fiscal 1992 were responsible, in part, for the low revenue growth in fiscal
1993.
Appropriations less lapses totaled an estimated $13.870 billion
representing a 1.1 percent increase over those during fiscal 1992. The low
growth in spending is a consequence of a low rate of revenue growth,
significant one-time expenses during fiscal 1992, increased tax refund
reserves to cushion against adverse decisions on pending litigations, and the
receipt of federal funds for expenditures previously paid out of Commonwealth
funds.
By state statute, ten percent of the budgetary basis unappropriated
surplus at the end of a fiscal year is to be transferred to the Tax
Stabilization Reserve Fund. The transfer for the fiscal 1993 balance is $24.2
million. The remaining unappropriated surplus of $218.0 million was carried
forward into the 1994 fiscal year.
Fiscal 1994 Budget (Budgetary Basis). The enacted 1994 fiscal year budget
provides for $14.995 billion of appropriations of Commonwealth funds. The
largest increase in appropriations is for the Department of Public
Welfare--$235 million--to meet the increasing costs of medical care and rising
caseloads. Other large increases are education--$196 million--including $129
million to increase state educational subsidies for the most needy school
districts and $104 million for correctional institutions to pay operating
costs and lease payments for five new prisons and to expand the capacity of
two existing facilities.
The continuing rise in medical assistance costs cannot be met from the
resources provided by a much slower growing tax revenue base. Consequently,
program and financial changes must be implemented to keep costs within budget
limits. For fiscal 1994, the Commonwealth plans to save $247 million by
receiving federal reimbursement for hospital services provided to state
general assistance recipients. Prior to this time, those costs were fully paid
by the Commonwealth. In addition, the Commonwealth will continue to use pooled
financing for medical assistance costs using intergovernmental transfers in
place of voluntary contributions as was done in earlier fiscal years. Through
the pooled financing, additional federal reimbursements may be drawn to
support the medical assistance program. The pooled financing is anticipated to
replace $99 million of Commonwealth funds in the 1994 fiscal year budget.
The budget estimates revenue growth of 3.7 percent over fiscal 1993
actual revenues. The revenue estimate is based on an expectation of continued
economic recovery, but at a slow rate. Sales tax receipts are projected to
rise 4.4 percent over 1993 receipts while personal income tax receipts are
projected to increase by 3.3 percent, a rate that is low because of the tax
rate reduction in July 1992.
In February 1994, the Governor recommended $46.4 million of additional
appropriations be enacted for fiscal 1994, raising total appropriations to
$15,041.7 million. The largest increase in additional appropriations is $27.3
million to make audit payments to the federal Department of Health and Human
Services. No change to the aggregate
<PAGE>
Pennsylvania IM-IT Intermediate Laddered Maturity Series 5 49
commonwealth revenue estimate was made although individual tax estimates have
been revised to reflect actual receipts to date and the tax refund estimate
was reduced to reflect a favorable ruling in Philadelphia Suburban Corp. vs.
Commonwealth. Through February 1994, revenues are slightly ($1.1 million or
0.01 percent) above estimate as below estimate corporate tax receipts are
being offset by above estimate sales tax, personal income tax and non-tax
revenue receipts.
Upon completion of a review of actual expenditures and revised estimates
for the remainder of fiscal 1994, lapses of current and prior years'
appropriations are projected to be $163.0 million. The projected lapses and
the beginning unappropriated surplus contribute to a projected ending
unappropriated surplus of $296.8 million before the required ten percent
transfer to the Tax Stabilization Reserve Fund.
Proposed Fiscal 1995 Budget. For the fiscal year beginning July 1, 1994,
the Governor has proposed a budget containing a 4.1 percent increase in
appropriations over the actual and proposed supplemental appropriations for
fiscal 1994. Total appropriations recommended amount to $15,665 million. The
budget is balanced by drawing down of a projected $267 million unappropriated
surplus for fiscal 1994. The fastest growing portion of the budget continues
to be medical assistance which is proposed to receive the largest increase,
$264 million or 42.4 percent of the proposed net increase in spending. Other
program areas budgeted to receive major increases are education-- $165
million--and corrections--$126 million. The proposed budget recommends a
tightening of eligibility criteria for state-financed welfare benefits as a
cost reduction measure. Those individuals not meeting the revised criteria
would only qualify for 60 days of cash grants in a two-year period.
The Governor's proposal also includes a recommended reduction in the
corporate net income tax rate from 12.25 percent to 9.99 percent over a three
year period. The corporate tax cut and a proposed increase in poverty
exemption for the person income tax are estimated to cost $124.7 million in
fiscal 1995.
The recommended budget includes Commonwealth revenue growth of 4.7
percent without the effect of the proposed tax reduction. The revenue estimate
is based on the expectation of a continued slow national economic recovery and
continued economic growth of the Pennsylvania economy at a rate slightly below
the national rate. Total estimate Commonwealth revenue, adjusted for refunds
and the proposed tax reduction, is $15,400 million.
All outstanding general obligation bonds of the Commonwealth are rated
AA-by S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any ratings will
continue for any period of time or that they will not be revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the 1990
Census. Philadelphia functions both as a city of the first class and a county
for the purpose of administering various governmental programs.
For the fiscal year ending June 30, 1991, Philadelphia experienced a
cumulative General Fund balance deficit of $153.5 million. The audit findings
for the fiscal year ending June 30, 1992, place the Cumulative General Fund
balance deficit at $224.9.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class cities
in remedying fiscal emergencies was enacted by the General Assembly and
approved by the Governor in June, 1991. PICA is designed to provide assistance
through the issuance of funding debt to liquidate budget deficits and to make
factual findings and recommendations to the assisted city concerning its
budgetary and fiscal affairs. An intergovernmental cooperation agreement
between Philadelphia and PICA was approved by City Council on January 3, 1992,
and approved by the PICA Board and signed by the Mayor on January 8, 1992. At
this time, Philadelphia is operating under a five year fiscal plan approved by
PICA on April 6, 1992. Full implementation of the five year plan was delayed
due to labor negotiations that were not completed until October 1992, three
months after the expiration of the old labor contracts. The terms of the new
labor contracts are estimated to cost approximately $144.0 million more than
what was budgeted in the original five year plan. An amended five year plan
was apporoved by PICA in May 1993. The audit findings show a surplus of
approximately $3 million for the fiscal year ending June 30, 1993. The fiscal
1994 budget projects no deficit and a balanced budget for the year ending June
30, 1994. The Mayor presented the latest update of the five year financial
plan on January 13, 1994; it will be considered by PICA in the spring of 1994.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue Bonds
to provide financial assistance to Philadelphia and to liquidate the
cumulative General Fund balance deficit. In July 1993, PICA issued
$643,430,000 of
<PAGE>
50 Pennsylvania IM-IT Intermediate Laddered Maturity Series 5
Special Tax Revenue Bonds to refund certain general obligation bonds of the
city and to fund additional capital projects.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Ba by Moody's and
BB by S&P. Any explanation concerning the significance of such ratings must be
obtained from the rating agencies. There is no assurance that any ratings will
continue for any period of time or that they will not be revised or withdrawn.
The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of bonds and does not
purport to be a complete or exhaustive description of all adverse conditions
to which the issuers of the Bonds in the Pennsylvania IM-IT Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of Bonds, could have an adverse impact on the financial condition of
the State and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent such factors
or other factors may affect the issuers of Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of the
Bonds acquired by the Pennsylvania IM-IT Trust to pay Interest on or principal
of the Bonds.
TAX STATUS. For a discussion of the Federal tax status of income earned
on Pennsylvania IM-IT Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Saul, Ewing, Remick & Saul, counsel to the Fund for
Pennsylvania tax matters, under existing law:
(1) Units evidencing fractional undivided interest in the Pennsylvania
IM-IT Trust, which are represented by obligations issued by the
Commonwealth of Pennsylvania, any public authority, commission, board
or other agency created by the Commonwealth of Pennsylvania, any
political subdivision of the Commonwealth of Pennsylvania or any
public authority created by any such political subdivision are not
taxable under any of the personal property taxes presently in effect
in Pennsylvania;
(2) distributions of interest income to Unitholders are not subject to
personal income tax under the Pennsylvania Tax Reform Code of 1971;
nor will such interest be taxable under the Philadelphia School
District Investment Income Tax imposed on Philadelphia resident
individuals;
(3) a Unitholder may have a taxable event under the Pennsylvania state
and local income taxes referred to in the preceding paragraph upon the
redemption or sale of his Units but not upon the disposition of any of
the Securities in the Pennsylvania IM-IT Trust to which the
Unitholder's Units relate;
(4) Units are subject to Pennsylvania inheritance and estate taxes;
(5) a Unitholder which is a corporation may have a taxable event under
the Pennsylvania Corporate Net Income Tax when it redeems or sells its
Units. Interest income distributed to Unitholders which are
corporations is not subject to Pennsylvania Corporate Net Income Tax
or Mutual Thrift Institutions Tax. However, banks, title insurance
companies and trust companies may be required to take the value of the
Units into account in determining the taxable value of their Shares
subject to Shares Tax;
(6) Under Act No. 68 of December 3, 1993, gains derived by the Fund
from the sale, exchange or other disposition of Bonds may be subject
to Pennsylvania personal or corporate income taxes. Those gains which
are distributed by the Fund to Unitholders who are individual will be
subject to Pennsylvania Personal Income Tax and, for residents of
Philadelphia, to Philadelphia School District Investment Income Tax.
For Unitholders which are corporations, the distributed gains will be
subject to Corporate Net Income Tax or Mutual Thrift Institutions Tax.
Gains which are not distributed by the Fund will nevertheless be
taxable to Unitholders if derived by the Fund from the sale, exchange
or other disposition of Bonds issued on or after February 1, 1994.
Gains which are not distributed by the Fund will remain nontaxable to
Unitholders if derived by the Fund from the sale, exchange or other
disposition of Bonds issued prior to February 1, 1994. However, for
gains from the sale, exchange or other disposition of these Bonds to
be taxable under the Philadelphia School District Investment Income
Tax, the Bonds must be held for six months or less;
(7) any proceeds paid under the insurance policy issued to the Trustee
or obtained by the issuers of the Bonds with respect to the Bonds
which represent maturing interest on defaulted obligations held by the
Trustee will be excludable from Pennsylvania gross income if, and to
the same extent as, such interest would have been so excludable if
paid by the issuer of the defaulted obligations; and
<PAGE>
Pennsylvania IM-IT Intermediate Laddered Maturity Series 5 51
(8) The Fund is not taxable as a corporation under Pennsylvania tax
laws applicable to corporations.
On December 3, 1993, change to Pennsylvania law affecting taxation of
income and gains from the sale of Commonwealth of Pennsylvania and local
obligations were enacted. Among these changes was the repeal of the exemption
from tax of gains realized upon the sale or other disposition of such
obligations. The Pennsylvania Department of Revenue has not issued any
regulations or other guidance concerning these changes. The opinions expressed
above are based on our analysis of the law but are subject to modification
upon review of regulations or other guidance that may be issued by the
Department of Revenue.
In rendering its opinion, Saul, Ewing, Remick & Saul has not, for timing
reasons, made an independent review of proceedings related to the issuance of
the Bonds. It has relied on Van Kampen Merritt Inc. for assurance that the
Bonds have been issued by the Commonwealth of Pennsylvania or by or on behalf
of municipalities or other governmental agencies within the Commonwealth.
<PAGE>
52 Pennsylvania IM-IT Intermediate Laddered Maturity Series 5
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit................................................................ $ 48.43
Less: Estimated Annual Expense per Unit <F1>............................................................. $ 2.08
Less: Annual Premium on Portfolio Insurance per Unit..................................................... --
Estimated Net Annual Interest Income per Unit............................................................ $ 46.35
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 46.35
Divided by 12............................................................................................ $ 3.86
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .12875
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F2><F3><F4>........................................... 4.53%
ESTIMATED LONG-TERM RETURN <F2><F3><F4>........................................................................ 4.72%
Initial Distribution (August 1994)............................................................................. $ 3.99
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F4>.................................................................... $ 3.86
PURCHASED INTEREST <F5>........................................................................................ $ 8.07
Trustee's Annual Fee................... $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> Excluding insurance costs.
<F2> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F3> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<F4> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F5> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
Pennsylvania IM-IT Intermediate Laddered Maturity Series 5 53
<TABLE>
PENNSYLVANIA IM-IT INTERMEDIATE LADDERED MATURITY SERIES 5 (IM-IT AND QUALITY
MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
PENNSYLVANIA
IM-IT
INTERMEDIATE
NAME OF ISSUER, TITLE, INTEREST RATE AND LADDERED
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR REDEMPTION MATURITY
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> RATING<F2> FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C>
$ 600,000 Commonwealth of Pennsylvania, General Obligation Bonds, Second
Series of 1994 (MBIA Insured)
4.75% Due 6/15/1999.......................................... YAAA $ 598,314
600,000 The School District of Philadelphia, Pennsylvania, General
Obligation Bonds, Series 1994A (MBIA Insured)
5.05% Due 7/1/2000........................................... YAAA 602,250
600,000 City of Philadelphia, Pennsylvania, Water and Wastewater
Revenue Bonds, Series 1993 (FSA Insured)
#4.875% Due 6/15/2001........................................ AAA 592,686
600,000 Commonwealth of Pennsylvania, Certificates of Participation,
Series 1993A (AMBAC Indemnity Insured)
#4.90% Due 7/1/2002.......................................... AAA 588,660
20,000 State Public School Building Authority, Commonwealth of
Pennsylvania, School Lease Revenue Bonds (Reading School
District Issue) Series 1992B (MBIA Insured)
#0.00% Due 7/15/2003......................................... AAA 12,372<F6>
580,000 Dauphin County Hospital Authority, Pennsylvania, Hospital
Revenue Bonds (Polyclinic Medical Center of Harrisburg Issue)
Series 1993 (MBIA Insured)
4.80% Due 8/15/2003.......................................... AAA 557,316
$ 3,000,000 $ 2,951,598
</TABLE>
All of the Bonds in the portfolio are insured by one of the Preinsured Bond
Insurers as indicated in the Bond name. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
54 Tennessee IM-IT-- Series 27
TENNESSEE IM-IT TRUST
GENERAL. The Tennessee IM-IT Trust consists of 8 issues of Securities.
None of the Bonds in the Tennessee IM-IT Trust are general obligations of the
governmental entities issuing them or are backed by the taxing power thereof.
All of the issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purposes of issues (and percentage of principal amount
to total Tennessee IM-IT Trust) as follows: Water and Sewer, 3 (50%); Health
Care, 4 (33%) and Multi-Family Mortgage Revenue, 1 (17%). No Bond issue has
received a provisional rating.
SPECIAL CONSIDERATIONS. The following brief summary regarding the economy
of Tennessee is based upon information drawn from publicly available sources
and is included for the purpose of providing information about general
economic conditions that may or may not affect issuers of the Tennessee
obligations. The Sponsor has not independently verified any of the information
contained in such publicly available documents.
The State Constitution of Tennessee requires a balanced budget. No legal
authority exists for deficit spending from operating purposes beyond the end
of a fiscal year. Tennessee law permits tax anticipation borrowing but any
amount borrowed must be repaid during the fiscal year for which the borrowing
was done. Tennessee has not issued any debt for operating purposes during
recent years with the exception of some advances which were made from the
Federal Unemployment Trust Fund in 1984. No such advances are now outstanding
nor is borrowing of any type for operating purposes contemplated.
The State Constitution of Tennessee forbids the expenditure of the
proceeds of any debt obligation for a purpose other than the purpose for which
it was authorized by statute. Under State law, the term of bonds authorized
and issued cannot exceed the expected life of the projects being financed.
Furthermore, the amount of a debt obligation cannot exceed the amount
authorized by the General Assembly.
The State budget for the fiscal year ending June 30, 1991 provides for
revenues and expenditures of approximately $8.6 billion. Approximately 60% of
budgeted State revenues are expected to be generated from State taxes, with
the balance from federal funds, interdepartmental revenue, bond issues and
fees from current services. Less than 2% of fiscal 1991 State revenues are
budgeted to come from bond issues and less than 2% of fiscal 1991 budgeted
expenditures are allocated for debt service. Through the first half of fiscal
1991, revenues were approximately $64.7 million below budget projections and
fiscal 1991 revenues were estimated by the Tennessee Department of Finance and
Administration to be approximately $150 million below projections, principally
due to lower than anticipated sales tax revenues. Sales tax revenues account
for approximately 51% of State tax revenue. Tennessee's Revenue Fluctuation
Reserve is approximately $100 million.
In February 1991, the Governor of Tennessee introduced to the General
Assembly a tax reform proposal intended to generate approximately $627 million
in new State revenue to upgrade the quality of Tennessee public education. The
proposed tax program includes a 4% flat rate personal income tax on adjusted
gross income with a $7,000 exemption (declining as income increases) for each
member of lower income families, repeal of the State sales tax on food,
reduction of the combined State and local sales tax rate to 6% from the
current 8.25%, elimination of the local option sales tax cap, a 20% reduction
in corporate franchise tax, and a repeal of the current 6% income tax on
dividend and interest income. The proposal has been subject to extensive
debate in both the Tennesee House and Senate, and no prediction can be made as
to whether all or any part of the proposed legislation will be enacted.
The Tennessee economy generally tends to rise and fall in a roughly
parallel manner with the U.S. economy, although in recent years Tennessee has
experienced less economic growth than the U.S. average. The Tennessee economy
entered a recession in the last half of 1990 as the Tennessee index of leading
economic indicators fell throughout the period. Tennessee nominal gross State
product rose at a lower rate for 1990, and is projected to rise at a lower
rate for 1991, than the average annual rates for the five year period 1985-89.
Tennessee's population increased 6.7% from 1980 to 1990, less than the
national increase of 10.2% for the same period. Throughout 1990, seasonally
adjusted unemployment rates in Tennessee were at or slightly below the
national average but rose slightly above the national average in December
1990. Beginning in the fourth quarter of 1990, initial unemployment claims
showed substantial monthly increases. The unemployment rate for February 1991
stood at 6.8% as compared to 5.4% for December 1990. By 1992, Tennessee
unemployment had decreased to 6.1%, as compared to the national rate of 7.3%,
and has remained below the national rate throughout the first half of 1993.
The rates for January and June of 1993 stood at 6.6% and 6.0%, respectively,
as compared to the national
<PAGE>
Tennessee IM-IT-- Series 27 55
rates of 7.1% and 7.0%. A decline in manufacturing employment has been partly
offset by moderate growth in service sector employment.
Historically, the Tennessee economy has been characterized by a greater
concentration in manufacturing employment than the U.S. as a whole. While in
recent years Tennessee has followed the national shift away from manufacturing
toward service sector employment, manufacturing continues to be the largest
source of non-agricultural employment in the state, and the state continues to
attract new manufacturing facilities. In addition to the General Motors Saturn
project and a major Nissan facility built in Tennessee in the 1980's, in
January 1991, Nissan announced plans to develop a $600 million engine and
component parts manufacturing facility in Decherd, Tennessee. However, total
planned investment in Tennessee's manufacturing and service sectors was down
sharply to $1.9 billion in 1990 from $3.3 billion in 1989.
Non-agricultural employment in Tennessee is relatively uniformly
diversified, with approximately 24% in the manufacturing sector, approximately
23% in the wholesale and retail trade sector, approximately 22% in the service
sector and approximately 16% in government.
Tennessee's general obligation bonds are rated Aaa by Moody's and AA+ by
Standard & Poor's. Tennessee's smallest counties have Moody's lowest rating
due to these rural counties' limited economies that make them vulnerable to
economic downturns. Tennessee's four largest counties have the second highest
of Moody's nine investment grades.
The foregoing information does not purport to be a complete or exhaustive
description of all the conditions to which the issuers of Bonds in the
Tennessee IM-IT Trust are subject. Many factors including national economic,
social and environmental policies and conditions, which are not within the
control of the issuers of Bonds, could affect or could have an adverse impact
on the financial condition of the State and various agencies and political
subdivisions located in the State. Since certain Bonds in the Tennessee IM-IT
Trust (other than general obligation bonds issued by the State) are payable
from revenue derived from a specific source or authority, the impact of a
pronounced decline in the national economy or difficulties in significant
industries within the State could result in a decrease in the amount of
revenues realized from such source or by such authority and thus adversely
affect the ability of the respective issuers of the Bonds in the Tennessee
IM-IT Trust to pay the debt service requirements on the Bonds. Similarly, such
adverse economic developments could result in a decrease in tax revenues
realized by the State and thus could adversely affect the ability of the State
to pay the debt service requirements of any Tennessee general obligation bonds
in the Tennessee IM-IT Trust. The Sponsor is unable to predict whether or to
what extent such factors or other factors may affect the issuers of Bonds, the
market value or marketability of the Bonds or the ability of the respective
issuers of the Bonds acquired by the Tennessee IM-IT Trust to pay interest on
or principal of the Bonds.
TAX STATUS For a discussion of the federal tax status of income earned on
Tennessee IM-IT Trust Units, see "Other Matters--Federal Tax Status."
The assets of the Tennessee IM-IT Trust will consist of bonds issued by
the State of Tennessee (the "State") or any county or any municipality or
political subdivision thereof, including any agency, board, authority or
commission, the interest on which is exempt from the Hall Income Tax imposed
by the State of Tennessee ("Tennessee Bonds") or by the Commonwealth of Puerto
Rico or its political subdivisions (the "Puerto Rico Bonds") (collectively,
the "Bonds").
Under the recently amended provisions of Tennessee law, a unit investment
trust taxable as a grantor trust for federal income tax purposes is entitled
to special Tennessee State tax treatment (as more fully described below) with
respect to its proportionate share of interest income received or accrued with
respect to the Tennessee Bonds. The recent amendments also provide an
exemption for distributions made by a unit investment trust or mutual fund
that are attributable to "bonds or securities of the United States government
or any agency or instrumentality thereof" ("U.S. Government, Agency or
Instrumentality Bonds"). If it were determined that the Trust held assets
other than Tennessee Bonds or U.S. Government, Agency or Instrumentality
Bonds, a proportionate share of distributions from the Trust would be taxable
to Unitholders for Tennessee Income Tax purposes.
Further, because the recent amendments only provide an exemption for
distributions that relate to interest income, distributions by the Trust that
relate to capital gains realized from the sale or redemption of Tennessee
Bonds or U.S. Government, Agency or Instrumentality Bonds are likely to be
treated as taxable dividends for purposes of the Hall Income Tax. However,
capital gains realized directly by a Unitholder when the Unitholder sells or
redeems his Unit will not be subject to the Hall Income Tax. The opinion set
forth below assumes that the interest on the Tennessee
<PAGE>
56 Tennessee IM-IT-- Series 27
Bonds, if received directly by a Unitholder, would be exempt from the Hall
Income Tax under Tennessee State law. This opinion does not address the
taxation of persons other than full-time residents of the State of Tennessee.
Because the recent amendments only provide an exemption for distributions
attributable to interest on Tennessee Bonds or U.S. Government, Agency or
Instrumentality Bonds, it must be determined whether bonds issued by the
Government of Puerto Rico qualify as U.S. Government, Agency or
Instrumentality Bonds. For Hall Income Tax purposes, there is currently no
published administrative interpretation or opinion of the Attorney General of
Tennessee dealing with the status of distributions made by unit investment
trusts such as the Tennessee Trust that are attributable to interest paid on
bonds issued by the Government of Puerto Rico. However, in a letter dated
August 14, 1992 (the "Commissioner's Letter"), the Commissioner of the State
of Tennessee Department of Revenue advised that Puerto Rico would be an
"instrumentality" of the U.S. Government and treated bonds issued by the
Government of Puerto Rico as U.S. Government, Agency or Instrumentality Bonds.
Based on this conclusion, the Commissioner advised that distributions from a
mutual fund attributable to investments in Puerto Rico Bonds are exempt from
the Hall Income Tax. Both the Sponsor and Chapman and Cutler, for purposes of
its opinion (as set forth below), have assumed, based on the Commissioner's
Letter, that bonds issued by the Government of Puerto Rico are U.S.
Government, Agency or Instrumentality Bonds. However, it should be noted that
the position of the Commissioner is not binding, and is subject to change,
even on a retroactive basis.
The Sponsor cannot predict whether new legislation will be enacted into
law affecting the tax status of Tennessee IM-IT Trusts. The occurrence of such
an event could cause distributions of interest income from the Trust to be
subject to the Hall Income Tax. Additional information regarding such
proposals is currently unavailable. Investors should consult their own tax
advisors in this regard.
In the opinion of Chapman and Cutler, Counsel to the Sponsor, under
existing Tennessee State law as of the date of this prospectus:
For purposes of the Hall Income Tax, the Tennessee Excise Tax imposed by
Section 67-4-806 (the "State Corporate Income Tax"), and the Tennessee
Franchise Tax imposed by Section 67-4-903, the Tennessee IM-IT Trust will not
be subject to such taxes.
For Hall Income Tax purposes, a proportionate share of such distributions
from the Tennessee IM-IT Trust to Unitholders, to the extent attributable to
interest on the Tennessee Bonds (based on the relative proportion of interest
received or accrued attributable to Tennessee Bonds) will be exempt from the
Hall Income Tax when distributed to such Unitholders. Based on the
Commissioner's Letter, distributions from the Trust to Unitholders, to the
extent attributable to interest on the Puerto Rico Bonds (based on the
relative proportion of interest received or accrued attributable to the Puerto
Rico Bonds) will be exempt from the Hall Income Tax when distributed to such
Unitholders. A proportionate share of distributions from the Tennessee IM-IT
Trust attributable to assets other than the Bonds would not, under current
law, be exempt from the Hall Income Tax when distributed to Unitholders.
For Tennessee State Corporate Income Tax Purposes, Tennessee law does not
provide an exemption for interest on Tennessee Bonds and requires that all
interest excludible from Federal gross income must be included in calculating
"net earnings" subject to the State Corporate Income Tax. No opinion is
expressed regarding whether such tax would be imposed on the earnings or
distributions of the Tennessee IM-IT Trust (including interest on the Bonds or
gain realized upon the disposition of the Bonds by the Tennessee IM-IT Trust)
attributable to Unitholders subject to the State Corporate Income Tax.
However, based upon prior written advice from the Tennessee Department of
Revenue, earnings and distributions from the Tennessee IM-IT Trust (including
interest on the Tennessee Bonds or gain realized upon the disposition of the
Tennessee Bonds by the Tennessee IM-IT Trust) attributable to the Unitholders
should be exempt from the State Corporate Income Tax. The position of the
Tennessee Department of Revenue is not binding, and is subject to change, even
on a retroactive basis.
Each Unitholder will realize taxable gain or loss for State Corporate
Income Tax purposes when the Unitholder redeems or sells his Units, at a price
that differs from original cost as adjusted for accretion or any discount or
amortization of any premium and other basis adjustments, including any basis
reduction that may be required to reflect a Unitholder's share of interest, if
any, accruing on Bonds during the interval between the Unitholder's settlement
date and the date such Bonds are delivered to the Tennessee IM-IT Trust, if
later. Tax basis reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Unitholders realizing taxable
gain when the Units are sold or redeemed for an amount equal to or less than
their original cost.
For purposes of the Tennessee Property Tax, the Tennessee IM-IT Trust
will be exempt from taxation with respect to the Bonds it holds. As for the
taxation of the Units held by the Unitholders, although intangible personal
property is not presently subject to Tennessee taxation, no opinion is
expressed with regard to potential property
<PAGE>
Tennessee IM-IT-- Series 27 57
taxation of the Unitholders with respect to the Units because the
determination of whether property is exempt from such tax is made on a county
by county basis.
No opinion is expressed herein regarding whether insurance proceeds paid
in lieu of interest on the Bonds held by the Tennessee IM-IT Trust (including
the Tennessee Bonds) are exempt from the Hall Income Tax. Distributions of
such proceeds to Unitholders may be subject to the Hall Income Tax.
The Bonds and the Units held by the Unitholder will not be subject to
Tennessee sales and use taxes.
We have not examined any of the Bonds to be deposited and held in the
Tennessee Trust or the proceedings for the issuance thereof or the opinions of
bond counsel with respect thereto, and therefore express no opinion as to the
exemption from State income taxes of interest on the Bonds if received
directly by a Unitholder.
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit................................................................ $ 54.80
Less: Estimated Annual Expense per Unit <F1>............................................................. $ 2.06
Less: Annual Premium on Portfolio Insurance per Unit..................................................... --
Estimated Net Annual Interest Income per Unit............................................................ $ 52.74
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 52.74
Divided by 12............................................................................................ $ 4.40
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .14650
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F2><F3><F4>........................................... 5.27%
ESTIMATED LONG-TERM RETURN <F2><F3><F4>........................................................................ 5.43%
Initial Distribution (August 1994)............................................................................. $ 4.54
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F4>.................................................................... $ 4.40
PURCHASED INTEREST <F5>........................................................................................ $ 9.13
Trustee's Annual Fee................... $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> Excluding insurance costs.
<F2> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F3> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<F4> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F5> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
58 Tennessee IM-IT-- Series 27
<TABLE>
TENNESSEE INSURED MUNICIPALS INCOME TRUST
SERIES 27 (IM-IT AND QUALITY MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
NAME OF ISSUER, TITLE, INTEREST RATE AND TENNESSEE
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR REDEMPTION IM-IT
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> RATING<F2> FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C>
$ 500,000 Jackson, Tennessee, Water and Sewer Revenue Refunding Bonds
(AMBAC Indemnity Insured)
#5.125% Due 1/1/2010......................................... AAA 2003 @ 102 $ 465,875
250,000 Metropolitan Government of Nashville and Davidson County,
Tennessee, Health and Educational Facilities Board, Hospital
Revenue Bonds, Adventist Health System/Sunbelt Inc. (Capital
Guaranty Insured) 2003 @ 102
#5.00% Due 11/15/2013........................................ AAA 2006 @ 100 S.F. 222,193
500,000 The Metropolitan Government of Nashville and Davidson County
(Tennessee) Water and Sewer Revenue Refunding Bonds, Series
1993 (FGIC Insured) 2003 @ 100
#5.10% Due 1/1/2016.......................................... AAA 2014 @ 100 S.F. 451,590
250,000 The Health and Educational Facilities Board of the City of
Johnson City, Tennessee, Hospital Revenue Refunding Bonds,
Series 1994 (Johnson City Medical Center Hospital) MBIA
Insured 2004 @ 102
#5.25% Due 7/1/2016.......................................... AAA 2014 @ 100 S.F. 228,507
500,000 Knox-Chapman Utility District of Knox County, Tennessee, Water
and Sewer Revenue Refunding Bonds, Series 1994 (MBIA Insured) 2004 @ 102
#6.10% Due 1/1/2019.......................................... YAAA 2015 @ 100 S.F. 508,680
250,000 The Health, Educational and Housing Facilities Board of the
County of Knox (Tennessee) Hospital Facilities Revenue
Refunding Bonds (Mercy Health System) Series 1993B (AMBAC
Indemnity Insured) 2003 @ 102
6.00% Due 9/1/2019........................................... AAA 2016 @ 100 S.F. 251,250
250,000 Health and Educational Facilities Board of the City of Bristol,
Tennessee, Hospital Revenue Refunding Bonds, Series 1993
(Bristol Memorial Hospital) FGIC Insured 2003 @ 102
#5.25% Due 9/1/2021.......................................... AAA 2014 @ 100 S.F. 226,245
500,000 Tennessee Housing Development Agency, Mortgage Finance
Refunding Bonds, Series 1993A (AMBAC Indemnity Insured) 2003 @ 102
5.95% Due 7/1/2028........................................... AAA 2019 @ 100 S.F. 484,860
$ 3,000,000 $ 2,839,200
</TABLE>
All of the Bonds in the portfolio are insured by one of the Preinsured Bond
Insurers as indicated in the Bond name. See "Unitholder
Explanations--Insurance on the Bonds in the Insured Trusts".
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
National QUALITY-- Series 86 59
NATIONAL QUALITY TRUST
GENERAL. The National Quality Trust consists of 10 issues of Securities.
None of the Bonds in the National Quality Trust are general obligations of the
governmental entities issuing them or are backed by the taxing power thereof.
All of the issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are located in 8 states, and territories, divided by purpose of issues
(and percentage of principal amount to total National Quality Trust) as
follows: Health Care, 2 (20%); Multi-Family Mortgage Revenue, 2 (20%);
Certificates of Participation, 1 (10%); General Purpose, 1 (10%); Higher
Education, 1 (10%); Industrial Revenue, 1 (10%); Public Building, 1 (10%) and
Single Family Mortgage Revenue, 1 (10%). No Bond issue has received a
provisional rating.
TAX STATUS. For a discussion of the Federal tax status of income earned
on National Quality Trust Units, see "Other Matters--Federal Tax Status".
<TABLE>
<CAPTION>
PER UNIT INFORMATION:
<S> <C>
CALCULATION OF ESTIMATED NET ANNUAL UNIT INCOME:
Estimated Annual Interest Income per Unit................................................................ $ 60.71
Less: Estimated Annual Expense per Unit.................................................................. $ 1.97
Estimated Net Annual Interest Income per Unit............................................................ $ 58.74
CALCULATION OF ESTIMATED INTEREST EARNINGS PER UNIT:
Estimated Net Annual Interest Income per Unit............................................................ $ 58.74
Divided by 12............................................................................................ $ 4.90
Estimated Daily Rate of Net Interest Accrual per Unit.......................................................... $ .16315
ESTIMATED CURRENT RETURN BASED ON PUBLIC OFFERING PRICE <F1><F2><F3>........................................... 5.87%
ESTIMATED LONG-TERM RETURN <F1><F2><F3>........................................................................ 5.92%
Initial Distribution (August 1994)............................................................................. $ 5.06
ESTIMATED NORMAL DISTRIBUTION PER UNIT <F3>.................................................................... $ 4.90
PURCHASED INTEREST <F4>........................................................................................ $ 10.12
Trustee's Annual Fee................... $.98 per $1,000 principal amount of
Bonds
Record and Computation Dates........... FIRST day of each month
DISTRIBUTION DATES..................... FIFTEENTH DAY OF EACH MONTH COMMENCING
AUGUST 15, 1994
<FN>
<F1> The Estimated Current Return and Estimated Long-Term Return are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F2> The 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 Trustee and the Evaluator and with the principal
prepayment, redemption, maturity, exchange or sale of Securities while
the Public Offering Price will vary with changes in the offering price of
the underlying Securities and with changes in the Purchased Interest;
therefore, there is no assurance that the present Estimated Current
Return indicated above will be realized in the future. The Estimated
Long-Term Return is calculated using a formula which <F1>takes into
consideration, and determines and factors in the relative weightings of,
the market values, yields (which takes into account the amortization of
premiums and the accretion of discounts) and estimated retirements of all
of the Securities in the Trust and <F2>takes into account the expenses
and sales charge associated with each Trust Unit. Since the market values
and estimated retirements of the Securities and the expenses of the Trust
will change, there is no assurance that the present Estimated Long-Term
Return as indicated above will be realized in the future. The Estimated
Current Return and Estimated Long-Term Return are expected to differ
because the calculation of the Estimated Long-Term Return reflects the
estimated date and amount of principal returned while the Estimated
Current Return calculation includes only net annual interest income and
Public Offering Price.
<F3> These figures are based on estimated per Unit cash flows. Estimated cash
flows will vary with changes in fees and expenses, with changes in
current interest rates and with the principal prepayment, redemption,
maturity, call, exchange or sale of the underlying Securities. The
estimated cash flows for this Series are set forth under "Estimated Cash
Flows to Unitholders".
<F4> See "Unitholder Explanations--Purchased and Accrued Interest".
</TABLE>
<PAGE>
60 National QUALITY-- Series 86
<TABLE>
INVESTORS' QUALITY TAX-EXEMPT TRUST
SERIES 86 (IM-IT AND QUALITY MULTI-SERIES 224)
PORTFOLIO AS OF JUNE 23, 1994
<CAPTION>
OFFERING
PRICE TO
NAME OF ISSUER, TITLE, INTEREST RATE AND RATING<F2> NATIONAL
AGGREGATE MATURITY DATE OF EITHER BONDS DEPOSITED OR STANDARD REDEMPTION QUALITY
PRINCIPAL<F1> BONDS CONTRACTED FOR<F1><F5> & POOR'S MOODY'S FEATURE<F3> TRUST<F4>
<S> <C> <C> <C> <C> <C>
$ 500,000 Indiana Health Facilities Financing Authority,
Hospital Refunding Revenue Bonds, Series 1993
(Welborn Memorial Baptist Hospital Project) 2003 @ 102
#5.60% Due 7/1/2018................................ A N/R 2015 @ 100 S.F. $ 444,160
500,000 State Public Works Board of the State of California,
Lease Revenue Bonds (Various California State
University Projects) Series 1993A 2003 @ 102
#5.50% Due 12/1/2018............................... A A1 2014 @ 100 S.F. 438,925
500,000 Illinois Health Facilities Authority, Revenue
Refunding Bonds (Illinois Masonic Medical Center)
Series 1993 2003 @ 102
#5.50% Due 10/1/2019............................... A- A 2008 @ 100 S.F. 435,470
500,000 Tennessee State Local Development Authority, Revenue
Bonds, Community Provider Pooled Loan Program,
Series 1993 2004 @ 102
6.55% Due 10/1/2023................................ A- N/R 2015 @ 100 S.F. 504,520
500,000 West Covina, California, Certificates of
Participation (Queen of the Valley Hospital) 2004 @ 102
#6.50% Due 8/15/2024............................... A A 2020 @ 100 S.F. 499,330
500,000 Baltimore County, Maryland, Mortgage Revenue
Refunding Bonds, Series 1994A (FHA Insured Mortgage
Loan-Silver Spring Station Apartments Project) 2003 @ 102
6.75% Due 11/1/2024................................ YAAA N/R 2020 @ 100 S.F. 514,375
500,000 Valdez, Alaska, Marine Terminal Revenue Refunding
Bonds (BP Pipelines Incorporated Project) Series
1993A
5.85% Due 8/1/2025................................. AA- A1 2003 @ 102 456,235
500,000 Elderly Housing Development Corporation of Greater
Cincinnati (Ohio) Mortgage Revenue Refunding Bonds
(FHA Insured Mortgage Loan-Cambridge Arms II
Apartment Project) 2004 @ 102
6.60% Due 8/1/2025................................. YAAA N/R 2005 @ 100 S.F. 504,525
500,000 Utah State Housing Finance Agency, Single-family
Mortgage Revenue Bonds 2004 @ 102
6.55% Due 7/1/2026................................. N/R Aa 2015 @ 100 S.F. 502,500
500,000 Metropolitan Pier and Exposition Authority (Illinois)
McCormick Place Expansion Project, Revenue Bonds,
Series 1992A 2003 @ 102
#6.50% Due 6/15/2027............................... A+ A 2023 @ 100 S.F. 499,120
$ 5,000,000 $ 4,799,160
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
<PAGE>
Notes to Portfolios 61
NOTES TO PORTFOLIOS:
AS OF THE DATE OF DEPOSIT: JUNE 23, 1994
(1) All Securities are represented by "regular way" or "when issued"
contracts for the performance of which an irrevocable letter of credit,
obtained from an affiliate of the Trustee, has been deposited with the
Trustee. At the Date of Deposit, Securities may have been delivered to
the Sponsor pursuant to certain of these contracts; the Sponsor has
assigned to the Trustee all of its right, title and interest in and to
such Securities. Contracts to acquire Securities were entered into during
the period from January 25, 1994 to June 22, 1994. These Securities have
expected settlement dates ranging from June 23, 1994 to July 7, 1994 (see
"Unitholder Explanations").
(2) All ratings are by Standard & Poor's Corporation unless otherwise
indicated. "*" indicates that the rating of the Bond is by Moody's
Investors Service, Inc. The ratings represent the latest published
ratings by the respective ratings agency or, if not published, represent
private letter ratings or those ratings expected to be published by the
respective ratings agency. "Y" indicates that such rating is contingent
upon physical receipt by the respective ratings agency of a policy of
insurance obtained by the issuer of the bonds involved and issued by the
Preinsured Bond Insurer named in the bond's title. A commitment for
insurance in connection with these bonds has been issued by the
Preinsured Bond Insurer named in the bond's title. "N/R" indicates that
the applicable rating service did not provide a rating for that
particular Security. For a brief description of the rating symbols and
their related meanings, see "Other Matters-- Description of Securities
Ratings".
(3) There is shown under this heading the year in which each issue of Bonds
is initially or currently callable and the call price for that year. Each
issue of Bonds 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. Redemption pursuant to call provisions generally will, and
redemption pursuant to sinking fund provisions may, occur at times when
the redeemed bonds have an offering side valuation which represents a
premium over par. Certain Bonds may be subject to redemption without
premium prior to the date shown pursuant to extraordinary optional or
mandatory redemptions if certain events occur. Single family mortgage
revenue bonds and housing authority bonds are most likely to be called
subject to such provisions, but other bonds may have similar call
features. Notwithstanding any provisions to the contrary, certain bond
issuers have in the past and others may in the future attempt to redeem
Bonds prior to their initially scheduled call dates and at prices which
do not include any premiums. For a general discussion of certain of these
events, see "Unitholder Explanations--Bond Redemptions". To the extent
that the Securities were deposited in a Trust at a price higher than the
price at which they are redeemed, this will represent a loss of capital
when compared with the original Public Offering Price of the Units.
Conversely, to the extent that the Bonds were acquired at a price lower
than the redemption price, this will represent an increase in capital
when compared with the original Public Offering Price of the Units.
Distributions will generally be reduced by the amount of the income which
would otherwise have been paid with respect to redeemed Securities and
there will be distributed to Unitholders the principal amount and any
premium received on such redemption. The Estimated Current Return and
Estimated Long-Term Return in this event may be affected by such
redemptions. For the Federal tax effect on Unitholders of such
redemptions and resultant distributions, see paragraph (2) under "Other
Matters--Federal Tax Status".
(4) Evaluation of Securities is made on the basis of current offering prices
for the Securities. The offering prices are greater than the current bid
prices of the Securities which is the basis on which Unit value is
determined for purposes of redemption of Units (see "Unitholder
Explanations--Public Offering--Offering Price").
(5) Other information regarding the Bonds in each Trust, as of the Date of
Deposit, is as follows:
<TABLE>
<CAPTION>
ANNUAL PROFIT
INSURANCE COST TO (LOSS) TO ANNUAL INTEREST BID SIDE EVALUATION
TRUST COST SPONSOR SPONSOR INCOME TO TRUST OF BONDS
<S> <C> <C> <C> <C> <C>
Florida IM-IT......................... -- $ 2,863,029 $ 16,110 $ 171,125 $ 2,856,125
Michigan IM-IT........................ -- $ 2,912,651 $ ( 20,871) $ 175,430 $ 2,867,975
Missouri IM-IT........................ $ 150 $ 3,767,649 $ 28,582 $ 223,075 $ 3,766,675
Pennsylvania IM-IT Intermediate
Laddered Maturity.................... -- $ 2,943,600 $ 7,998 $ 145,290 $ 2,928,675
Tennessee IM-IT....................... -- $ 2,790,933 $ 48,267 $ 165,125 $ 2,816,563
National Quality...................... -- $ 4,793,980 $ 5,180 $ 309,500 $ 4,762,500
</TABLE>
<PAGE>
62 Notes to Portfolios
The Sponsor may have entered into contracts which hedge interest rate
fluctuations on certain Bonds in certain Portfolios. The cost of any such
contracts and the corresponding gain or loss is included in the Cost to
Sponsor.
Certain Securities in the Fund, if any, marked by a double asterisk (**),
have been purchased on a "when, as and if issued" or "delayed delivery"
basis. Interest on these Securities 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 as
follows:
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE PRINCIPAL RANGE OF DAYS SUBSEQUENT
TRUST AMOUNT TO FIRST SETTLEMENT DATE
<S> <C> <C>
Florida IM-IT....................... 0% --
Michigan IM-IT...................... 0% --
Missouri IM-IT...................... 24% 1 to 7 days
Pennsylvania IM-IT Intermediate
Laddered Maturity.................. 0% --
Tennessee IM-IT..................... 0% --
National Quality.................... 0% --
</TABLE>
On the Date of Deposit, the offering side evaluations of the Securities
in the Florida IM-IT, Michigan IM-IT, Missouri IM-IT, Pennsylvania IM-IT
Intermediate Laddered Maturity, Tennessee IM-IT and National Quality
Trusts were higher than the bid side evaluations of such Securities by
0.77%, 0.78%, 0.75%, 0.76%, 0.75% and 0.73%, respectively, of the
aggregate principal amounts of such Securities.
"#" indicates that such Bond was issued at an original issue discount.
The tax effect of Bonds issued at an original issue discount is described
in "Other Matters--Federal Tax Status".
(6) This Bond has been purchased at a deep discount from the par value
because there is little or no stated interest income thereon. Bonds which
pay no interest are normally described as "zero coupon" bonds. Over the
life of bonds purchased at a deep discount the value of such bonds will
increase such that upon maturity the holders of such bonds will receive
100% of the principal amount thereof. Approximately 1%, 4% and 1% of the
aggregate principal amount of the Securities in the Michigan IM-IT Trust,
Missouri IM-IT Trust and Pennsylvania IM-IT Intermediate Laddered
Maturity Trust, respectively, are "zero coupon" bonds.
<PAGE>
Underwriting 63
UNDERWRITING. The Underwriters named below have severally purchased Units
in the following respective amounts from the Sponsor.
<TABLE>
<CAPTION>
FLORIDA
IM-IT TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,256
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 500
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 100
Unit Investment Trust Department 10292
3,056
</TABLE>
<TABLE>
<CAPTION>
MICHIGAN
IM-IT TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,720
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 500
First of Michigan Corporation 100 Renaissance Center, 26th Floor, Detroit, Michigan 48243 350
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Kemper Securities, Inc. 77 West Wacker Drive, 28th Floor, Chicago, Illinois 60601 100
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 100
Unit Investment Trust Department 10292
Roney & Co. One Griswold, Detroit, Michigan 48226 100
3,070
</TABLE>
<TABLE>
<CAPTION>
MISSOURI
IM-IT TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,079
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 500
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 250
Morgan Keegan & Co., Inc. 50 North Front Street, Memphis, Tennessee 38103 250
Stifel, Nicolaus & Company, Incorporated 500 North Broadway, St. Louis, Missouri 63102 250
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
J. J. B. Hilliard, W. L. Lyons, Inc. 501 South Fourth Street, Louisville, Kentucky 40202 100
Huntleigh Securities Corporation 222 South Central, 3rd Floor, St. Louis, Missouri 63105 100
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 100
Unit Investment Trust Department 10292
Roney & Co. One Griswold, Detroit, Michigan 48226 100
Smith Barney Inc. 2 World Trade Center, 101st Floor, New York, New York 10048 100
4,029
</TABLE>
<TABLE>
<CAPTION>
PENNSYLVANIA
IM-IT
INTERMEDIATE
LADDERED
MATURITY TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,550
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 250
Unit Investment Trust Department 10292
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
3,000
</TABLE>
<PAGE>
64 Underwriting
<TABLE>
<CAPTION>
TENNESSEE
IM-IT TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,913
J. C. Bradford & Co. 330 Commerce Street, Nashville, Tennessee 37201 250
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 250
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Morgan Keegan & Co., Inc. 50 North Front Street, Memphis, Tennessee 38103 100
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 100
Unit Investment Trust Department 10292
Smith Barney Inc. 2 World Trade Center, 101st Floor, New York, New York 10048 100
3,013
</TABLE>
<TABLE>
<CAPTION>
NATIONAL
QUALITY TRUST
NAME ADDRESS UNITS
<S> <C> <C>
Van Kampen Merritt Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 4,348
Prudential Securities Inc. 32 Old Slip, 16th Floor, Financial Square, New York, New York 250
Unit Investment Trust Department 10292
A. G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Principal Financial Securities, Inc. Fountain Place, 1445 Ross Avenue, Suite 2300, Dallas, Texas 100
75201
Wheat, First Securities, Inc. River Front Plaza, 901 East Byrd Street, Richmond, Virginia 100
23219
5,098
</TABLE>
Units may also be sold to broker-dealers and others at prices
representing the per Unit concession or agency commission stated under "Trust
Administration--General--Unit Distribution". However, resales of Units by such
broker-dealers and others to the public will be made at the Public Offering
Price described in the Prospectus. The Sponsor reserves the right to reject,
in whole or in part, any order for the purchase of Units and the right to
change the amount of the concession or agency commission from time to time.
In addition to any other benefits the Underwriters may realize from the
sale of the Units of the Fund, the Agreement Among Underwriters provides that
the Sponsor will share on a pro rata basis among those Underwriters who
underwrite at least 250 Units 50% of the aggregate gain, if any, represented
by the difference between the Sponsor's cost of the Securities in connection
with their acquisition and the evaluation thereof on the Date of Deposit less
deductions for certain accrued interest and certain other costs. See "Trust
Administration--General--Sponsor and Underwriter Compensation" and "Portfolio"
for the applicable Trust.
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 Underwriters,
brokers, dealers, banks and/or others may be eligible to win other nominal
awards for certain sales efforts, or under which the Sponsor will reallow to
any such Underwriters, brokers, dealers, banks and/or others that sponsor
sales contests or recognition programs conforming to criteria established by
the Sponsor, or participate in sales programs sponsored by the Sponsor, an
amount not exceeding the total applicable sales charges on the sales generated
by such 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 underwriters, brokers,
dealers, banks or others 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
<PAGE>
Underwriting 65
sponsors. The Sponsor pays substantially all costs associated with the
seminar, excluding Underwriter travel costs. Each Underwriter is invited to
send a certain number of representatives based on the gross number of units
such firm underwrites during a designated time period.
<PAGE>
66 Trust Administration
FUND ADMINISTRATION AND EXPENSES
SPONSOR. Van Kampen Merritt Inc., a Delaware corporation, is the Sponsor
of the Trust. Van Kampen Merritt Inc. is primarily owned by Clayton, Dubilier
& Rice, Inc., a New York-based private investment firm. Van Kampen Merritt
Inc. management owns a significant minority equity position. Van Kampen
Merritt Inc. specializes in the underwriting and distribution of unit
investment trusts and mutual funds. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and has its principal office at One
Parkview Plaza, Oakbrook Terrace, Illinois 60181, (708) 684-6000. It maintains
a branch office in Philadelphia and has regional representatives in Atlanta,
Dallas, Los Angeles, New York, San Francisco, Seattle and Tampa. As of
December 31, 1993 the total stockholders' equity of Van Kampen Merritt Inc.
was $122,167,000 (audited). (This paragraph relates only to the Sponsor and
not to the Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust or to any Multi-Series thereof or to any other Underwriter. The
information is included herein only for the purpose of informing investors as
to the financial responsibility of the Sponsor and its ability to carry out
its contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
As of March 31, 1994, the Sponsor and its affiliates managed or
supervised approximately $36.5 billion of investment products, of which over
$24 billion is invested in municipal securities. The Sponsor and its
affiliates managed $22.5 billion of assets, consisting of $8.2 billion for 21
open end mutual funds, $8.0 billion for 34 closed-end funds and $6.3 billion
for 51 institutional accounts. The Sponsor has also deposited approximately
$24 billion of unit investment trusts. Based on cumulative assets deposited,
the Sponsor believes that it is the largest sponsor of insured municipal unit
investment trusts, primarily through the success of its Insured Municipal
Income Trust(R) or the IM-IT(R) trust. The Sponsor also provides surveillance
and evaluation services at cost for approximately $14 billion of unit
investment trust assets outstanding. Since 1976, the Sponsor has serviced over
one million retail investor accounts, opened through retail distribution
firms. Van Kampen Merritt Inc. is the sponsor of the various series of the
trusts listed below and the distributor of the mutual funds and closed-end
funds listed below. Unitholders may only invest in the trusts, mutual funds
and closed-end funds which are registered for sale in the state of residence
of such Unitholder. In order for a Unitholder to invest in the trusts, mutual
funds and closed-end funds listed below, such Unitholder must obtain a
prospectus relating to the trust or fund involved. A prospectus is the only
means by which an offer can be delivered to investors.
<TABLE>
<CAPTION>
NAME OF TRUST TRUST INVESTMENT OBJECTIVE
<S> <C>
Insured Municipals Income Trust................ Tax-exempt income by investing in insured municipal securities
California Insured Municipals Income Trust..... Double tax-exemption for California residents by investing in insured
California municipal securities
New York Insured Municipals Income Trust....... Double and in certain cases triple tax-exemption for New York residents
by investing in insured New York municipal securities
Pennsylvania Insured Municipals Income Trust... Double and in certain cases triple tax-exemption for Pennsylvania
residents by investing in insured Pennsylvania municipal securities
Insured Municipals Income Trust, Insured Tax-exempt income by investing in insured municipal securities; all
Multi-Series................................. issuers of bonds in a state trust are located in such state or in
(Premium Bond Series, National, Limited territories or possessions of the United States-- providing
Maturity, Intermediate, Short Intermediate, exemptions from all state income tax for residents of such state
Discount, Alabama, Arizona, California, (except for the Oklahoma IM-IT Trust where a portion of the income of
California Intermediate, California the Trust is subject to the Oklahoma state income tax)
Intermediate Laddered Maturity, California
Premium, Colorado, Connecticut, Florida,
Florida Intermediate, Florida Intermediate
Laddered Maturity, Georgia, Louisiana,
Massachusetts, Massachusetts Premium,
Michigan, Michigan Intermediate, Michigan
Intermediate Laddered Maturity, Michigan
Premium, Minnesota, Missouri, Missouri Inter-
mediate Laddered Maturity, Missouri Premium,
New Jersey, New Jersey Intermediate Laddered
Maturity, New Mexico, New York, New York
Intermediate, New York Intermediate Laddered
Maturity, New York Limited Maturity, Ohio,
Ohio Intermediate, Ohio IM-IT Intermediate
Laddered Maturity, Ohio Premium, Oklahoma,
Pennsylvania, Pennsylvania Intermediate,
Pennsylvania Intermediate Laddered Maturity,
Pennsylvania Premium, Tennessee, Texas,
Washington, West Virginia)
Insured Tax Free Bond Trust.................... Tax-exempt income by investing in insured municipal securities
Insured Tax Free Bond Trust, Insured Tax-exempt income by investing in insured municipal securities; all
Multi-Series................................. issuers of bonds in a state trust are located in such state--providing
(National, Limited Maturity, New York) exemptions from state income tax for residents of such state
</TABLE>
Trust Administration 67
<TABLE>
<CAPTION>
NAME OF TRUST TRUST INVESTMENT OBJECTIVE (Continued)
<S> <C>
Investors' Quality Tax-Exempt Trust............ Tax-exempt income by investing in municipal securities
Investors' Quality Tax-Exempt Trust, Tax-exempt income by investing in municipal securities; all issuers of
Multi-Series................................. bonds in a state trust are located in such state or in territories or
(National, National AMT, Intermediate, possessions of the United States--providing exemptions from state
Alabama, Arizona, Arkansas, California, income tax for residents of such state
Colorado, Connecticut, Delaware, Florida,
Georgia, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri,
Nebraska, New Jersey, New York, North
Carolina, Ohio, Oregon, Pennsylvania, South
Carolina, Virginia)
Investors' Quality Municipals Trust, AMT Tax-exempt income for investors not subject to the alternative minimum
Series....................................... tax by investing in municipal securities, some or all of which are
subject to the Federal alternative minimum tax
Investors' Corporate Income Trust.............. Taxable income by investing in corporate bonds
Investors' Governmental Securities--Income Taxable income by investing in government-backed GNMA securities
Trust........................................
Van Kampen Merritt International Bond Income High current income through an investment in a diversified portfolio of
Trust........................................ foreign currency denominated corporate debt obligations
Van Kampen Merritt Insured Income Trust........ High current income consistent with preservation of capital through a
diversified investment in a fixed portfolio of insured, long-term or
intermediate-term corporate debt securities
Van Kampen Merritt Utility Income Trust........ High dividend income and capital appreciation by investing in common
stock of electric utilities
Van Kampen Merritt Blue Chip Opportunity Provide the potential for capital appreciation and income by investing
Trust........................................ in a portfolio of actively traded, New York Stock Exchange listed
equity securities which are components of the Dow Jones Industrial
Average*
Van Kampen Merritt Blue Chip Opportunity and Protect Unitholders' capital and provide the potential for capital
Treasury Trust............................... appreciation and income by investing a portion of its portfolio in
"zero coupon" U.S. Treasury obligations and the remainder of the
trust's portfolio in actively traded, New York Stock Exchange listed
equity securities which at the time of the creation of the trust were
components of the Dow Jones Industrial Average*
Van Kampen Merritt Emerging Markets Income High current income consistent with preservation of capital through a
Trust........................................ diversified investment in a fixed portfolio primarily consisting of
Brady Bonds of emerging market countries that have restructured
sovereign debt pursuant to the framework of the Brady Plan
Van Kampen Merritt Global Telecommunications Provide the potential for capital appreciation and income consistent
Trust........................................ with the preservation of invested capital, by investing in a portfolio
of equity securities which provide equipment for or services to the
telecommunications industry
Van Kampen Merritt Global Energy Trust......... Provide the potential for capital appreciation and income consistent
with the preservation of invested capital, by investing in a portfolio
of equity securities diversified within the energy industry
Strategic Ten Trust............................ Provide an above average total return through a combination of
(United States, United Kingdom, and Hong Kong potential capital appreciation and dividend income, consistent with
Portfolios) preservation of invested capital, by investing in a portfolio of
common stocks of the ten companies in a recognized stock exchange
index having the highest dividend yields
</TABLE>
<TABLE>
<CAPTION>
NAME OF MUTUAL FUND FUND INVESTMENT OBJECTIVE
<S> <C>
Van Kampen Merritt U.S. Government Fund........ High current income by investing in U.S. Government securities
Van Kampen Merritt Insured Tax Free Income High current income exempt from Federal income taxes by investing in
Fund.......................................... insured municipal securities
Van Kampen Merritt Municipal Income Fund....... High level of current income exempt from Federal income tax, consistent
with preservation of capital
Van Kampen Merritt Tax Free High Income Fund... High current income exempt from Federal income taxes by investing in
medium and lower grade municipal securities
Van Kampen Merritt California Insured Tax Free High current income exempt from Federal and California income taxes by
Fund.......................................... investing in insured California municipal securities
Van Kampen Merritt High Yield Fund............. Provide a high level of current income by investing in medium and lower
grade domestic and foreign government and corporate debt securities.
The Fund will seek capital appreciation as a secondary objective
Van Kampen Merritt Growth and Income Fund...... Long-term growth of both capital and dividend income by investing in
dividend paying common stocks
Van Kampen Merritt Pennsylvania Tax Free Income High current income exempt from Federal and Pennsylvania state and
Fund.......................................... local income taxes by investing in medium and lower grade Pennsylvania
municipal securities
Van Kampen Merritt Money Market Fund........... High current income by investing in a broad range of money market
instruments that will mature within twelve months
Van Kampen Merritt Tax Free Money Fund......... High current income exempt from Federal income taxes by investing in a
broad range of municipal securities that will mature within twelve
months
</TABLE>
* The Dow Jones Industrial Average is the property of Dow Jones & Company,
Inc. Dow Jones & Company, Inc. has not granted to the Trust or the Sponsor a
license to use the Dow Jones Industrial Average.
<PAGE>
68 Trust Administration
<TABLE>
<CAPTION>
NAME OF MUTUAL FUND FUND INVESTMENT OBJECTIVE (Continued)
<S> <C>
Van Kampen Merritt Short-Term Global Income High current income by investing in a global portfolio of high quality
Fund.......................................... debt securities denominated in various currencies having remaining
maturities of not more than three years
Van Kampen Merritt Adjustable Rate U.S. High level of current income with a relatively stable net asset value
Government Fund............................... investing in U.S. Government securities
Van Kampen Merritt Limited Term Municipal High level of current income exempt from federal income tax, consistent
Income Fund................................... with preservation of capital
Van Kampen Merritt Utility Fund................ Provide capital appreciation and current income by investing in a
diversified portfolio of common stocks and income securities issued by
companies engaged in the utilities industry
Van Kampen Merritt Strategic Income Fund....... Provide shareholders with high current income. The Fund will seek
capital appreciation as a secondary objective
</TABLE>
<TABLE>
<CAPTION>
NAME OF CLOSED-END FUND FUND INVESTMENT OBJECTIVE
<S> <C>
Van Kampen Merritt Municipal Income Trust...... High current income exempt from Federal income taxes with safety of
principal by investing in a diversified portfolio of investment grade
municipal securities
Van Kampen Merritt California Municipal High current income exempt from Federal and California income taxes
Trust......................................... with safety of principal by investing in a diversified portfolio of
investment grade California municipal securities
Van Kampen Merritt Intermediate Term High High current income while seeking to preserve shareholders' capital by
Income Trust.................................. investing in a diversified portfolio of high yield fixed income
securities
Van Kampen Merritt Limited Term High Income High current income while seeking to preserve shareholders' capital by
Trust......................................... investing in a diversified portfolio of high yield fixed income
securities
Van Kampen Merritt Prime Rate Income Trust..... High current income, consistent with preservation of capital by
investing in interests in floating or variable rate senior loans
Van Kampen Merritt Investment Grade Municipal High current income exempt from Federal income tax, consistent with
Trust......................................... preservation of capital
Van Kampen Merritt Municipal Trust............. High level of current income exempt from Federal income tax, consistent
with preservation of capital
Van Kampen Merritt California Quality Municipal High current income exempt from Federal and California income taxes
Trust......................................... with safety of principal by investing in a diversified portfolio of
investment grade California municipal securities
Van Kampen Merritt Florida Quality Municipal High current income exempt from Federal income taxes and Florida
Trust......................................... intangible personal property taxes with safety of principal by
investing in a diversified portfolio of investment grade Florida
municipal securities
Van Kampen Merritt New York Quality Municipal High current income exempt from Federal as well as New York State and
Trust......................................... New York City income taxes with safety of principal by investing in a
diversified portfolio of investment grade New York municipal
securities
Van Kampen Merritt Ohio Quality Municipal High current income exempt from Federal and Ohio income taxes with
Trust......................................... safety of principal by investing in a diversified portfolio of
investment grade Ohio municipal securities
Van Kampen Merritt Pennsylvania Quality High current income exempt from Federal and Pennsylvania income taxes
Municipal Trust............................... with safety of principal by investing in a diversified portfolio of
investment grade Pennsylvania municipal securities
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal income tax, consistent
Municipals.................................... with preservation of capital
Van Kampen Merritt Trust for Insured High level of current income exempt from Federal income tax, consistent
Municipals.................................... with preservation of capital by investing in a diversified portfolio of
municipal securities which are covered by insurance with respect to
timely payment of principal and interest
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal and California income
CA Municipals................................. taxes, consistent with preservation of capital by investing in a
diversified portfolio of California municipal securities
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal income taxes,
FL Municipals................................. consistent with preservation of capital. The Fund also seeks to offer
its Shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal income taxes and New
NJ Municipals................................. Jersey gross income taxes, consistent with preservation of capital
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal as well as from New
NY Municipals................................. York State and New York City income taxes, consistent with
preservation of capital
Van Kampen Merritt Trust for Investment Grade High level of current income exempt from Federal and Pennsylvania
PA Municipals................................. income taxes and, where possible under local law, local income and
property taxes, consistent with preservation of capital
Van Kampen Merritt Municipal Opportunity High level of current income exempt from Federal income tax, consistent
Trust......................................... with preservation of capital by investing in a diversified portfolio of
municipal securities
Van Kampen Merritt Advantage Municipal Income High level of current income exempt from Federal income tax, consistent
Trust......................................... with preservation of capital by investing in a diversified portfolio of
municipal securities
Van Kampen Merritt Advantage Pennsylvania High level of current income exempt from Federal and Pennsylvania
Municipal Income Trust........................ income taxes and, where possible under local law, local income and
property taxes, consistent with preservation of capital
Van Kampen Merritt Strategic Sector Municipal Provide common shareholders with a high level of current income exempt
Trust......................................... from Federal income taxes, consistent with preservation of capital
Van Kampen Merritt Value Municipal Income High level of current income exempt from Federal income taxes,
Trust......................................... consistent with preservation of capital
Van Kampen Merritt California Value Municipal High level of current income exempt from Federal and California income
Income Trust.................................. taxes, consistent with preservation of capital
Van Kampen Merritt Massachusetts Value High level of current income exempt from Federal income taxes and
Municipal Income Trust........................ Massachusetts personal income taxes, consistent with preservation of
capital
Van Kampen Merritt New Jersey Value Municipal High level of current income exempt from Federal income taxes and New
Income Trust.................................. Jersey gross income tax, consistent with preservation of capital
</TABLE>
Trust Administration 69
<TABLE>
<CAPTION>
NAME OF CLOSED-END FUND FUND INVESTMENT OBJECTIVE (Continued)
<S> <C>
Van Kampen Merritt New York Value Municipal High level of current income exempt from Federal as well as New York
Income Trust.................................. State and New York City income taxes, consistent with preservation of
capital
Van Kampen Merritt Ohio Value Municipal Income High level of current income exempt from Federal and Ohio income taxes,
Trust......................................... consistent with preservation of capital
Van Kampen Merritt Pennsylvania Value Municipal High level of current income exempt from Federal and Pennsylvania
Income Trust.................................. income taxes, consistent with preservation of capital
Van Kampen Merritt Municipal Opportunity Trust High level of current income exempt from federal income tax, consistent
II............................................ with preservation of capital
Van Kampen Merritt Florida Municipal High level of current income exempt from federal income tax, consistent
Opportunity Trust............................. with preservation of capital. The Fund seeks to offer its common
shareholders the opportunity to own securities exempt from Florida
intangible personal property taxes
Van Kampen Merritt Advantage Municipal Income Provide common shareholders with a high level of current income exempt
Trust II...................................... from federal income tax, consistent with preservation of capital
Van Kampen Merritt Select Sector Municipal To provide common shareholders with a high level of current income
Trust......................................... exempt from federal income tax, consistent with preservation of capital
</TABLE>
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and
not exceeding amounts prescribed by the Securities and Exchange Commission,
(ii) terminate the Trust Agreement and liquidate the Fund as provided therein
or (iii) continue to act as Trustee without terminating the Trust Agreement.
All costs and expenses incurred in creating and establishing the Fund,
including the cost of the initial preparation, printing and execution of the
Trust Agreement and the certificates, legal and accounting expenses,
advertising and selling expenses, expenses of the Trustee, initial evaluation
fees and other out-of-pocket expenses have been borne by the Sponsor at no
cost to the Fund.
COMPENSATION OF SPONSOR AND EVALUATOR. The Sponsor will not receive any
fees in connection with its activities relating to the Fund. However, American
Portfolio Evaluation Services, a division of Van Kampen Merritt Investment
Advisory Corp., which is a wholly-owned subsidiary corporation of the Sponsor,
will receive an annual supervisory fee as indicated under "Summary of
Essential Financial Information" for providing portfolio supervisory services
for the Fund. Such fee (which is based on the number of Units outstanding in
each Trust on January 1 of each year) may exceed the actual costs of providing
such supervisory services for this Fund, but at no time will the total amount
received for portfolio supervisory services rendered to Insured Municipals
Income Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 1 and
subsequent series and to any other unit investment trusts sponsored by the
Sponsor for which the Evaluator provides portfolio supervisory services in any
calendar year exceed the aggregate cost to the Evaluator of supplying such
services in such year. In addition, the Evaluator shall receive an annual
evaluation fee as indicated under "Summary of Essential Financial Information"
for regularly evaluating each Trust's portfolio. Both of the foregoing fees
may be increased without approval of the Unitholders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department of Labor
or, if such category is no longer published, in a comparable category. The
Sponsor and the Underwriters will receive sales commissions and may realize
other profits (or losses) in connection with the sale of Units and the deposit
of the Securities as described under "General--Sponsor and Underwriter
Compensation" below.
TRUSTEE. The Trustee is The Bank of New York, a trust company organized
under the laws of New York. The Bank of New York has its offices at 101
Barclay Street, New York, New York 10286 (800) 221-7668. The Bank of New York
is subject to supervision and examination by the Superintendent of Banks of
the State of New York and the Board of Governors of the Federal Reserve
System, and its deposits are insured by the Federal Deposit Insurance
Corporation to the extent permitted by law.
The duties of the Trustee are primarily ministerial in nature. It did not
participate in the selection of 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 (see "Unitholder
<PAGE>
70 Trust Administration
Explanations--Public Offering--Reports Provided"). The Trustee is required to
keep a certified copy or duplicate original of the Trust Agreement on file in
its office available for inspection at all reasonable times during the usual
business hours by any Unitholder, together with a current list of the
Securities 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.
TRUSTEE'S FEE. For its services the Trustee will receive a fee based on
the aggregate outstanding principal amount of Securities in each Trust as of
the opening of business on January 2 and July 2 of each year as set forth
under "Per Unit Information" for the applicable Trust. During the first year
the Trustee may agree to reduce its fee (and to the extent necessary pay
miscellaneous expenses of a Trust) as stated under "Per Unit Information" for
the applicable Trust. The Trustee's fees are payable monthly on or before the
fifteenth day of each month from the Interest Account of each Trust to the
extent funds are available and then from the Principal Account of each Trust,
with such payments being based on each Trust's portion of such expenses. Since
the Trustee has the use of the funds being held in the Principal and Interest
Accounts for future distributions, payment of expenses and redemptions and
since such Accounts are non-interest bearing to Unitholders, the Trustee
benefits thereby. Part of the Trustee's compensation for its services to each
Trust is expected to result from the use of these funds. Such fees may be
increased without approval of the Unitholders by amounts not exceeding
proportionate increases under the category "All Services Less Rent of Shelter"
in the Consumer Price Index published by the United States Department of Labor
or, if such category is no longer published, in a comparable category. The
Trustee's fees will not be increased in future years in order to make up any
reduction in the Trustee's fees described under "Per Unit Information" for the
applicable Trust. For a discussion of the services rendered by the Trustee
pursuant to its obligations under the Trust Agreement, see "Unitholder
Explanations--Public Offering--Reports Provided" and "Trustee" above.
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 Securities, 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 Securities 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
on 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
Securities 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
<PAGE>
Trust Administration 71
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 such 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 "Unitholder Explanations--Public Offering-- Redemption of
Units". 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 Securities to issue new obligations in exchange or
substitution for any Security 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 Security or (2) in
the written opinion of the Sponsor the issuer will probably default with
respect to such Security 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
Securities originally deposited thereunder. Within five days after the deposit
of obligations in exchange or substitution for underlying Securities, the
Trustee is required to give notice thereof to each Unitholder of the Trust
thereby affected, identifying the Securities eliminated and the Securities
substituted therefor. Except as stated herein and under "Unitholder
Explanations--Settlement of Bonds in the Trusts" regarding the substitution of
Replacement Bonds for Failed Bonds, the acquisition by the Fund of any
securities other than the Securities initially deposited is not permitted.
If any default in the payment of principal or interest on any Security
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 Security within 30 days after
notification by the Trustee to the Sponsor of such default, the Trustee may in
its discretion sell the defaulted Security and not be liable for any
depreciation or loss thereby incurred.
SPONSOR PURCHASES OF UNITS. The Trustee shall notify the Sponsor of any
tender of Units for redemption. If the Sponsor's bid in the secondary market
at that time equals or exceeds the Redemption Price per Unit, it may purchase
such Units by notifying the Trustee before the close of business on the second
succeeding business day and by making payment therefor to the Unitholder not
later than the day on which the Units would otherwise have been redeemed by
the Trustee. Units held by the Sponsor may be tendered to the Trustee for
redemption as any other Units.
The offering price of any Units acquired by the Sponsor will be in accord
with the Public Offering Price described in the then currently effective
prospectus describing such Units. Any profit resulting from the resale of such
Units will belong to the Sponsor which likewise will bear any loss resulting
from a lower offering or Redemption Price subsequent to its acquisition of
such Units.
INSURANCE PREMIUMS. The cost of the portfolio insurance obtained by the
respective Trusts, if any, is that amount shown in footnote (5) in "Notes to
Portfolios", so long as such Trust retains the Bonds. Premiums, which are
obligations of each Insured Trust, are payable monthly by the Trustee on
behalf of the respective Trust. As Bonds in the portfolio of 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 no longer
owned by and held in such Trust. 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 premiums
for such permanent insurance with respect to each Bond will decline over the
life of the Bond. A Trust does not incur any expense for Preinsured Bond
insurance, since the premium or premiums for such insurance have been paid by
the issuer or the Sponsor prior to the deposit of such Preinsured Bonds in a
Trust. Preinsured Bonds are not additionally insured by an Insured Trust.
MISCELLANEOUS EXPENSES. The following additional charges are or may be
incurred by the Trusts: (a) fees of the Trustee for extraordinary services,
(b) expenses of the Trustee (including legal and auditing expenses) and of
counsel designated by the Sponsor, (c) various governmental charges, (d)
expenses and costs of any action taken by the Trustee to protect the Trusts
and the rights and interests of Unitholders, (e) indemnification of the
Trustee for any loss, liability or expenses incurred by it in the
administration of the Fund without negligence, bad faith or willful misconduct
on its part, (f) any special custodial fees payable in connection with the
sale of any of the Bonds in a Trust and (g) expenditures incurred in
contacting Unitholders upon termination of the Trusts.
<PAGE>
72 Trust Administration
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 or portfolios of the applicable Trust or
Trusts. If the balances in the Interest and Principal Accounts are
insufficient to provide for amounts payable by the Fund, the Trustee has the
power to sell Securities to pay such amounts.
GENERAL
AMENDMENT OR TERMINATION. The Sponsor and the Trustee have the power to
amend the Trust Agreement without the consent of any of the Unitholders when
such an amendment is (a) to cure an ambiguity or to correct or supplement any
provision of the Trust Agreement which may be defective or inconsistent with
any other provision contained therein or (b) to make such other provisions as
shall not adversely affect the interest of the Unitholders (as determined in
good faith by the Sponsor and the Trustee), provided that the Trust Agreement
may not be amended to increase the number of Units issuable thereunder or to
permit the deposit or acquisition of securities either in addition to or in
substitution for any of the Securities initially deposited in the Fund, except
for the substitution of certain refunding securities for such Securities. In
the event of any amendment, the Trustee is obligated to notify promptly all
Unitholders of the substance of such amendment.
A Trust may be terminated at any time by consent of Unitholders 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 that
indicated under "Summary of Essential Financial Information". A Trust will be
liquidated by the Trustee in the event that a sufficient number of Units not
yet sold are tendered for redemption by the Underwriters, including the
Sponsor, so that the net worth of 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 Security 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 a State Trust
(other than a State Intermediate Laddered Maturity Trust) or beyond the end of
the year preceding the twentieth anniversary of the Trust Agreement in the
case of an IM-IT Limited Maturity, IM-IT Intermediate, State Intermediate
Laddered Maturity and IM-IT Short Intermediate Trust. In the event of
termination of the Fund or 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 Securities 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
governmental charges. The sale of Securities 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 Securities 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 are in default and 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
<PAGE>
Trust Administration 73
after the date such defaulted Bond or Bonds become due and applicable
insurance proceeds have been received by the Trustee.
LIMITATION ON LIABILITIES. The Sponsor, the Evaluator and the Trustee
shall be under no liability to Unitholders for taking any action or for
refraining from taking any action in good faith pursuant to the Trust
Agreement, or for errors in judgment, but shall be liable only for their own
willful misfeasance, bad faith or gross negligence 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 Securities. In the
event of the failure of the Sponsor to act under the Trust Agreement, the
Trustee may act thereunder and shall not be liable for any action taken by it
in good faith under the Trust Agreement.
The Trustee shall not be liable for any taxes or other governmental
charges imposed upon or in respect of the Securities or upon the interest
thereon or upon it as Trustee under the Trust Agreement or upon or in respect
of the Fund which the Trustee may be required to pay under any present or
future law of the United States of America or of any other taxing authority
having jurisdiction. In addition, the Trust Agreement contains other customary
provisions limiting the liability of the Trustee.
The Trustee, Sponsor and Unitholders may rely on any evaluation furnished
by the Evaluator and shall have no responsibility for the accuracy thereof.
Determinations by the Evaluator under the Trust Agreement shall be made in
good faith upon the basis of the best information available to it; provided,
however, that the Evaluator shall be under no liability to the Trustee,
Sponsor or Unitholders for errors in judgment. This provision shall not
protect the Evaluator in any case of willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations and duties.
UNIT DISTRIBUTION. During the initial offering period, Units will be
distributed to the public by Underwriters, broker-dealers and others (see
"Underwriting") at the Public Offering Price, plus Purchased Interest, plus
interest accrued but unpaid from the First Settlement Date to the date of
settlement as described above under "Unitholder Explanations--Purchased and
Accrued Interest--Accrued Interest". Upon the completion of the initial
offering, Units repurchased in the secondary market, if any, may be offered by
this Prospectus at the secondary Public Offering Price, plus Purchased
Interest plus interest accrued to the date of settlement in the manner
described.
The Sponsor intends to qualify the Units for sale in a number of states.
Broker-dealers or others will be allowed a concession or agency commission in
connection with the distribution of Units during the initial offering period
of $20.00 per Unit for less than 100 Units, $22.00 per Unit for any single
transaction of 100 to 249 Units, $21.50 per Unit for any single transaction of
250 to 499 Units, $24.50 per Unit for any single transaction of 500 to 999
Units and $24.00 per Unit for any single transaction of 1,000 or more Units of
a State Intermediate Laddered Maturity Trust, and in the case of a State Trust
(other than a State Intermediate Laddered Maturity Trust), $30.00 per Unit for
less than 100 Units, $36.00 per Unit for any single transaction of 100 to 249
Units, $38.00 per Unit for any single transaction of 250 to 499 Units, $39.00
per Unit for any single transaction of 500 to 999 Units and $39.00 per Unit
for any single transaction of 1,000 or more Units, provided that such Units
are acquired either from the Sponsor (in the case of dealer transactions) or
through the Sponsor (in the case of transactions involving brokers or others).
The increased concession or agency commission is a result of the discount
given to purchasers for quantity purchases. See "Unitholder
Explanations--Public Offering--General". Certain commercial banks are making
Units of the Fund 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. Under the
Glass-Steagall Act, banks are prohibited from underwriting Units of the Fund;
however, the Glass-Steagall Act does permit certain agency transactions and
the banking regulators have not indicated that these particular agency
transactions are not permitted under such Act. In addition, state securities
laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law. Any quantity discount (see
"Unitholder Explanations--Public Offering--General") provided to investors
will be borne by the selling dealer or agent. For secondary market
transactions, such concession or agency commission will amount to 70% of the
applicable sales charge as determined using the table found in "Unitholder
Explanations-- Public Offering".
To facilitate the handling of transactions during the initial offering
period, sales of Units shall normally be limited to transactions involving a
minimum of five Units. Further purchases may be made in multiples of one Unit.
The minimum purchase in the secondary market will be one Unit.
<PAGE>
74 Trust Administration
The Sponsor reserves the right to reject, in whole or in part, any order
for the purchase of Units and to change the amount of the concession or agency
commission to dealers and others from time to time. See "Underwriting".
SPONSOR AND UNDERWRITER COMPENSATION. The Underwriters will receive a
gross sales commission equal to that percentage of the Public Offering Price
of the Units (excluding Purchased Interest) as indicated under "Unitholder
Explanations--Public Offering--Offering Price" less any reduced sales charges
for quantity purchases as described under "Unitholder Explanations--Public
Offering--General".
The Sponsor will receive from the Underwriters the excess of such gross
sales commission over $35.00, $29.00, $27.00, $22.00, $22.00 and $35.00 per
Unit of any Quality, IM-IT Limited Maturity, IM-IT Intermediate, IM-IT Short
Intermediate, State Intermediate Laddered Maturity and other Insured Trusts,
respectively, as of the Date of Deposit. In connection with quantity sales to
purchasers of any State Trust (other than a State Intermediate Laddered
Maturity Trust) or National Quality Trust the Underwriters will receive from
the Sponsor commissions totalling $37.00 per Unit for any single transaction
of 100 to 249 Units, $39.00 per Unit for any single transaction of 250 to 499
Units, $40.00 per Unit for any single transaction of 500 to 999 Units and
$39.00 per Unit for any single transaction of 1,000 or more Units. In
connection with quantity sales to purchasers of any State Intermediate
Laddered Maturity Trust the Underwriters will receive from the Sponsor
commissions totalling $23.00 per Unit for any single transaction of 100 to 249
Units, $23.00 per Unit for any single transaction of 250 to 499 Units, $24.75
per Unit for any single transaction of 500 to 999 Units and $24.00 per Unit
for any single transaction of 1,000 or more Units. 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, A.G. Edwards & Sons, Inc.
("Edwards"), which acts as a Managing Underwriter of Units of the various
series of the National Quality Trust, will receive from the Sponsor
reimbursement for certain costs and further compensation in the amount of
$5.00 for each Unit it underwrites of the National Quality 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. In addition, the Sponsor and certain of the Underwriters will
realize a profit or the Sponsor will sustain a loss, as the case may be, as a
result of the difference between the price paid for the Securities by the
Sponsor and the cost of such Securities to a Trust (which is based on the
determination by Interactive Data Services, Inc. of the aggregate offering
price of the underlying Securities in such Trust on the Date of Deposit). See
"Underwriting" and "Portfolio" for the applicable Trust and "Notes to
Portfolios". The Sponsor and the Underwriters may also realize profits or
sustain losses with respect to Securities deposited in each Trust which were
acquired by the Sponsor from underwriting syndicates of which they were
members. The Sponsor has participated as sole underwriter or as manager or as
a member of the underwriting syndicates from which none of the aggregate
principal amount of the Securities in the portfolios of the Fund were
acquired. The Underwriters may further realize additional profit or loss
during the initial offering period as a result of the possible fluctuations in
the market value of the Securities in each Trust after the Date of Deposit,
since all proceeds received from purchasers of Units (excluding dealer
concessions or agency commissions allowed, if any) will be retained by the
Underwriters. Affiliates of an Underwriter are entitled to the same dealer
concessions or agency commissions that are available to the Underwriter.
As stated under "Unitholder Explanations--Public Offering--Market for
Units", the Sponsor intends to, and certain of the other Underwriters may,
maintain a secondary market for the Units of the Fund. In so maintaining a
market, such person or persons will also realize profits or sustain losses in
the amount of any difference between the price at which Units are purchased
and the price at which Units are resold (which price is based on the bid
prices of the Securities in such Trust and includes a sales charge). In
addition, such person or persons will also realize profits or sustain losses
resulting from a redemption of such repurchased Units at a price above or
below the purchase price for such Units, respectively.
<PAGE>
Other Matters 75
OTHER MATTERS
LEGAL OPINIONS. The legality of the Units offered hereby and certain
matters relating to Federal, Florida, Missouri, and Tennessee tax law have
been passed upon by Chapman and Cutler, 111 West Monroe Street, Chicago,
Illinois 60603, as counsel for the Sponsor. Miller, Canfield, Paddock and
Stone has acted as special counsel to the Fund for Michigan tax matters. Saul,
Ewing, Remick & Saul has acted as special counsel to the Fund for Pennsylvania
tax matters. Tanner Propp & Farber has acted as counsel for the Trustee and as
special counsel to the Fund for New York tax matters. None of the special
counsel for the Fund has expressed any opinion regarding the completeness or
materiality of any matters contained in this Prospectus other than the tax
opinion set forth under "Tax Status" relating to the Trust for which it has
provided an opinion.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The statements of condition and
the related securities portfolios at the Date of Deposit included in this
Prospectus have been audited by Grant Thornton, independent certified public
accountants, as set forth in their report in this prospectus, and are included
herein in reliance upon the authority of said firm as experts in accounting
and auditing.
FEDERAL TAX STATUS
In the opinion of Chapman and Cutler, counsel for the Sponsor, under
existing law:
(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 when
distributed to Unitholders, except to the extent such interest is
subject to 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 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. 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 during the period from the Unitholder's
settlement date to the date such Bonds are delivered to the respective
Trust and, consequently, such Unitholders may have an increase in
taxable gain or reduction in capital loss upon the disposition of such
Units. Gain or loss upon the sale or redemption of Units is measured
by comparing the proceeds of such sale or redemption with the adjusted
basis of the Units. If the Trustee disposes of Bonds (whether by sale,
payment on maturity, redemption or otherwise), gain or loss is
recognized to the Unitholder. 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
earned 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 date of acquisition
of the Units. The tax cost reduction requirements of the Code relating
to amortization of bond premium may, under some circumstances, result
in the Unitholder realizing a taxable gain when his Units are sold or
redeemed for an amount equal to his original cost;
(3) Any proceeds paid under an insurance policy or policies dated the
Date of Deposit, issued to an Insured Trust by AMBAC Indemnity,
Financial Guaranty or a combination thereof 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 by
the issuer of the defaulted obligations; and
(4) Any proceeds paid under individual policies obtained by issuers of
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 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
<PAGE>
76 Other Matters
such policies are reasonable, customary and consistent with the
reasonable expectation that the issuer of the obligations, rather than
the insurer, will pay debt service on the obligations.
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. 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. Investors with
questions regarding these Code sections should consult with their tax
advisers.
"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). Market discount can
arise based on the price a Trust pays for Bonds or the price a Unitholder pays
for his or her Units. Under the Tax Act, accretion of market discount is
taxable as ordinary income; under prior law the accretion had been treated as
capital gain. Market discount that accretes while a Trust holds a Bond would
be recognized as ordinary income by the Unitholders when principal payments
are received on the Bond, upon sale or at redemption (including early
redemption), or upon the sale or redemption of his or her Units, unless a
Unitholder elects to include market discount in taxable income as it accrues.
The market discount rules are complex and Unitholders should consult their tax
advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depends upon
the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the
Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings" over an
amount equal to its alternative minimum taxable income (before such adjustment
item and the alternative tax net operating loss deduction). "Adjusted current
earnings" includes all tax exempt interest, including interest on all of the
Bonds in the Fund. Unitholders are urged to 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. Investors with questions regarding this issue should consult with their
tax advisers.
In the case of certain of the Bonds in the Fund, the opinions of bond
counsel indicate that interest on such Bonds received by a "substantial user"
of the facilities being financed with the proceeds of these Bonds, or persons
related thereto, for periods while such Bonds are held by such a user or
related person, will not be excludible from Federal gross income, although
interest on such Bonds received by others would be excludible from Federal
gross income. "Substantial user" and "related person" are defined under 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 Tanner Propp & Farber, special counsel to the Fund for
New York tax matters, under existing law, the Fund and each Trust are not
associations taxable as corporations and the income of each Trust will be
treated as the income of the Unitholders under the income tax laws of the
State and City of New York.
All statements of law in the Prospectus concerning exclusion from gross
income for Federal, state or other tax purposes are the opinions of counsel
and are to be so construed.
<PAGE>
Other Matters 77
At the respective times of issuance of the Bonds, opinions relating to
the validity thereof and to the exclusion of interest thereon from Federal
gross income are rendered by bond counsel to the respective issuing
authorities. Neither the Sponsor nor Chapman and Cutler has made any special
review for the Fund of the proceedings relating to the issuance of the Bonds
or of the basis for such opinions.
In the case of corporations, the alternative tax rate applicable to
long-term capital gains is 35%, effective for long-term capital gains realized
in taxable years beginning on or after January 1, 1993. For taxpayers other
than corporations, net capital gains are subject to a maximum marginal stated
tax rate of 28%. However, it should be noted that legislative proposals are
introduced from time to time that affect tax rates and could affect relative
differences at which ordinary income and capital gains are taxed. Under the
Code, taxpayers must disclose to the Internal Revenue Service the amount of
tax-exempt interest earned during the year.
Section 86 of the Code, in general, provides that 50% of Social Security
benefits are includible in gross income to the extent that the sum of
"modified adjusted gross income" plus 50% of the Social Security benefits
received exceeds a "base amount". The base amount is $25,000 for unmarried
taxpayers, $32,000 for married taxpayers filing a joint return and zero for
married taxpayers who do not live apart at all times during the taxable year
and who file separate returns. Modified adjusted gross income is adjusted
gross income determined without regard to certain otherwise allowable
deductions and exclusions from gross income and by including tax-exempt
interest. To the extent that Social Security benefits are includible in gross
income, they will be treated as any other item of gross income.
In addition, under the Tax Act, for taxable years beginning after
December 31, 1993, up to 85% of Social Security benefits are includible in
gross income to the extent that the sum of "modified adjusted gross income"
plus 50% of Social Security benefits received exceeds an "adjusted base
amount." The adjusted base amount is $34,000 for unmarried taxpayers, $44,000
for married taxpayers filing a joint return, and zero for married taxpayers
who do not live apart at all times during the taxable year and who file
separate returns.
Although tax-exempt interest is included in modified adjusted gross
income solely for the purpose of determining what portion, if any, of Social
Security benefits will be included in gross income, no tax-exempt interest,
including that received from a Trust, will be subject to tax. A taxpayer whose
adjusted gross income already exceeds the base amount or the adjusted base
amount must include 50% or 85%, respectively, of his Social Security benefits
in gross income whether or not he receives any tax-exempt interest. A taxpayer
whose modified adjusted gross income (after inclusion of tax-exempt interest)
does not exceed the base amount need not include any Social Security benefits
in gross income.
For a discussion of the state tax status of income earned on Units of a
Trust, see "Tax Status" for the applicable Trust. 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.
<PAGE>
78 Other Matters
DESCRIPTION OF SECURITIES RATINGS*
STANDARD & POOR'S CORPORATION. A Standard & Poor's Corporation
("Standard & Poor's") corporate or municipal bond rating is a current
assessment of the creditworthiness of an obligor with respect to a specific
debt obligation. This assessment 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 Investors Service, Inc. ("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.
*As published by the rating companies.
<PAGE>
Other Matters 79
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.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen Merritt Inc. and the Unitholders
of Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 224 (Florida IM-IT, Michigan IM-IT, Missouri IM-IT,
Pennsylvania IM-IT Intermediate Laddered Maturity, Tennessee IM-IT and
National Quality Trusts):
We have audited the accompanying statements of condition and the
related portfolios of Insured Municipals Income Trust and Investors'
Quality Tax-Exempt Trust, Multi-Series 224 (Florida IM-IT, Michigan
IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate Laddered
Maturity, Tennessee IM-IT and National Quality Trusts) as of June 23,
1994. The statements of condition and portfolios 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 irrevocable letters of credit deposited to purchase
tax-exempt securities by correspondence with the Trustee. An audit also
includes assessing the accounting principles used and significant
estimates made by the Sponsor, as well as evaluating the overall
financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust,
Multi-Series 224 (Florida IM-IT, Michigan IM-IT, Missouri IM-IT,
Pennsylvania IM-IT Intermediate Laddered Maturity, Tennessee IM-IT and
National Quality Trusts) as of June 23, 1994, in conformity with
generally accepted accounting principles.
Chicago, Illinois GRANT THORNTON
June 23, 1994
<PAGE>
80 Other Matters
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 224
STATEMENTS OF CONDITION
AS OF JUNE 23, 1994
<CAPTION>
FLORIDA MICHIGAN MISSOURI
INVESTMENT IN SECURITIES IM-IT TRUST IM-IT TRUST IM-IT TRUST
<S> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>................... $ 2,879,139 $ 2,891,780 $ 3,796,231
Accrued interest to the First Settlement Date <F1><F4>..................... 45,594 32,724 44,597
Total............................................................. $ 2,924,733 $ 2,924,504 $ 3,840,828
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor <F1><F4>............................. $ 17,073 $ 3,485 $ 7,418
Interest of Unitholders--
Cost to investors <F3>............................................... 3,056,000 3,070,000 4,029,000
Less: Gross underwriting commission <F3>................................. 148,340 148,981 195,590
Net interest to Unitholders <F1><F3><F4>.......................... 2,907,660 2,921,019 3,833,410
Total............................................................. $ 2,924,733 $ 2,924,504 $ 3,840,828
<FN>
<F1> The aggregate value of the Securities listed under "Portfolio" for each
Trust herein, and their cost to such Trust are the same. The value of the
Securities is determined by Interactive Data Services, Inc. on the bases
set forth under "Unitholder Explanations--Public Offering--Offering
Price". The contracts to purchase tax-exempt Securities are
collateralized by irrevocable letters of credit which have been deposited
with the Trustee in and for the following amounts:
OFFERING ACCRUED
PRINCIPAL PRICE INTEREST TO
AMOUNT OF AMOUNT OF OF BONDS EXPECTED
LETTER OF BONDS UNDER UNDER DELIVERY
CREDIT CONTRACTS CONTRACTS DATES
Florida IM-IT Trust............................. $ 2,923,468 $ 3,000,000 $ 2,879,139 $ 44,329
Michigan IM-IT Trust............................ $ 2,922,121 $ 3,050,000 $ 2,891,780 $ 30,341
Missouri IM-IT Trust............................ $ 3,838,852 $ 3,935,000 $ 3,796,231 $ 42,621
<F2> Insurance coverage providing for timely payment, when due, of all
principal and interest on the Bonds in the Insured Trusts has been
obtained either by such Trusts, by a prior owner of the Bonds or by the
issuers of the Bonds involved. Such insurance does not guarantee the
market value of the Bonds or the value of the Units. The insurance
obtained by the Insured Trusts is effective only while Bonds thus insured
are held in such Trusts. Neither the bid nor offering prices of the
underlying Bonds or of the Units, absent situations in which bonds are in
default in payment of principal or interest or in significant risk of
such default, include value, if any, attributable to the insurance
obtained by such Trusts.
<F3> The aggregate public offering price (exclusive of interest) and the
aggregate sales charge are computed on the bases set forth under
"Unitholder Explanations--Public Offering--Offering Price" and "Trust
Administration--General-- Sponsor and Underwriter Profits" and assume all
single transactions involve less than 100 Units. For single transactions
involving 100 or more Units, the sales charge is reduced (see "Unitholder
Explanations--Public Offering--General") resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while
the Net interest to Unitholders remains unchanged.
<F4> Accrued interest on the underlying Securities represents the interest
accrued as of the First Settlement Date from the later of the last
payment date on the Securities or the date of issuance thereof. The
Trustee may advance to the Trust a portion of the accrued interest on the
underlying Securities for distribution to the Sponsor as the Unitholder
of record as of the First Settlement Date. A portion of the accrued
interest ("Purchased Interest") on the underlying Securities, as
indicated under "Summary of Essential Financial Information", is payable
by investors and is included in the Public Offering Price. Purchased
Interest is the difference between Accrued interest to the First
Settlement Date and Accrued interest payable to Sponsor.
</TABLE>
<PAGE>
Other Matters 81
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 224
STATEMENTS OF CONDITION (CONTINUED)
AS OF JUNE 23, 1994
<CAPTION>
PENNSYLVANIA
IM-IT
INTERMEDIATE
LADDERED TENNESSEE NATIONAL
INVESTMENT IN SECURITIES MATURITY TRUST IM-IT TRUST QUALITY TRUST
<S> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>................... $ 2,951,598 $ 2,839,200 $ 4,799,160
Accrued interest to the First Settlement Date <F1><F4>..................... 34,955 58,961 70,460
Total............................................................. $ 2,986,553 $ 2,898,161 $ 4,869,620
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor <F1><F4>............................. $ 10,740 $ 31,440 $ 18,877
Interest of Unitholders--
Cost to investors <F3>............................................... 3,067,080 3,013,000 5,098,000
Less: Gross underwriting commission <F3>................................. 91,267 146,279 247,257
Net interest to Unitholders <F1><F3><F4>.......................... 2,975,813 2,866,721 4,850,743
Total............................................................. $ 2,986,553 $ 2,898,161 $ 4,869,620
<FN>
<F1> The aggregate value of the Securities listed under "Portfolio" for each
Trust herein, and their cost to such Trust are the same. The value of the
Securities is determined by Interactive Data Services, Inc. on the bases
set forth under "Unitholder Explanations--Public Offering--Offering
Price". The contracts to purchase tax-exempt Securities are
collateralized by irrevocable letters of credit which have been deposited
with the Trustee in and for the following amounts:
OFFERING ACCRUED
PRINCIPAL PRICE INTEREST TO
AMOUNT OF AMOUNT OF OF BONDS EXPECTED
LETTER OF BONDS UNDER UNDER DELIVERY
CREDIT CONTRACTS CONTRACTS DATES
Pennsylvania IM-IT Intermediate
Laddered Maturity Trust........................ $ 2,984,124 $ 3,000,000 $ 2,951,598 $ 32,526
Tennessee IM-IT Trust........................... $ 2,896,141 $ 3,000,000 $ 2,839,200 $ 56,941
National Quality Trust.......................... $ 4,865,152 $ 5,000,000 $ 4,799,160 $ 65,992
<F2> Insurance coverage providing for timely payment, when due, of all
principal and interest on the Bonds in the Insured Trusts has been
obtained either by such Trusts, by a prior owner of the Bonds or by the
issuers of the Bonds involved. Such insurance does not guarantee the
market value of the Bonds or the value of the Units. The insurance
obtained by the Insured Trusts is effective only while Bonds thus insured
are held in such Trusts. Neither the bid nor offering prices of the
underlying Bonds or of the Units, absent situations in which bonds are in
default in payment of principal or interest or in significant risk of
such default, include value, if any, attributable to the insurance
obtained by such Trusts.
<F3> The aggregate public offering price (exclusive of interest) and the
aggregate sales charge are computed on the bases set forth under
"Unitholder Explanations--Public Offering--Offering Price" and "Trust
Administration--General-- Sponsor and Underwriter Profits" and assume all
single transactions involve less than 100 Units. For single transactions
involving 100 or more Units, the sales charge is reduced (see "Unitholder
Explanations--Public Offering--General") resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while
the Net interest to Unitholders remains unchanged.
<F4> Accrued interest on the underlying Securities represents the interest
accrued as of the First Settlement Date from the later of the last
payment date on the Securities or the date of issuance thereof. The
Trustee may advance to the Trust a portion of the accrued interest on the
underlying Securities for distribution to the Sponsor as the Unitholder
of record as of the First Settlement Date. A portion of the accrued
interest ("Purchased Interest") on the underlying Securities, as
indicated under "Summary of Essential Financial Information", is payable
by investors and is included in the Public Offering Price. Purchased
Interest is the difference between Accrued interest to the First
Settlement Date and Accrued interest payable to Sponsor.
</TABLE>
<PAGE>
82 Other Matters
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN TABLES
As of the date of this 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 1994. They incorporate
increased tax rates for higher income taxpayers that were included in the
Revenue Reconciliation Act of 1993. These tables illustrate approximately what
you would have to earn on taxable investments to equal the tax-exempt
estimated current return in your income tax bracket. For cases in which more
than one State bracket falls within a Federal bracket, the highest State
bracket is combined with the Federal bracket. 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 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
$111,800. The tables do not reflect the effect of limitations on itemized
deductions and the deduction for personal exemptions. They 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 the 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 "Other
Matters--Federal Tax Status" for a more detailed discussion of recent Federal
tax legislation, including a discussion of provisions affecting corporations.
<TABLE>
FLORIDA
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 15% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
22.80 - 55.10 38.00 - 91.90 28 6.94 7.64 8.33 9.03 9.72 10.42 11.11
55.10 - 115.00 91.90 - 140.00 31 7.25 7.97 8.70 9.42 10.14 10.87 11.59
115.00 - 250.00 140.00 - 250.00 36 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over 250.00 Over 250.00 39.6 8.28 9.11 9.93 10.76 11.59 12.42 13.25
</TABLE>
*The State of Florida imposes no income tax on individuals; accordingly, the
table reflects only exemption from Federal income taxes. The table does not
reflect the exemption of Units of the Florida IM-IT Trust from the State's
intangible tax; accordingly, Florida residents subject to such tax would need
a somewhat higher taxable estimated current return than those shown to equal
the tax-exempt estimated current return of the Florida IM-IT Trust.
<TABLE>
MICHIGAN
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 21.8% 6.39% 7.03% 7.67% 8.31% 8.95% 9.59% 10.23%
22.80 - 55.10 38.00 - 91.90 33.7 7.54 8.30 9.05 9.80 10.56 11.31 12.07
55.10 - 115.00 91.90 - 140.00 36.5 7.87 8.66 9.45 10.24 11.02 11.81 12.60
115.00 - 250.00 140.00 - 250.00 41.1 8.49 9.34 10.19 11.04 11.88 12.73 13.58
Over 250.00 Over 250.00 44.4 8.99 9.89 10.79 11.69 12.59 13.49 14.39
</TABLE>
*The combined State and Federal tax bracket is computed utilizing a 4.47%
state personal income tax rate which is a weighted average rate that takes
into account a change in tax rates which was recently approved by Michigan
voters and a 3.5% tax on intangible income. The bracket does not reflect the
effect of the exemption from local income taxes; accordingly, Michigan
residents subject to such local income taxes would need a somewhat higher
taxable estimated current return than those shown to equal the tax-exempt
estimated current return of the Trust.
<PAGE>
Other Matters 83
<TABLE>
MISSOURI
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 19.4% 6.20% 6.82% 7.44% 8.06% 8.68% 9.31% 9.93%
22.80 - 55.10 38.00 - 91.90 32.3 7.39 8.12 8.86 9.60 10.34 11.08 11.82
55.10 - 115.00 91.90 - 140.00 35.1 7.70 8.47 9.24 10.02 10.79 11.56 12.33
115.00 - 250.00 140.00 - 250.00 39.8 8.31 9.14 9.97 10.80 11.63 12.46 13.29
Over 250.00 Over 250.00 43.2 8.80 9.68 10.56 11.44 12.32 13.20 14.08
</TABLE>
*Combined State and Federal tax bracket was computed by taking into account
the deductibility of State tax in determining Federal tax and the recently
enacted limitations on the deductibility of Federal tax in determining State
tax. Specifically, the deduction allowed for Federal income tax liability may
not exceed $5,000 and $10,000 for single and joint taxpayers respectively.
Accordingly, the combined tax bracket reflects cross-deductibility of each tax
determining the other only for levels of income corresponding to the 15%
Federal tax bracket.
<TABLE>
PENNSYLVANIA INTERMEDIATE LADDERED MATURITY
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET* 4% 4 1/2% 5% 5 1/2% 6% 6 1/2% 7%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 17.4% 4.84% 5.45% 6.05% 6.66% 7.26% 7.87% 8.47%
22.80 - 55.10 38.00 - 91.90 30 5.71 6.43 7.14 7.86 8.57 9.29 10.00
55.10 - 115.00 91.90 - 140.00 32.9 5.96 6.71 7.45 8.20 8.94 9.69 10.43
115.00 - 250.00 140.00 - 250.00 37.8 6.43 7.23 8.04 8.84 9.65 10.45 11.25
Over 250.00 Over 250.00 41.3 6.81 7.67 8.52 9.37 10.22 11.07 11.93
</TABLE>
*The table does not reflect the effect of the exemption of the Trust from
local personal property taxes and from the Philadelphia School District
Investment Net Income Tax; accordingly, residents of Pennsylvania subject to
such taxes would need a higher taxable estimated current return than those
shown to equal the tax-exempt estimated current return of the Trust.
<TABLE>
TENNESSEE
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 20.1% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39% 10.01%
22.80 - 55.10 38.00 - 91.90 32.3 7.39 8.12 8.86 9.60 10.34 11.08 11.82
55.10 - 115.00 91.90 - 140.00 35.1 7.70 8.47 9.24 10.02 10.79 11.56 12.33
115.00 - 250.00 140.00 - 250.00 39.8 8.31 9.14 9.97 10.80 11.63 12.46 13.29
Over 250.00 Over 250.00 43.2 8.80 9.68 10.56 11.44 12.32 13.20 14.08
</TABLE>
<TABLE>
NATIONAL
<CAPTION>
TAXABLE INCOME ($1,000'S) TAX-EXEMPT ESTIMATED CURRENT RETURN
SINGLE JOINT TAX
RETURN RETURN BRACKET 5 1/2% 6% 6 1/2% 7% 7 1/2% 8% 8 1/2%
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22.80 $ 0 - 38.00 15% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41% 10.00%
22.80 - 55.10 38.00 - 91.90 28 7.64 8.33 9.03 9.72 10.42 11.11 11.81
55.10 - 115.00 91.90 - 140.00 31 7.97 8.70 9.42 10.14 10.87 11.59 12.32
115.00 - 250.00 140.00 - 250.00 36 8.59 9.38 10.16 10.94 11.72 12.50 13.28
Over 250.00 Over 250.00 39.6 9.11 9.93 10.76 11.59 12.42 13.25 14.07
</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
Merritt sponsored unit investment trusts 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 U.S. Government and bank CDs and
money market accounts are insured by an agency 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
elsewhere in this Prospectus.
<PAGE>
84 Other Matters
ESTIMATED CASH FLOWS TO UNITHOLDERS
The tables below set forth the per Unit estimated distributions of
interest, principal and rebates of Purchased Interest to Unitholders. The
tables assume no changes in expenses, no changes in the current interest
rates, no exchanges, redemptions, sales or prepayments of the underlying
Securities 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>
FLORIDA IM-IT TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 4.65 $ 4.65
September 1994 - May 2006 4.50 4.50
June 2006 4.50 $163.61 $ 1.67 169.78
July 2006 3.68 163.61 1.67 168.96
August 2006 - June 2013 2.86 2.86
July 2013 2.86 163.61 1.58 168.05
August 2013 - November 2013 2.09 2.09
December 2013 1.88 81.81 .78 84.47
January 2014 - November 2015 1.70 1.70
December 2015 1.50 81.81 .78 84.09
January 2016 - June 2022 1.32 1.32
July 2022 1.32 147.25 1.29 149.86
August 2022 - October 2024 .69 .69
November 2024 .69 81.80 .82 83.31
December 2024 - September 2027 .29 .29
October 2027 .29 98.17 .74 99.20
</TABLE>
<PAGE>
Other Matters 85
<TABLE>
MICHIGAN IM-IT TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 4.75 $ 4.75
September 1994 - June 2016 4.60 4.60
July 2016 4.60 $ 32.57 $.29 37.46
August 2016 - October 2016 4.45 4.45
November 2016 4.45 167.75 1.59 173.79
December 2016 - October 2018 3.67 3.67
November 2018 3.67 130.29 1.23 135.19
December 2018 - April 2019 3.08 3.08
May 2019 3.08 11.40 14.48
June 2019 - November 2020 3.08 3.08
December 2020 2.67 162.87 1.56 167.10
January 2021 - April 2021 2.32 2.32
May 2021 2.32 162.87 1.59 166.78
June 2021 - March 2023 1.54 1.54
April 2023 1.54 130.29 1.28 133.11
May 2023 - April 2024 .91 .91
May 2024 .91 195.44 1.98 198.33
</TABLE>
<PAGE>
86 Other Matters
<TABLE>
MISSOURI IM-IT TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 4.59 $ 4.59
September 1994 - September 2002 4.45 4.45
October 2002 4.45 $ 53.36 $.56 58.37
November 2002 - May 2004 4.17 4.17
June 2004 4.17 124.10 1.29 129.56
July 2004 - December 2004 3.54 3.54
January 2005 3.54 124.10 1.26 128.90
February 2005 - June 2006 2.92 2.92
July 2006 2.92 153.88 1.54 158.34
August 2006 - July 2013 2.17 2.17
August 2013 2.17 124.10 1.19 127.46
September 2013 - February 2014 1.59 1.59
March 2014 1.59 37.23 .36 39.18
April 2014 - February 2016 1.42 1.42
March 2016 1.42 37.23 38.65
April 2016 - June 2018 1.41 1.41
July 2018 1.41 74.46 .65 76.52
August 2018 - December 2022 1.10 1.10
January 2023 1.10 62.05 .61 63.76
February 2023 - May 2023 .81 .81
June 2023 .65 62.05 .58 63.28
July 2023 - June 2024 .52 .52
July 2024 .52 124.10 1.19 125.81
</TABLE>
<PAGE>
Other Matters 87
<TABLE>
PENNSYLVANIA IM-IT INTERMEDIATE LADDERED MATURITY TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 3.99 $ 3.99
September 1994 - June 1999 3.86 3.86
July 1999 3.45 $200.00 $ 1.58 205.03
August 1999 - June 2000 3.09 3.09
July 2000 3.09 200.00 1.68 204.77
August 2000 - June 2001 2.27 2.27
July 2001 1.85 200.00 1.63 203.48
August 2001 - June 2002 1.48 1.48
July 2002 1.48 200.00 1.63 203.11
August 2002 - August 2003 .69 .69
September 2003 .28 200.00 1.55 201.83
</TABLE>
<PAGE>
88 Other Matters
<TABLE>
TENNESSEE IM-IT TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 4.54 $ 4.54
September 1994 - August 2005 4.40 4.40
September 2005 4.40 $ 82.97 $.83 88.20
October 2005 - December 2005 3.99 3.99
January 2006 3.99 165.95 1.69 171.63
February 2006 - December 2009 3.16 3.16
January 2010 3.16 165.94 1.42 170.52
February 2010 - November 2013 2.47 2.47
December 2013 2.29 82.98 .69 85.96
January 2014 - December 2015 2.14 2.14
January 2016 2.14 165.95 1.41 169.50
February 2016 - June 2016 1.45 1.45
July 2016 1.45 82.97 .72 85.14
August 2016 - August 2021 1.09 1.09
September 2021 1.09 82.97 .73 84.79
October 2021 - June 2028 .74 .74
July 2028 .74 165.95 1.64 168.33
</TABLE>
<PAGE>
Other Matters 89
<TABLE>
NATIONAL QUALITY TRUST
MONTHLY
<CAPTION>
ESTIMATED
ESTIMATED ESTIMATED PURCHASED ESTIMATED
DISTRIBUTION DATES INTEREST PRINCIPAL INTEREST TOTAL
(EACH MONTH) DISTRIBUTION DISTRIBUTION REBATE DISTRIBUTION
<S> <C> <C> <C> <C> <C> <C>
August 1994 $ 5.06 $ 5.06
September 1994 - October 2005 4.90 4.90
November 2005 4.90 $ 98.07 $ 1.10 104.07
December 2005 - June 2006 4.35 4.35
July 2006 4.35 98.08 1.07 103.50
August 2006 3.83 98.08 1.08 102.99
September 2006 3.30 3.30
October 2006 3.30 98.08 1.07 102.45
November 2006 - June 2018 2.77 2.77
July 2018 2.77 98.07 .92 101.76
August 2018 - November 2018 2.33 2.33
December 2018 2.33 98.08 .90 101.31
January 2019 - September 2019 1.89 1.89
October 2019 1.89 98.08 .90 100.87
November 2019 - August 2024 1.45 1.45
September 2024 1.17 98.08 1.06 100.31
October 2024 - July 2025 .93 .93
August 2025 .93 98.07 .96 99.96
September 2025 - June 2027 .46 .46
July 2027 .18 98.08 1.06 99.32
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Fund, the Sponsor or the Underwriters. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
Title Page
INTRODUCTION..................................... 2
SUMMARY OF ESSENTIAL FINANCIAL INFORMATION....... 3
UNITHOLDER EXPLANATIONS.......................... 7
Settlement of Bonds in the Trusts............... 7
The Fund...................................... 7
Objectives and Securities Selection........... 8
Portfolio Concentrations...................... 10
Replacement Bonds............................. 12
Bond Redemptions.............................. 13
Distributions................................. 14
Certificates.................................. 14
Estimated Current Returns and Estimated
Long-Term Returns............................. 15
Interest Earning Schedule....................... 15
Calculation of Estimated Net Annual Interest
Income...................................... 15
Purchased and Accrued Interest.................. 16
Purchased Interest............................ 16
Accrued Interest.............................. 16
Public Offering................................. 16
General....................................... 16
Offering Price................................ 18
Market for Units.............................. 19
Distributions of Interest and Principal....... 19
Reinvestment Option........................... 20
Redemption of Units........................... 21
Reports Provided.............................. 22
Insurance on the Bonds in the Insured Trusts.... 22
FLORIDA IM-IT TRUST.............................. 30
MICHIGAN IM-IT TRUST............................. 37
MISSOURI IM-IT TRUST............................. 42
PENNSYLVANIA IM-IT INTERMEDIATE LADDERED
MATURITY TRUST................................. 46
TENNESSEE IM-IT TRUST............................ 54
NATIONAL QUALITY TRUST........................... 59
NOTES TO PORTFOLIOS.............................. 61
UNDERWRITING..................................... 63
TRUST ADMINISTRATION............................. 66
Fund Administration and Expenses................ 66
Sponsor....................................... 66
Compensation of Sponsor and Evaluator......... 69
Trustee....................................... 69
Trustee's Fee................................. 70
Portfolio Administration...................... 70
Sponsor Purchases of Units.................... 71
Insurance Premiums............................ 71
Miscellaneous Expenses........................ 71
General......................................... 72
Amendment or Termination...................... 72
Limitation on Liabilities..................... 73
Unit Distribution............................. 73
Sponsor and Underwriter Compensation.......... 74
OTHER MATTERS.................................... 75
Legal Opinions.................................. 75
Independent Certified Public Accountants........ 75
FEDERAL TAX STATUS............................... 75
DESCRIPTION OF SECURITIES RATINGS................ 78
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS..................................... 79
STATEMENTS OF CONDITION.......................... 80
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
TABLES.......................................... 82
ESTIMATED CASH FLOWS TO UNITHOLDERS.............. 84
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration
statements and exhibits relating thereto, which the fund has filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, and to which reference is
hereby made.
(R) denotes a registered trademark of Van Kampen Merritt Inc.
P R O S P E C T U S
June 23, 1994
LOGO
INSURED MUNICIPALS INCOME TRUST
AND
INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES 224
Florida IM-IT 81
Michigan IM-IT 117
Missouri IM-IT 81
Pennsylvania IM-IT Intermediate
Laddered Maturity Series 5
Tennessee IM-IT 27
National Quality 86
LOGO
<PAGE>
One Parkview Plaza (R)
Oakbrook Terrace, Illinois 60181
Mellon Bank Center
1735 Market Street, Suite 1300
Philadelphia, Pennsylvania 19103
Please retain this Prospectus for future reference.
Contents of Registration Statement
This Amendment of Registration Statement comprises the following papers
and documents:
The facing sheet and the Cross-Reference sheet
The Prospectus and the signatures
The consents of independent public accountants, ratings services
and legal counsel
The following exhibits:
1.1 Copy of Trust Agreement.
1.4 Copy of Municipal Bond Investment
Trust Insurance Policy issued by AMBAC Indemnity Corporation
Company and/or Financial Guaranty Insurance Company for each
Insured Trust.
1.5 Form of Master Agreement Among Underwriters.
3.1 Opinion and consent of counsel as to legality of securities being
registered.
3.2 Opinion of counsel as to the Federal,
Florida, Missouri and Tennessee income tax status of securities
being registered.
3.3 Opinion and consent of counsel as to New York income tax status of
the Fund under New York law.
3.4 Opinion and consent of counsel as to income tax status to Michigan
residents of Units of the Michigan IM-IT Trust.
3.5 Opinion and consent of counsel as to income tax status to
Pennsylvania residents of Units of the Pennsylvania IM-IT Trust.
4.1 Consent of Interactive Data Services, Inc.
4.2 Consent of Standard & Poor's Corporation with respect to the
Insured Trusts.
4.3 Consent of Grant Thornton.
Signatures
The Registrant, Insured Municipals Income Trust and Investors'
Quality Tax-Exempt Trust, Multi-Series 224, hereby identifies Insured
Municipals Income Trust and Investors' Quality Tax-Exempt Trust, Multi-
Series 189 and Multi-Series 213 for purposes of the representations
required by Rule 487 and represents the following: (1) that the portfolio
securities deposited in the series as to the securities of which this
Registration Statement is being filed do not differ materially in type or
quality from those deposited in such previous series; (2) that, except to
the extent necessary to identify the specific portfolio securities
deposited in, and to provide essential financial information for, the
series with respect to the securities of which this Registration
Statement is being filed, this Registration Statement does not contain
disclosures that differ in any material respect from those contained in
the registration statements for such previous series as to which the
effective date was determined by the Commission or the staff; and (3)
that it has complied with Rule 460 under the Securities Act of 1933.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 224 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 23rd day of June, 1994.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt
Trust, Multi-Series 224
By Van Kampen Merritt Inc.
By Sandra A. Waterworth
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons, in the capacities indicated on June 23, 1994.
Signature Title
John C. Merritt Chairman, Chief Executive )
Officer and Director )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Ronald A. Nyberg Director )
William R. Molinari Director
Sandra A. Waterworth
(Attorney-in-fact*)
* A copy of each of the related powers of attorney was
filed with the Securities and Exchange Commission in connection with
the Registration Statement on Form S-6 of Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 203 (File
No. 33-65744) and the same are hereby incorporated herein by this
reference.
Exhibit 1.1
--
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 224
Trust Agreement
Dated: June 23, 1994
This Trust Agreement between Van Kampen Merritt Inc., as Depositor,
American Portfolio Evaluation Services, a division of Van Kampen Merritt
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 "Insured Municipals
Income Trust and Investors' Quality Tax-Exempt Trust, Standard Terms and
Conditions of Trust, Effective August 26, 1987 for Multi-Series 59 and
Subsequent Series" (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 the amount set
forth under "Summary of Essential Financial Information-Fractional
Undivided Interest in the Trust per Unit" in the Prospectus.
(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 to the "Per Unit Information" for each Trust
in the Prospectus 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 "Interest Earning Schedule" in the Prospectus.
(e) The First Settlement Date shall be the date set forth
under "Summary of Essential Financial Information-First Settlement
Date" in the Prospectus.
(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 4:00 P.M. Eastern time.
(h) The face of the form of the Certificates will be
substantially as follows:
No. ___________ Certificate of Ownership _________ Units
--Evidencing--
An Undivided Interest
-In-
This is to certify that ____________________ is the owner and
registered holder of this Certificate evidencing the ownership of
______units of fractional undivided interest in the above-named Trust
created pursuant to the Indenture, a copy of which is available at the
office of the Trustee. This Certificate is issued under and is
subject to the terms, provisions and conditions of the Indenture to
which the Holder of this Certificate by virtue of the acceptance
hereof assents and is bound, a summary of which Indenture is contained
in the Prospectus relating to the Trust. This Certificate is
transferable and interchangeable by the registered owner in person or
by his duly authorized attorney at the Trustee's office upon surrender
of this Certificate properly endorsed or accompanied by a written
instrument of transfer and any other documents that the Trustee may
require for transfer, in form satisfactory to the Trustee and payment
of the fees and expenses provided in the Indenture.
Witness the facsimile signature of a duly authorized officer of
the Sponsor and the manual signature of an authorized signatory of the
Trustee.
Dated:
Van Kampen Merritt Inc., The Bank of New York,
Depositor Trustee
By __________________________ By __________________________
Chairman Authorized Signatory
(i) Section 8.02(d) and (e) of the Standard Terms and
Conditions of Trust are hereby stricken and replaced by the
following:
(d) distribution to each Certificateholder of such Trust such
holder's pro rata share of the balance of the Interest Account of
such Trust;
(e) distribute to each Certificateholder of such Trust such
holder's pro rata share of the balance of the Principal Account of
such Trust; and
In Witness Whereof, Van Kampen Merritt Inc. has caused this Trust
Agreement to be executed by one of its Vice Presidents or Assistant Vice
Presidents and its corporate seal to be hereto affixed and attested by
its Secretary or one of its Vice Presidents or Assistant Secretaries,
American Portfolio Evaluation Services, a division of Van Kampen Merritt
Investment Advisory Corp., has caused this Trust Indenture and Agreement
to be executed by its President or one of its Vice Presidents and its
corporate seal to be hereto affixed and attested to by its Secretary, its
Assistant Secretary or one of its Assistant Vice Presidents and The Bank
of New York, has caused this Trust Agreement to be executed by one of its
Vice Presidents and its corporate seal to be hereto affixed and attested
to by one of its Vice Presidents, Assistant Vice Presidents or Assistant
Treasurers; all as of the day, month and year first above written.
Van Kampen Merritt Inc., Depositor
By Sandra A. Waterworth
Vice President
[Seal]
Attest:
By Gina M. Scumaci
Assistant Secretary
American Portfolio Evaluation
Services a division of Van Kampen
Merritt Investment Advisory
Corp.
By Dennis J. Mcdonnell
President
[Seal]
Attest:
By Scott E. Martin
Secretary
The Bank Of New York
By Jeffrey Bieselin
Vice President
[Seal]
Attest:
By Norbert Loney
Assistant Treasurer
Schedules to Trust Agreement
Securities Initially Deposited
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 224
(Note: Incorporated herein and made a part hereof as indicated below
are the corresponding "Portfolios" of each of the Trusts as set
forth in the Prospectus.)
Exhibit 1.4
AMBAC AMBAC Indemnity Corporation
c/o CT Corporation Systems
Municipal Bond Investment 44 East Mifflin Street
Trust Insurance Policy Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza
New York, New York 10004
AMBAC Indemnity Corporation (AMBAC) A Wisconsin Stock Insurance Company
Agrees to Guarantee
Insured Municipals Income Trust and Investors Quality
Tax Exempt Trust, Combined Multi Series 224
(Missouri Insured Municipals Income Trust, Series 81)
Van Kampen Merritt, Inc.
("Investment Trust") the insured, the payment of that portion of the
principal of and interest on each of the Bonds which shall be due during
the Policy Period but is unpaid by reason of Nonpayment by the Issuer, in
consideration of the insurance premium paid and subject to the terms and
conditions contained herein or added hereto.
Policy No. FE013410 Policy Date: June 23,
1994
Trustee: The Bank of New York
101 Barclay Street, 17flW
New York, New York 10286
In Witness Whereof, the Insurer has caused this Policy to be affixed
with a facsimile of its corporate seal and to be signed by its duly
authorized officers in facsimile to become effective as its original seal
and signatures and binding upon the Insurer by virtue of the
countersignature of its duly authorized representative.
P. Lassiter
President@AMBAC Indemnity Corporation
Stephen D. Cooke
Secretary
/w/ Catherine J. Freehill
Authorized Representative@
1. Definitions
(a) "Policy" is this policy of insurance and all applications and
schedules for Municipal Bond Investment Trust Insurance relating hereto,
all of which are hereby incorporated by reference herein.
(b) "Bonds" are the specific securities covered by this Policy and
are identified and described in the Schedule attached hereto and hereby
made a part hereof.
(c) "Issuer" is each respective issuer, identified in the Schedule,
of the Bonds.
(d) "Investment Trust" is the entity represented to have an
insurable interest in the Bonds insured under this Policy, identified on
the face of this Policy.
(e) "Trustee" is the Trustee of the Investment Trust, or any
successor Trustee thereto or Co-Trustee therewith.
(f) "Sponsor" is the firm or entity responsible for creating the
Investment Trust and thereafter performing the services to it required of
its sponsor, or any successor Sponsor thereof or Co-Sponsor therewith.
(g) "Insured Instrument" is any instrument evidencing all or any
part of the principal or of interest on a Bond which is Due for Payment.
(h) "Policy Period" is the period during which this Policy of
insurance is effective. The Policy Period commences at 12:01 A.M.
(i) "Premium Installment Period" is the period for which
installments of the annual insurance premium are payable monthly,
quarterly or semiannually, as determined initially for the Investment
Trust.
(j) "Nonpayment" is the failure of an Issuer to provide sufficient
funds to the payment agent for payment in full of all principal and
interest on a Bond which is Due for Payment.
(k) "Due for Payment," when referring to principal of a Bond (or
Insured Instrument evidencing such principal), is when the stated
maturity date has been reached, and does not refer to any earlier date on
which payment is due by reason of call for redemption, acceleration or
other advancement of maturity; and when referring to interest on a Bond
(or Insured Instrument evidencing such interest), is when the stated date
for payment has been reached.
(l) "Bond Proceedings" are the legal proceedings by which each of
the Bonds has been authorized, issued or secured, including the governing
statutes, the pertinent resolutions and ordinances of the Issuer, and any
trust indenture, mortgage, lease agreement or other contract relating to
the Bond or its security.
2. Noncancellability and Termination-Refunds of Premium
This Policy cannot be cancelled by AMBAC. The insurance provided by
this Policy shall remain in force throughout the Policy period. This
Policy provides for payment to the Trustee as a result of Nonpayment of
the Bonds. In the event the Trustee sells any of the Bonds, then this
Policy shall be terminated as to any such Bond on the date of said sale,
and AMBAC shall not have any liability under t his Policy on account of
Nonpayment of any such Bond occurring thereafter. This Policy shall be
terminated as to any Bond which AMBAC has been notified by the Sponsor or
by the Trustee has been redeemed from or sold by the Investment Trust, or
was not deposited by the Sponsor, or the contract to purchase which has
failed, on the date such notice is received by AMBAC, and AMBAC shall not
have any liability under this Policy on account of Nonpayment of any such
Bond occurring thereafter. When AMBAC is notified by the Trustee or the
Sponsor that any of the Bonds have been redeemed or sold from the
Investment Trust, or were not deposited into it, or a contract to
purchase any such Bonds has failed, a refund of any prepaid premium
thereof shall be made to the Investment Trust or the Sponsor, as the case
may be. Such notification to AMBAC must specify the amount of Bonds
affected, identify each by its Item Number in an Application identified
by its date and designate the date of such disposal or failure.
3. Payment by Insurer-Amount, When and How Payable
(a) Amount-Payment by AMBAC of the aggregate of the face amount of
all Insured Instruments of the Investment Trust as to which there has
been a Nonpayment, reduced by the aggregate of: (i) the amount which the
Issuer shall have provided for payment of Insured Instruments by the time
of Nonpayment; and (ii) the amount which has been received from any other
source to pay Insured Instruments; such payment shall fully discharge
AMBAC from any further liability on account of the Nonpayment.
(b) When Payable-The payment due the Investment Trust shall be made
not later than thirty days after notice from the Trustee is received by
AMBAC that Nonpayment has occurred, but not earlier than the date on
which the Insured Instruments are Due for Payment.
(c) How Payable-The payment due the Investment Trust shall be paid
by AMBAC in exchange for delivery of Insured Instruments, not less in
face amount than the amount of the payment, in bearer form, free and
clear of all liens and encumbrances and uncancelled. In cases where an
Insured Instrument is issuable only in a form whereby principal is
payable to registered holders or their assigns, AMBAC shall pay principal
only upon presentation and surrender of the unpaid Insured Instrument,
uncancelled and free of any adverse claim, together with an instrument of
assignment, in satisfactory form, so as to permit ownership of such
Insured Instrument to be registered in the name of AMBAC or its nominee.
In cases where an Insured Instrument is issuable only in a form whereby
interest is payable to registered holders or their assigns, AMBAC shall
pay interest only upon presentation of proof that the claimant is the
person entitled to the pa shall pay interest only upon presentation of
proof that the claimant is the person entitled to the payment of interest
on the Insured Instrument and delivery of an instrument of assignment, in
satisfactory form, transferring to AMBAC all rights under such Insured
Instrument to receive the interest in respect of which the insurance
payment was made.
4. Rights of AMBAC
(a) Subrogation-When AMBAC has made payment with respect to an
Insured Instrument, it shall be subrogated to all of the rights to
payment of the Investment Trust thereon or in relation thereto to the
extent of such payment.
(b) Vesting of Rights and Powers-When AMBAC has made the payment
due to the Investment Trust as described in Condition 3, and until the
full amount of such payment has been recovered, AMBAC shall be vested
with all of the Investment Trust's options, votes, rights, powers and the
like under the Bond Proceedings. AMBAC shall not be liable to the
Investment Trust for any loss or damage resulting from the exercise of or
failure to exercise any of such options, votes, rights, powers and the
like.
(c) Exercise of Rights and Powers-AMBAC may, in its absolute
discretion, exercise or fail to exercise any option, vote, right, power
or the like it may have as holder or registered owner of an Insured
Instrument with respect to which it has made payment. AMBAC shall not be
liable to the Investment Trust for any loss or damage resulting therefrom
(d) Securing of Rights-The Trustee shall execute and deliver
instruments and do whatever else is necessary to secure the foregoing
rights for AMBAC, and will do nothing to prejudice them.
5. Payment of Insurance Premium Installments
The Trustee shall pay, when due, successively, the full amount of
each installment of the insurance premium. Each installment of the
insurance premium is due on or before the last day of the expiring
Premium Installment Period.
If AMBAC has not received such payment on or before such last day,
it shall give notice to the Sponsor to that effect. Such installment
shall be deemed to have been paid when due if AMBAC receives such payment
within ten days after it has given such notice.
The Trustee shall, with each payment, notify AMBAC of all Bonds
which, during the expiring Premium Installment period, were redeemed from
or sold by the Investment Trust, or the contract to purchase which
failed, or which have not been deposited by the Sponsor. Such
notification to AMBAC must specify the amounts of Bonds affected and
identify each by its Item Number in an Application identified by date.
No such notice need be given as to Bonds with respect to which AMBAC has
previously been notified to the same effect.
6. Where Notice is Given
All submissions, designations, payments, notices, reports and other
data or documents required to be submitted shall be mailed to AMBAC at
its administrative office, or to the Investment Trust at its address
shown on the face of this Policy or such other address as it shall
designate.
7. Waiver of Conditions
No permission affecting this insurance shall exist, or waiver of any
condition be valid, unless expressed in writing added hereto. Each of
the conditions of this Policy is hereby made severable, and waiver of one
condition is not a waiver of any other condition.
8. Suit
No suit or action on this Policy for the recovery of any amount
shall be sustained in any court of law or equity unless all of the
conditions of this Policy shall have been complied with (unless
specifically waived by AMBAC in writing) and unless commended within two
years after a Nonpayment.
9. Conflict of Laws
Any provision of this Policy which is on conflict with the laws of
the jurisdiction in which it is effective is hereby amended to conform
with the minimum requirements of such laws.
* Premium attributable to the original
insured amount of each Item of Bonds.
AMBAC AMBAC Indemnity Corporation
Schedule of Bonds (a part of c/o CT Corporation Systems
the Application and Policy) 44 East Mifflin Street
Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza
New York, New York 10004
Insured Municipals Income Trust and Investors Quality
Tax Exempt Trust, Combined Multi Series 224
(Missouri Insured Municipals Income Trust, Series 81)
Date of Application: June 23, 1994
<TABLE>
<CAPTION>
Item Par Full Name Purpose of Interest Date Maturity Annual Initial
No. Value of Issuer Bonds Rate of Date Premium Annual
Bonds Rate Premium
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. $150M Greene Single-Family Mortgage 0.000% 09/01/ 03/01/ .1000% $150.00
County, Revenue Bonds, Series 1984 84 16
Missouri (Escrowed to Maturity) (SMIP
Option Premium Rate: .60)
</TABLE>
Exhibit 1.5
Dated: June 1, 1992
Master Agreement Among Underwriters
For Unit Investment Trusts Sponsored by
Van Kampen Merritt Inc.
Van Kampen Merritt Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Gentlemen:
1. The Trust. We understand that you, Van Kampen Merritt Inc.
(the "Sponsor"), are entering into this agreement (the "Agreement") in
counterparts with us and other firms who may be underwriters for issues
of various series of unit investment trusts for which you will act as
Sponsor. This Agreement shall apply to any offering after May 1, 1992 of
units of fractional undivided interest in such various series unit
investment trusts in which we elect to act as an underwriter
(underwriters with respect to each such trust being hereinafter called
"Underwriters") after receipt of a notice from you stating the name and
size of the trust and that our participation as an Underwriter in the
proposed offering shall be subject to the provisions of this Agreement.
The issuer of the units of fractional undivided interests in a series of
a unit investment trust offered in any offering of units made pursuant to
this Agreement is hereinafter referred to as the "Trust" and the
reference to "Trust" in this Agreement applies only to such Trust, and
such units of such Trust offered are hereinafter called the "Units".
Each Trust is or will be registered as a "unit investment trust" under
the Investment Company Act of 1940 (the "1940 Act") by appropriate
filings with the Securities and Exchange Commission (the "Commission").
Additionally, each Trust is or will be registered with the Commission
under the Securities Act of 1933 (the "1933 Act") on Form S-6 or its
successor forms, including a proposed form of prospectus (the
"Preliminary Prospectus").
The registration statement as finally amended and revised at the
time it becomes effective is herein referred to as the "Registration
Statement" and the related prospectus is herein referred to as the
"Prospectus", except that if the prospectus filed by the Trust pursuant
to Rule 424(b) under the 1933 Act shall differ from the prospectus on
file at the time the Registration Statement shall become effective, the
term "Prospectus" shall refer to the prospectus filed pursuant to Rule
424(b) from and after the date on which it shall have been filed.
The following provisions of this Agreement shall apply separately to
each individual offering of Units by a Trust.
We understand that as of the date upon which we have agreed to
underwrite Units of the Trust the Commission shall not have issued any
order preventing or restraining the use of any Preliminary Prospectus
and, further, that each Preliminary Prospectus shall conform in all
material respects to the requirements of the 1933 Act and the Rules and
Regulations thereunder and, as of its date, shall not include any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein not misleading; and when the Registration
Statement becomes effective, it and the Prospectus, and any amendments or
supplements thereto, will contain all statements that are required to be
stated therein in accordance with the 1933 Act and the Rules and
Regulations thereunder and will in all material respects conform to the
requirements of the 1933 Act and the Rules and Regulations thereunder,
and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, will contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided, however, that you make no representation or warranty as to
information contained in or omitted from any Preliminary Prospectus, the
Registration Statement, the Prospectus or any such amendment or
supplement, in reliance upon and in conformity with, written information
furnished to you by or on behalf of any Underwriter specifically for use
in the preparation thereof.
2. Designation and Authority of Representative. You are hereby
authorized to act as our representative (the "Representative") in
connection with all matters to which this Agreement relates and to take
the action provided herein to be taken by you as you may otherwise deem
necessary or advisable. We understand that we have no obligations under
this Agreement with respect to any Trust in which we choose not to
participate as an Underwriter.
You will be under no liability to us for any act or omission except
for obligations expressly assumed by you herein and no obligations on
your part will be implied or inferred herefrom. The rights and
liabilities of the respective parties hereto are several and not joint,
and nothing herein or hereunder will constitute then a partnership,
association or separate entity.
3. Profit or Loss in Acquisition of Securities. It is understood
that the acquisition of securities (the "Securities") for deposit in the
portfolio of the Trust shall be at your cost and risk. We acknowledge
that you will share with us any net deposit profits in the amounts and to
the extent, if any, indicated under "Sponsor and Underwriter
Compensation" in the Prospectus. For the purposes of determining the
number of Units underwritten, we understand that we will be credited for
that number of Units set forth opposite our name in the section entitled
"Underwriting" in the prospectus.
We agree that you shall have no liability (as Representative or
otherwise) with respect to the issue form, validity, legality,
enforceability, value of, or title to the Securities, except for the
exercise of due care in determining the genuineness of such Securities
and the conformance thereof with the descriptions and qualifications
appearing in the Prospectus.
4. Purchase of Units. Promptly after you make a determination to
offer Units of a Trust and you inquire as to whether we desire to
participate in such offering, we will advise you promptly as to the
number of Units which we will purchase or of our decision not to
participate in such offering. Such advice may be written or oral. The
delivery to the Sponsor of a completed Schedule A to this Agreement shall
constitute adequate written advice. Oral advice shall be binding but
shall be promptly confirmed in writing by us by means of telegraph,
telegram or other form of wire or facsimile transmission. Such written
confirmation shall contain the information requested by Schedule A to
this Agreement. You may rely on and we hereby commit on the terms and
conditions of this Agreement to purchase and pay for the number of Units
of the Trust set forth in such advice (the "Unit Commitment"). Our Unit
Commitment may be increased only by mutual agreement between us and you
at any time prior to the date as of which the Trust Agreement for the
Trust is executed (the "Date of Deposit"). We agree that you in your
sole discretion reserve the right to decrease our Unit Commitment at any
time prior to the Date of Deposit and if you so elect to make such a
decrease, you will notify us of such an election by telephone and
promptly confirm the same in writing.
The price to be paid for such Units shall be the Public Offering
Price per Unit (as defined in the Prospectus) as first determined on the
Date of Deposit or such later determination on such Date of Deposit as
you shall advise us, less the sum per Unit indicated under "Sponsor and
Underwriter Compensation" in the Prospectus. Further, each Underwriter
who underwrites that number of Units indicated under "Sponsor and
Underwriter Compensation" in the Prospectus will receive from the Sponsor
that additional compensation indicated under such section of the
Prospectus for each Unit it underwrites, providing the Trust size is in
excess of that number of Units, if any, indicated under such section of
the Prospectus. At the Date of Deposit, we will become the owner of the
Units and be entitled to the benefits (except for interest, if any,
accruing from the Date of Deposit to the First Settlement Date) as well
as the risks inherent therein. We acknowledge that those persons, if
any, named in the Prospectus under "Sponsor and Underwriter Compensation"
are Managing or Co-Managing Underwriters of the Trust, as indicated
therein, and we acknowledge that those persons specifically named therein
will receive as additional compensation those respective per Unit amounts
set forth in such section of the Prospectus.
You are authorized to retain custody of our Units until the
Registration Statement relating thereto has become effective under the
1933 Act and you shall have received payment from us for such Units.
You are authorized to file an amendment to said Registration
Statement describing the Securities and furnishing information based
thereon or relating thereto and any further amendments or supplements to
the Registration Statement or Prospectus which you may deem necessary or
advisable. We will furnish to you upon your request such information as
will be required to insure that the Registration Statement and Prospectus
are current insofar as they relate to us and we thereafter continue to
furnish you with such information as may be necessary to keep current and
correct the information previously supplied.
We understand that the Trust will also take action with respect to
the offering and sale of Units in accordance with the Blue Sky or
securities laws of certain states in which it is proposed that the Units
may be offered and sold.
5. Public Offering. You agree that you will advise us promptly
when the Registration Statement has become effective, and we agree that
when we are advised that the Units are released for public offering, we
will make a public offering thereof by means of the Prospectus under the
1933 Act, as amended, which describes the deposit of Securities and
related information. The Public Offering Price and the terms and
conditions of the public offering shall be as set forth in the Prospectus
and shall rely with respect to the offering price of the Securities upon
the determination of the Evaluator named in the Prospectus. Public
advertisement of the offering, if any, shall be made by you on behalf of
the Underwriters on such date as you shall determine. We agree that
before we use any Trust advertising material which we have created, we
will obtain your prior approval to use such advertising materials.
6. Public Offering Price. We agree that each day while this
Agreement is in effect and the evaluation of the Trust is made by the
Evaluator named in the Prospectus, we will contact you for such
evaluation and of the resultant Public Offering Price for the purpose of
the offering and sale of the respective Units to the public. We agree as
required by Section 22(d) of the 1940 Act to offer and sell our Units at
the current Public Offering Price described in the Prospectus.
7. Permitted Transactions. It is agreed that part or all of the
Units purchased by us may be sold to dealers, or other entities with whom
we can legally grant a concession or agency commission, only at the then
effective Public Offering Price, less the concession described in the
Prospectus.
From time to time prior to the termination of this Agreement, at
your Request, we will advise you of the number of our Units which remain
unsold and, at your request, we agree to deliver to you any of such
unsold Units to be sold for our account to retail accounts or, less the
concession or agency commission then effective, to dealers or others.
If prior to the termination of this Agreement, or such earlier date
as you may determine and advise us thereof in writing, you shall purchase
or contract to purchase any of our Units or any Units issued in exchange
therefor, in the open market or otherwise, or if any such Units shall be
tendered to the Trustee for redemption because not effectively placed for
investment by us, we agree to repurchase such Units at a price equal to
the total cost of such purchase, including accrued interest and
commissions, if any, and transfer taxes on redelivery. Regardless of the
amount paid on the repurchase of any such Units, it is agreed that they
may be resold by us only at the then effective Public Offering Price.
Until the termination of this Agreement, we agree that we will make
no purchase of Units other than (i) purchases provided for in this
Agreement, (ii) purchases approved by you and (iii) purchases as broker
in executing unsolicited orders.
8. Compliance With Commission Order. We hereby agree as follows:
(a) we will refund all sales charges to purchasers of Units from us or
any dealer participating in the distribution of Units who purchased such
Units from us if, within ninety days from the time that the Registration
Statement of the respective Units under the 1933 Act shall have become
effective, (i) the net worth of the trust shall be reduced to less than
20% of the principal amount of Securities originally deposited therein or
(ii) the Trust shall have been terminated; (b) you may instruct the
Trustee on the Date of Deposit that, in the event that redemption by any
Underwriters of Units constituting part of any unsold allotment of Units
shall result in the Trust having a net worth of less than 40% of the
principal amount of Securities originally deposited therein, the Trustee
shall terminate the Trust in the manner provided in the Trust Indenture
and Agreement (as defined in the Prospectus) and distribute the
Securities and other assets of the Trust pursuant to the provisions of
the Trust Indenture and Agreement; and (c) in the event that the Trust
shall have been terminated pursuant to (b) above, we will refund any
sales charges to any purchaser of such Units who purchased from us, or
purchased from a dealer participating in the distribution of such Units
who purchased such Units from us. We authorize you to charge our account
for all refunds of sales charges in respect to our Units.
9. Substitution of Underwriters. We authorize you to arrange for
the substitution hereunder of other persons, who may include you and us,
for all or any part of the commitment of any nondefaulting Underwriter
with the consent of such Underwriter, and of any defaulting Underwriter
without the consent thereof, upon such terms and conditions as you may
deem advisable, provided that the number of Units to be purchased by us
shall not be increased without our consent and that such substitution
shall not in any way affect the liability of any defaulting Underwriter
to the other Underwriters for damages from such default, nor relieve any
other Underwriter of any obligation under this Agreement. The expenses
chargeable to the account of any defaulting Underwriter and not paid for
by it or by a person substituted for such Underwriter and any additional
losses or expenses arising from such default shall be considered to be
expenses under this Agreement and shall be charged against the accounts
of the nondefaulting Underwriters in proportion to their respective
commitments.
10. Termination. This Agreement shall terminate with respect to
each Trust which we have agreed to underwrite 30 days after the date on
which the public offering of the Units of such Trust is made in
accordance with Section 5 hereof unless sooner terminated by you,
provided that you may extend this Agreement for not more than eleven
successive periods of 30 days each upon notice to us and each of the
other Underwriters.
Notwithstanding any settlement on the termination of this Agreement,
we agree to pay our share of any amount payable on account of any claim,
demand or liability which may be asserted against the Underwriters, or
any of them, based on the claim that the Underwriters constitute an
association, unincorporated business or other separate entity and our
share of any expenses incurred by you in defending against any such
claim, demand or liability. We also agree to pay any stamp taxes which
may be assessed and paid after such settlement on account of any Units
received or sold hereunder for our account.
Notwithstanding any termination of this Agreement, no sales of the
Units shall be made by us at any time except in conformity with the
provisions of Section 22(d) of the 1940 Act.
11. Default by Other Underwriters. Default by any one or more of
the other Underwriters in respect of their several obligations under this
Agreement shall neither release you nor us from any of our respective
obligations hereunder.
12. Notices. Notices hereunder shall by deemed to have been duly
given if mailed or telegraphed to us at our address set forth below, in
the case of notices to us, or to you at your address set forth at the
head of this Agreement, in the case of notices to you.
13. Net Capital. You represent that you, and we represent that we,
are in compliance with the capital requirements of Rule 15c-3-1
promulgated by the Commission under the Securities and Exchange Act of
1934, and we may, in accordance with and pursuant to such Rule 15c-3-1,
agree to purchase the amount of Units to be purchased by you and us,
respectively, under the Agreement.
14. Miscellaneous. We confirm that we are a member in good
standing of the National Association of Securities Dealers, Inc.
We confirm that we will take reasonable steps to provide the
Preliminary Prospectus or final Prospectus to any person making written
request therefor to us and to make the Preliminary Prospectus or the
final Prospectus available to each person associated with us expected to
solicit customers' orders for the Units prior to the effective
registration date and the final Prospectus if he is expected to offer the
Units after the effective date. We understand that you will supply us
upon our request with sufficient copies of such prospectuses to comply
with the foregoing.
This Agreement is being executed by us and delivered to you in
duplicate. Upon your confirmation hereof and of agreements in identical
form with each of the other Underwriters, this Agreement shall constitute
a valid and binding contract between us.
Very truly yours,
Confirmed as of the date Indicated below our firm name and
set forth at the head of this address exactly as we wish to appear
Agreement in the Prospectus
Van Kampen Merritt, Inc.
By____________________________ ___________________________________
Title__________________________ ___________________________________
___________________________________
Exhibit 3.1
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
June 23, 1994
Van Kampen Merritt Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 224
Gentlemen:
We have served as counsel for Van Kampen Merritt Inc., Sponsor and
Depositor of Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 224 (hereinafter referred to as the "Fund"),
in connection with the preparation, execution and delivery of a Trust
Agreement dated June 23, 1994 between Van Kampen Merritt Inc., as
Depositor, American Portfolio Evaluation Services, a division of Van
Kampen Merritt 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. 33-53931) relating to the Units referred
to above and to the use of our name and to the reference to our firm in
said Registration Statement and in the related Prospectus.
Respectfully submitted,
Chapman and Cutler
MJK/ch
Exhibit 3.2
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
June 23, 1994
Van Kampen Merritt Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York
Unit Investment Trust Division
101 Barclay Street
New York, New York 10286
Re: Insured Municipals Income Trust and Investors
Quality Tax-Exempt Trust, Multi-Series 224
______________________________________________
Gentlemen:
We have acted as counsel for Van Kampen Merritt Inc., Depositor of
Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 224 (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 June 23, 1994 (the "Indenture")
between Van Kampen Merritt Inc., as Depositor, American Portfolio
Evaluation Services, a division of Van Kampen Merritt 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.
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 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 (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, the environmental tax (the "Superfund
Tax") imposed by Section 59A 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 represented by his Certificate. Before adjustment,
such basis would normally be cost if the Unitholder had acquired his
Units by purchase, plus his aliquot share of advances by the Trustee
to the Trust to pay interest on Bonds delivered after the Unitholder's
settlement date to the extent that such interest accrued on the Bonds
during the period from the Unitholder's settlement date to the date
such Bonds are delivered to the respective Trust, but only to the
extent that such advances are to be repaid to the Trustee out of
interest received by such Trust with respect to such Bonds. In
addition, such basis will be increased by the Unitholder's aliquot
share of the accrued original issue discount with respect to each
Bond held by the Trust with respect to which there was an original
issue discount at the time the Bond was issued and reduced by the
annual amortization of bond premium, if any, on Bonds held by the
Trust.
(iv)If the Trustee disposes of a Trust asset (whether by
sale, payment on maturity, redemption or otherwise) gain or loss is
recognized to the Unitholder and the amount thereof is measured by
comparing the Unitholder's aliquot share of the total proceeds from
the transaction with his basis for his fractional interest in the
asset disposed of. Such basis is ascertained by apportioning the
tax basis for his Units among each of the Trust assets (as of the
date on which his Units were acquired) ratably according to their
values as of the valuation date nearest the date on which he
purchased such Units. A Unitholder's basis in his Units and of his
fractional interest in each Trust asset must be reduced by the amount
of his aliquot share of interest received by the Trust, if any, on
Bonds delivered after the Unitholder's settlement date to the extent
that such interest accrued on the Bonds during the period from the
Unitholder's settlement date to the date such Bonds are delivered to
the Trust, 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 with
respect to each Bond which, at the time the Bond was issued, had
original issue 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 Indemnity 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 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 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. Insurance
has been obtained for such 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 bonds. Insurance obtained by the
issuer is effective so long as such bonds remain outstanding. For
each of these bonds, we have been advised that the aggregate
principal amount of such bonds listed on the portfolio page for the
respective Trust was acquired by the applicable Trust and are part
of the series of such bonds listed on the portfolio page for the
respective Trust in the aggregate principal amount listed on the
portfolio page for the respective Trust. Based upon the assumption
that the bonds acquired by the applicable 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 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 notwithstanding the source of the
payment is from policy proceeds. 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") to prior owners. 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 15, 1986, none of the Trust 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 and the Superfund Tax depend upon the corporations
taxable income with certain adjustments.
Pursuant to Section 56(c) of the Code, one of the adjustment items
used in computing alternative minimum taxable income ("AMTI") and
the Superfund Tax of a corporation (other than an S corporation,
Regulated Investment Company, Real Estate Investment Trust or REMIC)
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 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, unless such financial
institution can otherwise establish, under regulations, to be
prescribed by the Secretary of the Treasury, the amount of interest
on indebtedness incurred or continued to purchase or carry such
obligations.
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). Market discount can arise based on the price a Trust pays
for Bonds or the price a Unitholder pays for his or her Units. Under
the Tax Act, accretion of market discount is taxable as ordinary
income; under prior law, the accretion had been treated as capital
gain. Market discount that accretes while a Trust holds a Bond would
be recognized as ordinary income by the Unitholders when principal
payments are received on the Bond, upon sale or at redemption
(including early redemption), or upon the sale or redemption of his or
her Units, unless a Unitholder elects to include market discount in
taxable income as it accrues.
We have also examined certain laws of the State of Florida, to
determine their applicability to the Florida IM-IT 81 Trust (the
"Florida Trust") being created as part of the Fund and to the holders
of Units in the Florida Trust who are residents of the State of
Florida. "Non-Corporate Unitholder" means a Unitholder of the
Florida Trust who is an individual not subject to the Florida state
income tax on corporations under Chapter 220, Florida Statutes and
"Corporate Unitholder" means a Unitholder of the Florida Trusts that
is a corporation, bank or savings association subject to the Florida
state income tax on corporations or franchise tax imposed on banks
or savings associations under Chapter 220, Florida Statutes.
Although we express no opinion with respect thereto, in rendering the
opinion expressed herein, we have assumed that the Bonds were validly
issued by the State of Florida or its instrumentalities or
municipalities. Based on the foregoing, it is our opinion that:
(a)Neither the Florida Trust nor Non-Corporate Unitholders
will be subject to the Florida income tax imposed by Chapter 220,
Florida Statutes. Therefore, any amounts paid to the Florida Trusts or
Non-Corporate Unitholders under an insurance policy issued to the
Florida Trusts, the Issuers, the Underwriters, or the Sponsors thereof,
or others, which represent maturing interest on defaulted obligations
held by the Trustee will not be subject to the Florida income tax
imposed by Chapter 220, Florida Statutes.
(b)Corporate Unitholders will be subject to Florida income
or franchise taxation under Chapter 220, Florida Statutes (1) on interest
received by the Trust, (2) on payments of interest pursuant to any
insurance policy, (3) on gain realized when Bonds are sold, redeemed or
paid at maturity or when insurance payments with respect to principal are
received by the Trust and (4) on gain on the sale or redemption of Units,
to the extent allocable to Florida as "adjusted federal income."
Corporate Unitholders that have a commercial domicile in Florida will
also be subject to Florida income or franchise taxation on 100 percent of
the items of income described in clauses (1) through (4) of the
immediately preceding sentence to the extent that such income constitutes
"nonbusiness income."
(c)Even if interest on indebtedness incurred or continued by
a Unitholder to purchase Units in the Trust is not deductible for Federal
income tax purposes, it will reduce interest income on the Bonds which is
reportable by Corporate Unitholders for Florida income tax purposes.
(d)Trust Units held by a Florida resident will be includible
in the resident's estate for Florida estate tax purposes, but if such
estate is not subject to the Federal estate tax, the estate will not be
subject to the Florida estate tax. The Florida estate tax is limited to
the amount of the credit for state death taxes provided for in section
2011 of the Code, less estate taxes paid to states other than Florida.
(e)Neither the Bonds nor the Units will be subject to the
Florida ad valorem tax, the Florida intangible personal property tax or
Florida sales or use tax.
We have also examined the income tax law of the State of Missouri, which
is based upon the Federal law, to determine its applicability to the
Insured Missouri Trust (the "Missouri Trust") being created as part of
the Fund and to the holders of Units in the Missouri Trust who are
residents of the State of Missouri ("Missouri Unitholders").
The assets of the Trust will consist of interest-bearing obligations
issued by or on behalf of the State of Missouri (the "State") or counties,
municipalities, authorities or political subdivisions thereof (the
"Missouri Bonds") or by the Commonwealth of Puerto Rico, Guam and the
United States Virgin Islands (the "Possession Bonds") (collectively, the
"Bonds").
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 excludible from
gross income for federal income tax purposes, (iii) interest on the Bonds,
if received directly by a Unitholder, would be exempt from the income tax
imposed by the State of Missouri that is applicable to individuals and
corporations (the "Missouri State Income Tax"). This opinion does not
address the taxation of persons other than full time residents of
Missouri.
Based on the foregoing, and based on review and consideration of existing
laws of the State as of this date, it is our opinion, and we herewith
advise you, as follows:
(1)The Missouri Trust is not an association taxable as a
corporation for Missouri income tax purposes, and each Unitholder of
the Missouri Trust will be treated as the owner of a pro rata portion
of the Trust and the income of such portion of the Trust will be
treated as the income of the Unitholder for Missouri State Income Tax
purposes;
(2)Interest paid and original issue discount, if any, on
the Bonds which would be exempt from the Missouri State Income Tax if
received directly by a Unitholder will be exempt from the Missouri
State Income Tax when received by the Missouri Trust and distributed
to such Unitholder; however, no opinion is expressed herein regarding
the Missouri Trust and distributed to Unitholders under any other tax
imposed pursuant to Missouri law, including but not limited to the
franchise tax imposed on financial institutions pursuant to Chapter
148 of the Missouri Statutes.
(3)To the extent that interest paid and original issue
discount, if any, derived from the Missouri Trust by a Unitholder
with respect to Possession Bonds is excludable from gross income for
Federal income tax purposes pursuant to 48 U.S.C. 745, 48 U.S.C.
1423a, and 48 U.S.C. 1403, such interest paid and original issue
discount, if any, will not be subject to the Missouri State Income
Tax; however, no opinion is expressed herein regarding taxation of
interest paid and original issue discount, if any, on the Bonds
received by the trust and distributed to Unitholders under any
other tax imposed pursuant to Missouri law, including but not
limited to the franchise tax imposed on financial institutions
pursuant to Chapter 148 of the Missouri Statutes.
(4)Each Unitholder of the Missouri Trust will
recognize gain or loss for Missouri State Income Tax purposes
if the Trustee disposes of a bond (whether by redemption, sale,
or otherwise) or if the Unitholder redeems or sells Units of the
Missouri Trust to the extent that such a transaction results in
a recognized gain or loss to such Unitholder for Federal income
tax purposes. Due to the amortization of bond premium and other
basis adjustments required by the Internal Revenue Code, a
Unitholder, under some circumstances, may realize taxable gain
when his or her Units are sold or redeemed for an amount equal
to their original cost.
(5)Any insurance proceeds paid under policies which
represent maturing interest on defaulted obligations which are
excludable from gross income for Federal income tax purposes will
be excludable from Missouri State Income Tax to the same extent
as such interest would have been paid by the issuer of such Bonds
held by the Missouri Trust; however, no opinion is expressed herein
regarding taxation of interest paid and original issue discount,
if any, on the bonds received by the Missouri Trust and distributed
to Unitholders under any other tax imposed pursuant to Missouri law,
including but not limited to the franchise tax imposed on financial
institutions pursuant to Chapter 148 of the Missouri Statutes.
(6)The Missouri State Income Tax does not permit
deduction of interest paid or incurred on indebtedness incurred or
continued to purchase or carry Units in the Trust, the interest on
which is exempt from such Tax.
(7)The Missouri Trust will not be subject to the Kansas
City, Missouri Earnings and Profits Tax and each Unitholders share
of income of the Bonds held by the Missouri Trust will not generally
be subject to the Kansas City, Missouri Earnings and Profits Tax or
the City of St. Louis Earnings Tax (except in the case of certain
Unitholders, including corporations, otherwise subject to the St.
Louis City Earnings Tax).
Units may be subject to the Missouri Estate Tax. We have not
examined any of the Bonds to be deposited and held in the Missouri
Trust or the proceedings for the issuance thereof or the opinions
of bonds counsel with respect thereto, and therefore express no
opinion as to the exemption from the Missouri State Income Tax of
interest on the Missouri Bonds if received directly by a
Unitholder.
We have also examined the income tax law of the State of Tennessee
to determine its applicability to the Tennessee IM-IT Trust
(the "Trust") being created as part of the Fund and to the holders
of Units in the Tennessee Trust who are residents of the State of
Tennessee ("Unitholders").
The assets of the Trust will consist of bonds of the State of
Tennessee, or any agency of the State of Tennessee, bonds of any
county or agency of any county of Tennessee, bonds of any
incorporated town or city or agency of any incorporated town or
city and bonds of housing authorities of Tennessee, provided such
bonds are issued for any public purpose ("Tennessee Bonds") or by
the Commonwealth of Puerto Rico or its political subdivisions (the
"Puerto Rico Bonds") (collectively, the "Bonds").
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 excludible from gross income for federal income tax purposes and
(iii) interest on the Bonds, if received directly by a Unitholder,
would be exempt from the Hall Income Tax (the "Hall Income Tax")
imposed by Section 67-2-102 of the Tennessee Code (hereinafter
"Section" refers to sections of the Tennessee Code). This opinion
does not address the taxation of persons other than full time
residents of Tennessee.
On May 8, 1992, legislation (the "Legislation") was enacted in
Tennessee which, in part, clarified that with respect to
distributions made by a unit investment trust after December 31,
1991, that a proportionate share of such distributions that relate
to interest income paid with respect to Tennessee Bonds from a unit
investment trust characterized as a grantor trust for federal income
tax purposes will retain its status as tax-exempt for purposes of
the Hall Income Tax when distributed to Unitholders. The Legislation
also provides an exemption for distributions made by a unit
investment trust or mutual fund that are attributable to "bonds or
securities of the United States government or any agency or
instrumentality thereof" ("U.S. Government, Agency or Instrumentality
Bonds"). Unlike prior law, it is important to note that the exemption
described above would not apply with respect to a proportionate share
of the distributions of income by a unit investment trust, to the
extent that less than all of the bonds held by the unit investment
trust constitute Tennessee Bonds or U.S. Government, Agency or
Instrumentality Bonds.
Further, because the Legislation only provides an exemption for
distributions that relate to interest income, distributions by the
Trust that relate to capital gains realized from the sale or
redemption of Tennessee Bonds or U.S. Government, Agency or
Instrumentality Bonds are likely to be treated as taxable dividends
for purposes of the Hall Income Tax. However, capital gains realized
directly by a Unitholder when the Unitholder sells or redeems his Unit
will not be subject to the Hall Income Tax.
Because the Legislation only provides an exemption for distributions
attributable to interest on Tennessee Bonds or U.S. Government, Agency
or Instrumentality Bonds, it must be determined whether bonds issued by
the Government of Puerto Rico qualify as U.S. Government, Agency or
Instrumentality Bonds. For Hall Income Tax purposes, there is
currently no published administrative interpretation or opinion of the
Attorney General of Tennessee dealing with the status of distributions
made by unit investment trusts such as the Tennessee Trust that are
attributable to interest paid on bonds issued by the Government of
Puerto Rico. However, in a letter dated August 14, 1992 (the
"Commissioner's Letter"), the Commissioner of the State of Tennessee
Department of Revenue advised that Puerto Rico would be an
"instrumentality" of the U.S. Government and treated bonds issued by
the Government of Puerto Rico as U.S. Government, Agency or
Instrumentality Bonds. Based on this conclusion, the Commissioner
advised that distributions from a mutual fund attributable to
investments in Puerto Rico Bonds are exempt from the Hall Income Tax.
Both the Sponsor and Chapman and Cutler, for purposes of its opinion
(as set forth below), have assumed, based on the Commissioner's Letter,
that bonds issued by the Government of Puerto Rico are U.S. Government,
Agency or Instrumentality Bonds. However, it should be noted that the
position of the Commissioner is not binding, and is subject to change,
even on a retroactive basis.
The Sponsor cannot predict whether new legislation will be enacted into
law affecting the tax status of Tennessee Trusts. The occurrence of
such an event could cause distributions of interest income from the
trust to be subject to the Hall Income Tax. Additional information
regarding such proposals is currently unavailable. Investors should
consult their own tax advisors in this regard.
Based on the foregoing, and based on review and consideration of
existing laws of the State of Tennessee as of this date, it is our
opinion, and we herewith advise you, as follows:
1.For purposes of the Hall Income Tax, the Tennessee
Excise Tax imposed by Section 67-4-806 (the "State Corporate
Income Tax"), and the Tennessee Franchise Tax imposed by
Section67-4-903, the Trust will not be subject to such taxes.
2.For Hall Income Tax purposes, a proportionate share
of such distributions from the Trust to Unitholders, to the extent
attributable to interest on the Tennessee Bonds (based on the relative
proportion of interest received or accrued attributable to Tennessee
Bonds) will be exempt from the Hall Income Tax when distributed to
such Unitholders. Based on the Commissioner's Letter, distributions
from the Trust to Unitholders, to the extent attributable to interest
on the Puerto Rico Bonds (based on the relative proportion of interest
received or accrued attributable to the Puerto Rico Bonds) will be
exempt from the Hall Income Tax when distributed to such Unitholders.
To the extent the assets of the Trust consist of assets other than the
Bonds, a proportionate share of distributions from the Tennessee Trust
attributable to the income secured by such assets would not, under
current law, be exempt from the Hall Income Tax when distributed to
Unitholders.
3.For State Corporate Income Tax purposes, Tennessee
law does not provide an exemption for interest on Tennessee Bonds and
requires that all interest excludible from Federal gross income must
be included in calculating "net earnings" subject to the State
Corporate Income Tax. We express no opinion herein regarding whether
such tax would be imposed on the earnings or distributions of the
Tennessee Trust (including interest on the Bonds or gain realized
upon the disposition of the Bonds by the Trust) attributable to
Unitholders subject to the State Corporate Income Tax. However,
based upon prior written advice from the Tennessee Department of
Revenue, earnings and distributions from the Trust (including
interest on the Tennessee Bonds or gain realized upon the disposition
of the Tennessee Bonds by the Trust) attributable to the Unitholders
should be exempt from the State Corporate Income Tax. The position
of the Tennessee Department of Revenue is not binding, and is subject
to change, even on a retroactive basis.
4.Each Unitholder will realize taxable gain or loss for
State Corporate Income Tax purposes when the Unitholder redeems or
sells his Units at a price that differs from original cost as adjusted
for accretion of any discount or amortization of any premium and other
basis adjustments, including any basis reduction that may be required
to reflect a Unitholder's share of interest, if any, accruing on the
Bonds during the interval between the Unitholder's settlement date and
the date such Bonds are delivered to the Tennessee Trust, if later.
Tax basis reduction requirements relating to amortization of bond
premium may, under some circumstances, result in Unitholders realizing
taxable gain when the Units are sold or redeemed for an amount equal
to or less than their original cost.
5.For purposes of the Tennessee Property Tax imposed by
Section 67-5-102, the Tennessee Trust will be exempt from taxation
with respect to the Bonds it holds. As for the taxation of the Units
held by the Unitholders, although intangible personal property is not
presently subject to Tennessee taxation, no opinion is expressed with
regard to potential property taxation of the Unitholders with respect
to the Units because the determination of whether property is exempt
from such tax is made on a county by county basis.
6.The Bonds and the Units held by the Unitholders will
not be subject to Tennessee sales and use taxes.
We have not examined any of the Bonds to be deposited and held in
the Tennessee Trust or the proceedings for the issuance thereof or
the opinions of bond counsel with respect thereto, and therefore
express no opinion as to the exemption from State income taxes of
interest on the Bonds if received directly by a Unitholder.
Very truly yours,
Chapman and Cutler
MJK/ch
Exhibit 3.3
Tanner Propp & Farber
99 Park Avenue
New York, New York 10016
June 23, 1994
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust,
Multi-Series 224
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 Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust, Multi-Series 224 (the
"Fund") consisting of Florida Insured Municipals Income Trust, Series 81,
Michigan Insured Municipals Income Trust, Series 117, Missouri Insured
Municipals Income Trust, Series 81, Pennsylvania Insured Municipals
Income Trust, Intermediate Laddered Maturity Series 5, Tennessee Insured
Municipals Income Trust, Series 27 and National Investors' Quality Tax-
Exempt Trust, Series 86 (in the aggregate the "Trusts" and individually
"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
Merritt Inc. (the "Depositor"), American Portfolio Evaluation Services, a
division of Van Kampen Merritt 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 33-53931) under the Securities Act of
1933, as amended (the "Prospectus"), the objectives of the Fund are the
generation of income exempt from Federal taxation and as regards each
Trust denominated with the name of a state exempt from income tax, if
any, of the denominated in the name of that Trust to the extent indicated
in the Prospectus. No opinion is expressed herein with regard to the
Federal or State tax aspects of the bonds, the Fund, and units of the
Trust (the "Units"), or any interest, gains or losses in respect thereof.
As more fully set forth in the Indenture and in the Prospectus, the
activities of the Trustee will include the following:
On the Date of Deposit, the Depositor will deposit with the Trustee
with respect to each 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 that Trust 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 include the Depositor prior to the
Date of Deposit, as more fully set forth in the Prospectus with respect
to each Trust.
We understand with respect to the obligations described in the
preceding paragraph 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 and the Registration Statement. The Units, which
are represented by certificates ("Certificates"), will be offered to the
public by the Prospectus upon the effectiveness of the Registration
Statement.
The duties of the Trustee, which are ministerial in nature, will
consist primarily of crediting the appropriate accounts with interest
received by each of the Trusts and with the proceeds from the disposition
of obligations held in each of the Trusts and the distribution of such
interest and proceeds to the Unit holders of that Trust. The Trustee
will also maintain records of the registered holders of Certificates
representing an interest in each Trust and administer the redemption of
Units by such Certificate holders and may perform certain administrative
functions with respect to an automatic investment option.
Generally, obligations held in the Fund may be removed therefrom by
the Trustee only upon redemption prior to their stated maturity, at the
direction of the Depositor in the event of an advance refunding, or upon
the occurrence of certain other specified events which adversely affect
the sound investment character of the Fund, such as default by the issuer
in payment of interest or principal on the obligation and no provision
for payment is made therefor either pursuant to the portfolio insurance
or otherwise and the Depositor fails to instruct the Trustee, within
thirty (30) days after notification, to hold such obligation.
Prior to the termination of the Fund, the Trustee is empowered to
sell Bonds, from a list furnished by the Evaluator, only for the purpose
of redeeming Units tendered to it and of paying expenses for which funds
are not available. The Trustee does not have the power to vary the
investment of any Unit holder in the Fund, and under no circumstances may
the proceeds of sale of any obligations held by the Fund be used to
purchase new obligations to be held therein.
Article 9-A of the New York Tax Law imposes a franchise tax on
business corporations, and, for purposes of that Article, Section 208(l)
defines the term "corporation" to include, among other things, "any
business conducted by a trustee or trustees wherein interest or ownership
is evidenced by certificate or other written instrument."
The Regulations promulgated under Section 208 provide as follows:
The term "trust" includes any business conducted by a
trustee or trustees in which interest or ownership is
evidenced by certificate or other written instrument.
Such a trust includes, but is not limited to, an
association commonly referred to as a "business
trust" or "Massachusetts trust." In determining
whether a trustee or trustees are conducting a
business, the form of the agreement is of
significance but is not controlling. The actual
activities of the trustee or trustees, not their
purposes and powers, will be regarded as decisive
factors in determining whether a trust is subject to
tax under Article 9-A. The mere investment of funds
and the collection of income therefrom, with
incidental replacement of securities and reinvestment
of funds, does not constitute the conduct of a
business in the case of a business conducted by the
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. 1073, 85 N.Y.S.2d 705 (1949).
An opinion of the Attorney General of the State of New York, 47 N.Y.
Atty. 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 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 a Trust.
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 E, subchapter J of Chapter 1 of
the Code.
Based on the foregoing and on the opinion of Messrs. Chapman and
Cutler, counsel for the Depositor, dated today, upon which we
specifically rely, we are of the opinion that under existing laws,
rulings and court decisions interpreting the laws of the State and City
of New York.
1. Each 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 franchise tax or the New York City
general corporation tax.
2. The income of each of the Trusts will be treated as the income
of the Unit holders under the income tax laws of the State and City of
New York.
3. Unit holders who are not residents of the State of New York are
not subject to the income tax laws 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 that 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,
Tanner Propp & Farber
MNS:ac
Exhibit 3.4
Miller, Canfield, Paddock and Stone
1400 North Woodward Avenue, Suite 100
P.O. Box 2014
Bloomfield Hills, Michigan 48303-2014
June 23, 1994
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 224
In care of
Van Kampen Merritt Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
The Bank of New York through
its Wall Street Trust division
as Trustee of the Insured Municipals
Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 224
101 Barclay Street
New York, New York 10286
Re: Insured Municipals Income Trust and Investgors
Quality Tax-Exempt Trust, Multi-Series 224
(Michigan Insured Municipals Income Trust, Series 117)
Gentlemen:
We have acted as special Michigan counsel to you as sponsors and
trustees of Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 224 (Michigan Insured Municipals Income Trust,
Series 117) referred to above (the "Fund") . You have asked that we,
acting in such capacity, render an opinion to you with respect to certain
matters relating to the issuance of the units of fractional undivided
interest in the Fund (the "Units") pursuant to a Registration Statement
on Form S-6 f iled with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the
"Registration Statement").
You have requested our opinion as to the applicability to the
Michigan Insured Municipals Income Trust (the "Michigan Trust") and the
holders of Units (the "Holders") , each of which Units represents the
ownership of a specified fractional undivided interest in the assets of
the Michigan Trust, of the Michigan Income Tax Act (M.C.L.A. SS206.1
et seq.; M.S.A. 7.557 (101) et seq.) (the "Michigan Income Tax"), the
City Income Tax Act (M.C.L.A. 141.501 et seq.; M.S.A. 5.3194 (1)
et seq.), which incorporates the "Uniform City Income Tax Ordinance,
11 the First Class School District excise tax upon income (M.C.L.A.
S380.451; M.S.A. S15.4451) (collectively, the "income tax laws"), the
Michigan Single Business Tax Act (M.C.L.A. 208.1 et seq.; M.S.A.
7.558 (1) et seq.) (the "Single Business Tax") and the Michigan Tax on
Ownership of Intangible Personal Property (M.C.L.A. 205.131 et seq.;
M.S.A. 7.556 (1) et seq.) (the "Intangibles Tax"). You have also
requested our opinion regarding the tax status of proceeds payable from
an insurance policy to be obtained by either the Fund or by the issuer of
the Bonds involved, guaranteeing prompt payment of principal and interest
on all Bonds in the portfolio of the Fund.
The Michigan Trust, its formation, its proposed method of operation,
the rights of owners of Certificates representing Units, the nature of
such ownership and the portfolio of investments of the Michigan Trust are
described and set forth in the Prospectus dated June 23, 1994, filed with
the Securities and Exchange Commission in Registration No. 33-53931. In
giving our opinion set forth hereunder, we have relied upon the facts
contained in such Registration Statement, including the fact that, at the
respective dates of issuance of the underlying Debt Obligations, opinions
of bond counsel to the respective Michigan authorities issuing such Debt
obligations were given with respect to the validity of the Debt
Obligations and the exemption of the same, and of the interest thereon,
from Michigan taxation.
Based on the above, it is our opinion that:
The Michigan Trust and the owners of Units will, in our opinion, be
treated for purposes of the Michigan income tax laws and the Single
Business Tax in substantially the same manner as they are for purposes of
the Federal income tax laws, as currently enacted. Accordingly, we
have relied upon the opinion of Messrs. Chapman and Cutler as to the
applicability of Federal income tax under the Internal Revenue Code of
1986, as currently amended, to the Michigan Trust and the Holders of
Units.
Under the income tax laws of the State of Michigan, the Michigan
Trust is not an association taxable as a corporation; the income of the
Michigan Trust will be treated as the income of the Holders of Units of
the Michigan Trust and be deemed to have been received by them when
received by the Michigan Trust. Interest on the Debt Obligations in the
Michigan Trust which is exempt from tax under the Michigan income tax
laws when received by the Michigan Trust will retain its status as tax
exempt interest to the Holders of Units of the Michigan Trust.
For purposes of the Michigan income tax laws, each Holder of Units
of the Michigan Trust will be considered to have received his pro rata
share of interest on each Debt Obligation in the Michigan Trust when it
is received by the Michigan Trust, and each Holder will have a taxable
event when the Michigan Trust disposes of a Debt Obligation (whether by
sale, exchange, redemption or payment at maturity) or when the Unit
Holder redeems or sells his Unit, to the extent the transaction
constitutes a taxable event for Federal income tax purposes. The tax
cost of each Unit to a Unit Holder will be established and allocated for
purposes of the Michigan income tax laws in the same manner as such cost
is established and allocated for Federal income tax purposes.
Under the Michigan Intangibles Tax, the Michigan Trust is not
taxable and the pro rata ownership of the underlying Debt Obligations, as
well as the interest thereon, will be exempt to the Holders of Units to
the extent the Michigan Trust consists of obligations of the State of
Michigan or its political subdivisions or municipalities, or of
obligations of possessions of the United States.
The Michigan Single Business Tax replaced the tax on corporate and
financial institution income under the Michigan Income Tax, and the
intangible tax with respect to those intangibles of persons subject to
the Single Business Tax the income from which would be considered in
computing the Single Business Tax. Persons are subject to the Single
Business Tax only if they are engaged in "business activity," as defined
in the Act. Under the Single Business Tax, both interest received by
the Michigan Trust on the underlying Debt obligations and any amount
distributed from the Michigan Trust to a Unit Holder, if not included in
determining taxable income for Federal income tax purposes, is also not
included in the adjusted tax base upon which the Single Business Tax is
computed, of either the Michigan Trust or the Unit Holders. If the
Michigan Trust or the Unit Holders have a taxable event for Federal
income tax purposes when the Michigan Trust disposes of a Debt Obligation
(whether by sale, exchange, redemption or payment at maturity) or the
Holder redeems or sells his Unit, an amount equal to any gain realized
from such taxable event which was included in the computation of taxable
income for Federal income tax purposes (plus an amount equal to any
capital gain of an individual realized in connection with such event but
excluded in computing that individual's Federal taxable income) will be
included in the tax base against which, after allocation, apportionment
and other adjustments, the Single Business Tax is computed. The tax base
will be reduced by an amount equal to any capital loss realized from such
a taxable event, whether or not the capital loss was deducted in
computing Federal taxable income in the year the loss occurred. Holders
should consult their tax advisor as to their status under Michigan law.
Any proceeds paid under an insurance policy issued to the Trustee of
the Fund, or paid under individual policies obtained by issuers of Bonds,
which, when received by the Unit Holders, represent maturing interest on
defaulted obligations held by the Trustee, will be excludable from the
Michigan income tax laws and the Single Business Tax if, and to the same
extent as, such interest would have been so excludable if paid by the
issuer of the defaulted obligations. While treatment under the Michigan
Intangibles Tax,. is not premised upon the characterization of such
proceeds under the Internal Revenue Code, the Michigan Department of
Treasury should adopt the same approach as under the Michigan income tax
laws and the Single Business tax.
Chapman and Cutler of 111 West Monroe Street, Chicago, Illinois
60603, are entitled to rely on this opinion as though it were addressed
to them.
We also advise you that, as the Tax Reform Act of 1986 eliminates
the capital gain deduction for tax years beginning after December 31,
1986, the federal adjusted gross income, the computation base for the
Michigan Income Tax, of a Unit Holder will be increased accordingly to
the extent such capital gains are realized when the Michigan Trust
disposes of a Debt Obligation or when the Unit Holder redeems or sells a
Unit, to the extent such transaction constitutes a taxable event for
Federal income tax purposes.
We hereby consent to the reference to Miller, Canfield, Paddock and
Stone under the heading "Michigan Tax Status" in the Prospectus relating
to the Michigan Trust which is part of the Registration Statement in
Registration No. 33-53931 filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and to the
filing of this opinion as an exhibit to said registration statement.
Yours very truly,
Miller, Canfield, Paddock and Stone
Exhibit 3.5
Saul, Ewing, Remick & Saul
3800 Centre Square West
Philadelpia, PA 19102
June 23, 1994
Insured Municipals Income Trust
and Investors Quality Tax-Exempt
Trust, Multi Series 211
Pennsylvania Insured Municipals
Income Trust, Series 180
c/o Chapman & Cutler
111 W. Monroe Street
Chicago, Illinois 60603
Attention: Mark J. Kneedy, Esquire
Re: Insured Municipals Income Trust and Investors Quality Tax-
Exempt
Trust, Multi Series 224, Pennsylvania Insured Municipals
Income Trust, Intermediate Laddered Maturity Series 5
Gentlemen:
We are acting as special counsel with respect to Pennsylvania tax
matters for the Insured Municipals Income Trust and Investors Quality Tax-
Exempt Trust, Multi Series 224, Pennsylvania Insured Municipals Income
Trust, Intermediate Laddered Maturity Series 5 (the "Fund") in connection
with the issuance of Units of fractional undivided interests in the Fund,
under a Trust Indenture and Agreement dated November 30, 1993 between Van
Kampen Merritt, Inc. ("Van Kampen") as Depositor, American Portfolio
Advisory Service, Inc., as Evaluator, and The Bank of New York through
its Wall Street Trust division, as Trustee. It is our understanding that
the Fund consists of a portfolio composed of interest-bearing obligations
issued by the Commonwealth of Pennsylvania or by municipalities and other
governmental authorities within the Commonwealth of Pennsylvania (the
"Bonds").
We have not examined any preliminary or final official statements of
issuers of the Bonds, nor have we examined any legal opinions, or
summaries of such opinions, relating to the validity of the Bonds in the
Fund, the exemption of interest thereon from federal income tax, the
exemption of the Bonds from personal property taxes in Pennsylvania, or
the exemption of the interest on and any gain from the sale of the Bonds
from the Pennsylvania personal income tax, given or to be given by bond
counsel to the issuer at the time such Bonds are issued. Further, we
have made no review of the proceedings relating to the issuance of the
Bonds or of the basis for such opinions. Our opinion expressed below is
based in part on the assurance of Van Kampen that the Bonds being
deposited in the Fund have been issued only by the Commonwealth of
Pennsylvania or by or on behalf of municipalities or other governmental
agencies within the Commonwealth of Pennsylvania.
We have examined certified copies, or copies otherwise identified to
our satisfaction, of such other documents as we have deemed necessary or
appropriate for the purpose of rendering this opinion, including those
related to previous transactions in which Van Kampen was the Depositor
which we have been assured by Van Kampen are substantially the same as
those relating to the Fund.
Based upon the foregoing, we are of the opinion that:
(1) Units evidencing fractional undivided interests in the
Fund, to the extent represented by obligations issued by the
Commonwealth of Pennsylvania, any public authority, commission,
board or other agency created by the Commonwealth of Pennsylvania,
any political subdivision of the Commonwealth of Pennsylvania or any
public authority created by any such political subdivision, are not
taxable under any of the personal property taxes presently in effect
in Pennsylvania;
(2) Distributions of interest income to Unitholders that would
not be taxable if received directly by a Pennsylvania resident are
not subject to personal income tax under the Pennsylvania Tax Reform
Code of 1971; nor will such interest be taxable under Philadelphia
School District Investment Income Tax imposed on Philadelphia
resident individuals;
(3) A Unitholder may have a taxable event under the
Pennsylvania state and local income tax referred to in the preceding
paragraph upon the redemption or sale of his Units but not upon the
disposition of any of the Bonds in the Fund to which the holder's
Units relate;
(4) Units are subject to Pennsylvania inheritance and estate
taxes;
(5) A Unitholder which is a corporation may have a taxable
event under the Pennsylvania Corporate Net Income Tax upon the
redemption or sale of its Units. Interest income distributed to
Unitholders which are corporations is not subject to Pennsylvania
Corporate Net Income Tax or Mutual Thrift Institutions Tax.
However, banks, title insurance companies and trust companies may be
required to take the value of Units into account in determining the
taxable value of their shares subject to Shares Tax;
(6) Any proceeds paid under insurance policies issued to the
Trustee or obtained by issuers or the underwriters of the Bonds, the
Sponsor or others which represent interest on defaulted obligations
held by the Trustee will be excludable from Pennsylvania 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; and
(7) The Fund is not taxable as a corporation under
Pennsylvania tax laws applicable to corporations.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (SEC No. 33-53931) relating to the Units referred
to above and to the use of our name and to the reference to our firm in
the said Registration Statement and in the related Prospectus.
Very truly yours,
Saul, Ewing, Remick & Saul
SERS:RTF/jsr
Exhibit 4.1
Interactive Data
14 Wall Street
New York, New York 10005
June 20, 1994
Van Kampen Merritt, Inc.
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Re: Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 224 (A Unit Investment Trust)
Registered Under the Securities Act of 1933, File No. 33-53931
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
Services, Inc., as the Evaluator, and to the use of the Obligations
prepared by us which are referred to in such Prospectus and Statement.
You are authorized to file copies of this letter with the Securities
and Exchange Commission.
Very truly yours,
James Perry
Vice President
Exhibit 4.2
Standard & Poor's Corporation
25 Broadway
New York, New York 10004-1064
Mr. Mark Kneedy
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Re:Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 224*
Pursuant to your request for a Standard & Poor's rating on the units
of the above-captioned trust, SEC #33-53931 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.
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,
Vincent S. Orgo
*Consisting of:
Florida Insured Municipals Income Trust, Series 81
Michigan Insured Municipals Income Trust, Series 117
Missouri Insured Municipals Income Trust, Series 81
Pennsylvania Insured Municipals Income Trust , Intermediate Laddered
Maturity Series 5
Tennessee Insured Municipals Income Trust , Series 27
Investors Quality Tax-Exempt Trust, Series 86
Exhibit 4.3
Independent Certified Public Accountants' Consent
We have issued our report dated June 23, 1994 on the statements of
condition and related bond portfolios of Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 223 (Florida IM-IT,
Michigan IM-IT, Missouri IM-IT, Pennsylvania IM-IT Intermediate Laddered
Maturity, Tennessee IM-IT and National Quality Trusts) as of June 23,
1994 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."
Grant Thornton
Chicago, Illinois
June 23, 1994
