File No. 33-
CIK #896915
Securities And Exchange Commission
Washington, D.C. 20549-1004
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 257
B. Name of Depositor: Van Kampen American Capital Distributors, 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:
Van Kampen American Capital Distributors, Inc. Chapman and Cutler
Attn: Don G. Powell, Chairman Attn: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
E. Title and amount of securities being registered: 1,000* Units
F. Proposed maximum offering price to the public of the securities being
registered: ($1,020 per Unit**): $1,020,000
G. Amount of filing fee, computed at one twenty-ninth of 1 percent of the
proposed maximum aggregate offering price to the public: $351.72
H. Approximate date of proposed sale to the public:
as soon as practicable after the Effective Date
of the Registration Statement
________________________________________________________________________
* 500 Units registered for primary distribution.
500 Units registered for resale by Depositor of Units previously
sold in primary distribution
**Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 257
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
Preliminary Prospectus Dated June 30, 1995
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
1,000 Units Multi-Series 257
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is
hereby used as a preliminary Prospectus for the above stated Series. The
narrative information and structure of the attached final Prospectus will
be substantially the same as that of the final Prospectus for this
Series. Information with respect to pricing, the number of Units, dates
and summary information regarding the characteristics of securities to be
deposited in this Series is not now available and will be different since
each Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be considered
as being included for informational purposes only. Ratings of the
securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated
Current Return for this Series will depend on the interest rates and
offering prices of the securities in this Series and may vary materially
from that of the previous Series.
A registration statement relating to the units of this Series will
be filed with the Securities and Exchange Commission but has not yet
become effective. Information contained herein is subject to completion
or amendment. Such Units may not be sold nor may offer 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 the Units in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
state.
Preliminary Prospectus Dated June 15, 1995
Subject To Completion
June 15, 1995
Van Kampen American Capital
Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 254
IM-IT 351
California IM-IT 141
Kentucky Quality 55
California IM-IT Intermediate
Laddered Maturity Series 21
Texas IM-IT 40
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 five underlying separate unit investment trusts designated as Insured
Municipals Income Trust, Series 351 (the "IM-IT"), California IM-IT
Intermediate Laddered Maturity Series 21 (the "California IM-IT Intermediate
Laddered Maturity Trust"), California Insured Municipals Income Trust, Series
141 (the "California IM-IT Trust"), Texas Insured Municipals Income Trust,
Series 40 (the "Texas IM-IT Trust") and Kentucky Investors' Quality Tax-Exempt
Trust, Series 55 (the "Kentucky Quality Trust"). The various trusts are
collectively referred to herein as the "Trusts". The California IM-IT
Intermediate Laddered Maturity, California IM-IT, Texas IM-IT and Kentucky
Quality Trusts are sometimes collectively referred to herein as the "State
Trusts", while the IM-IT, California IM-IT Intermediate Laddered Maturity,
California IM-IT and Texas IM-IT Trusts are sometimes collectively referred to
herein as the "Insured Trusts", the California IM-IT Intermediate Laddered
Maturity is sometimes referred to herein as the "State Intermediate Laddered
Maturity Trust"and the Kentucky 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 24. 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, a Division
of The McGraw-Hill Companies. Standard & Poor's 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
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 accrued interest, if any. Sales charges for the Trusts in the
initial market, expressed both as a percentage of the Public Offering Price
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 (except for the IM-IT
as of 8:00 A.M. Central Time on 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.
Estimated Current Return and Estimated Long-Term Return. The annual Estimated
Current Returns and Estimated Long-Term Returns to Unitholders as of the close
of business on the day before the Date of Deposit (except for the IM-IT as of
8:00 A.M. Central Time on the Date of Deposit) under the monthly and
semi-annual distribution plans 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. Units
of the Trust are not deposits or obligations of, or guaranteed or endorsed by,
any bank and are not federally insured or otherwise protected by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency
and involve investment risk, including the possible loss of principal.
Distribution Options. Purchasers of Units who desire to receive distributions
on a monthly or semi-annual basis may elect to do so at the time of settlement
during the initial public offering period. See "Unitholder
Explanations--Settlement of Bonds in the Trusts--Change of Distribution
Option". The plan of distribution selected by such purchasers will remain in
effect until changed. Those indicating no choice will be deemed to have chosen
the monthly distribution plan. Record dates for monthly distributions will be
the first day of each month and record dates for semi-annual distributions
will be the first day of the months indicated under "Per Unit Information"for
the applicable Trust. 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
American Capital Distributors, Inc., intends to, and certain of the other
Underwriters may, maintain a secondary market for the Units at prices based
upon the aggregate bid prices of the Securities in the respective Trusts plus
interest accrued to the date of settlement; however, during the initial
offering period such prices will be based upon the aggregate offering prices
of the Securities plus interest accrued to the date of settlement. If such a
market is not maintained and no other over-the-counter market is available, a
Unitholder will be able to dispose of his Units only through redemption at
prices based upon the bid prices of the underlying Securities plus interest
accrued to the date of settlement (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".
Risk Factors. An investment in the Trusts should be made with an understanding
of the risks associated therewith, including, among other factors, the
inability of the issuer or an insurer to pay the principal of or interest on a
bond when due, volatile interest rates, early call provisions, and changes to
the tax status of the Bonds. See "Unitholder Explanations--Settlement of Bonds
in the Trusts--Risk Factors".
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND INVESTORS' QUALITY TAX-EXEMPT TRUST,
Multi-Series 254
Summary of Essential Financial Information
At the Close of Business on the day before the Date of Deposit:
June 14, 1995
(except for the IM-IT as of 8:00 A.M. Central Time
on the Date of Deposit: June 15, 1995)
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
California
IM-IT
Intermediate
Laddered California
GENERAL INFORMATION IM-IT Maturity Trust IM-IT Trust
<S> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>............................... $ 9,055,000 $ 3,000,000 $ 2,980,000
Number of Units........................................................................ 9,033 3,000 3,049
Fractional Undivided Interest in the Trust per Unit ................................... 1/9,033 1/3,000 1/3,049
Principal Amount (Par Value) of Securities per Unit <F2>............................... $ 1,002.44 $ 1,000.00 $ 977.37
Public Offering Price: ................................................................
Aggregate Offering Price of Securities in Portfolio................................... $ 8,590,423 $ 2,984,735 $ 2,899,609
Aggregate Offering Price of Securities per Unit....................................... $ 951.00 $ 994.91 $ 951.00
Sales Charge <F3>..................................................................... $ 49.00 $ 30.77 $ 49.00
Public Offering Price per Unit <F4>................................................... $ 1,000.00 $ 1,025.68 $ 1,000.00
Redemption Price per Unit <F4>........................................................ $ 943.41 $ 987.39 $ 943.81
Secondary Market Repurchase Price per Unit <F4>....................................... $ 951.00 $ 994.91 $ 951.00
Excess of Public Offering Price per Unit Over Redemption Price per Unit................ $ 56.59 $ 38.29 $ 56.19
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit... $ 7.59 $ 7.52 $ 7.19
Minimum Value of the Trust under which Trust Agreement may be terminated............... $ 1,811,000 $ 600,000 $ 596,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution ..........$1.00 per Unit
First Settlement Date....................June 20, 1995
Evaluator's Annual Supervisory Fee.......Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee <F5>...$0.30 per $1,000 principal amount of Bonds
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>Because certain of the Securities in certain Trusts may from time to time
under certain circumstances be sold or redeemed or will be called or mature in
accordance with their terms (including the call or sale of zero coupon bonds
at prices less than par value), there is no guarantee that the value of each
Unit at the respective Trusts' termination will be equal to the Principal
Amount (Par Value) of Securities per Unit stated above.
<F2>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.
<F3>Sales charges for the Trusts, expressed as a percentage of the Public Offering
Price per Unit and in parenthesis as a percentage of the aggregate offering
price of the Securities, are as follows: an IM-IT or 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%).
<F4>Anyone ordering Units for settlement after the First Settlement Date will pay
accrued interest from such date to the date of settlement (normally three
business days after order) less distributions from the Interest Account
subsequent to the First Settlement Date. For purchases settling on the First
Settlement Date, no accrued interest will be added to the Public Offering
Price. After the initial offering period, the Sponsor's Repurchase Price per
Unit will be determined as described under the caption "Public
Offering--Market for Units."
<F5>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>
<TABLE>
INSURED MUNICIPALS INCOME TRUST
AND INVESTORS' QUALITY TAX-EXEMPT TRUST,
Multi-Series 254
Summary of Essential Financial Information
At the Close of Business on the day before the Date of Deposit:
June 14, 1995
(except for the IM-IT as of 8:00 A.M. Central Time
on the Date of Deposit: June 15, 1995)
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of a subsidiary of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
Texas Kentucky
GENERAL INFORMATION IM-IT Trust Quality Trust
<S> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>............................... $ 3,000,000 $ 3,105,000
Number of Units........................................................................ 3,071 3,169
Fractional Undivided Interest in the Trust per Unit.................................... 1/3,071 1/3,169
Principal Amount (Par Value) of Securities per Unit <F2>............................... $ 976.88 $ 979.80
Public Offering Price: ................................................................
Aggregate Offering Price of Securities in Portfolio................................... $ 2,920,543 $ 3,013,731
Aggregate Offering Price of Securities per Unit....................................... $ 951.01 $ 951.00
Sales Charge <F3>..................................................................... $ 48.99 $ 49.00
Public Offering Price per Unit <F4>................................................... $ 1,000.00 $ 1,000.00
Redemption Price per Unit <F4>......................................................... $ 943.44 $ 943.78
Secondary Market Repurchase Price per Unit <F4>........................................ $ 951.01 $ 951.00
Excess of Public Offering Price per Unit Over Redemption Price per Unit................ $ 56.56 $ 56.22
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit... $ 7.57 $ 7.22
Minimum Value of the Trust under which Trust Agreement may be terminated............... $ 600,000 $ 621,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution...........$1.00 per Unit
First Settlement Date....................June 20, 1995
Evaluator's Annual Supervisory Fee.......Maximum of $0.25 per Unit
Evaluator's Annual Evaluation Fee <F5>...$0.30 per $1,000 principal amount of Bonds
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>Because certain of the Securities in certain Trusts may from time to time
under certain circumstances be sold or redeemed or will be called or mature in
accordance with their terms (including the call or sale of zero coupon bonds
at prices less than par value), there is no guarantee that the value of each
Unit at the respective Trusts' termination will be equal to the Principal
Amount (Par Value) of Securities per Unit stated above.
<F2>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.
<F3>Sales charges for the Trusts, expressed as a percentage of the Public Offering
Price per Unit and in parenthesis as a percentage of the aggregate offering
price of the Securities, are as follows: an IM-IT or 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%).
<F4>Anyone ordering Units for settlement after the First Settlement Date will pay
accrued interest from such date to the date of settlement (normally three
business days after order) less distributions from the Interest Account
subsequent to the First Settlement Date. For purchases settling on the First
Settlement Date, no accrued interest will be added to the Public Offering
Price. After the initial offering period, the Sponsor's Repurchase Price per
Unit will be determined as described under the caption "Public
Offering--Market for Units."
<F5>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>
SETTLEMENT OF BONDS IN THE TRUSTS
The Fund. Insured Municipals Income Trust and Investors' Quality Tax-Exempt
Trust, Multi-Series 254 (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 American Capital
Distributors, Inc., as Sponsor, American Portfolio Evaluation Services, a
division of Van Kampen American Capital Investment Advisory Corp., as
Evaluator, and The Bank of New York, as Trustee.
The Fund consists of five 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 Illinois, Indiana, Washington and Virginia may purchase units of
the IM-IT 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 IM-IT or 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 IM-IT or 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.
Generally 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.
The portfolios of the Trusts may consist of bonds that were acquired at a
market discount from par value at maturity. The coupon interest rates on the
discount bonds at the time they were purchased and deposited in such Trust
were lower than the current market interest rates for newly issued bonds of
comparable rating and type. If such interest rates for newly issued comparable
bonds increase, the market discount of previously issued bonds will become
greater, and if such interest rates for newly issued comparable bonds decline,
the market discount of previously issued bonds will be reduced, other things
being equal. Investors should also note that the value of bonds purchased at a
market discount will increase in value faster than bonds purchased at a market
premium if interest rates decrease. Conversely, if interest rates increase,
the value of bonds purchased at a market discount will decrease faster than
bonds purchased at a market premium. In addition, if interest rates rise, the
prepayment risk of higher yielding, premium bonds and the prepayment benefit
for lower yielding, discount bonds will be reduced. A bond purchased at a
market discount and held to maturity will have a larger portion of its total
return in the form of taxable income and capital gain and less in the form of
tax-exempt interest income than a comparable bond newly issued at current
market rates. See "Other Matters--Federal Tax Status."Market discount
attributable to interest changes does not indicate a lack of market confidence
in the issue. Neither the Sponsor nor the Trustee shall be liable in any way
for any default, failure or defect in any of the Bonds.
Certain of the Bonds 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 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) MBIA
Insurance 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 "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, a
Division of The McGraw-Hill Companies ("Standard & Poor's") rating of "BBB-"or
at least the Moody's Investors Service, Inc. rating of "Baa", which in brief
represent the lowest ratings for securities of investment grade (see "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. 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 rating of the
Securities was in no case less than "BBB-"in the case of the Insured Trustsand
"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 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.
Risk Factors. 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 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 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 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 an IM-IT or 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 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
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 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 on a monthly basis, unless the Unitholder elects to
receive them semi-annually. 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.
The first distribution of funds from the Principal Account, if any, will be
made on the first semi-annual distribution date to Unitholders of record on
the first semi-annual record date, and thereafter such distributions will be
made on a semi-annual basis, except under certain special circumstances (see
"Unitholder Explanations--Public Offering -Distributions of Interest and
Principal").
Change of Distribution Option. The plan of distribution selected by a
Unitholder will remain in effect until changed. Unitholders purchasing Units
in the secondary market will initially receive distributions in accordance
with the election of the prior owner. Unitholders may change the plan of
distribution in which they are participating. For convenience of Unitholders,
the Trustee will furnish a card for this purpose; cards may also be obtained
upon request from the Trustee. Unitholders desiring to change their plan of
distribution may so indicate on the card and return it together with their
certificate and such other documentation that the Trustee may then require, to
the Trustee. Certificates should only be sent by registered or certified mail
to minimize the possibility of their being lost or stolen. If the card and
certificate are properly presented to the Trustee, the change will become
effective as of the opening of business on the first day after the next
succeeding semi-annual record date and will be effective, unless further
changed, for all subsequent distributions.
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.
Certificates for Units will bear appropriate notations on their face
indicating which plan of distribution has been selected in respect thereof. If
a change in the plan of distribution is made, the existing certificate must be
surrendered to the Trustee and a new certificate will be issued, at no charge
to the Unitholder, to reflect the currently effective plan of distribution.
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.
ESTIMATED CURRENT RETURNS AND ESTIMATED LONG-TERM RETURNS
As of the close of business on the day before the Date of Deposit (except for
the IM-IT as of 8:00 A.M. Central Time on the Date of Deposit) the Estimated
Current Returns and the Estimated Long-Term Returns, under the monthly and
semi-annual distribution plans, 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; 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 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, 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 20, 1995. The first monthly
record date for each Trust (August 1, 1995) is 41 days from such date. The
daily rates of estimated net annual interest income per Unit accrued on a
monthly basis are $.14916, $.12004, $.14865, $.14496 and $.14482 for the
IM-IT, California IM-IT Intermediate Laddered Maturity, California IM-IT,
Texas IM-IT and Kentucky Quality Trusts, respectively. This amounts to $6.12,
$4.92, $6.09, $5.94 and $5.94 for the IM-IT, California IM-IT Intermediate
Laddered Maturity, California IM-IT, Texas IM-IT and Kentucky Quality Trusts,
respectively.
Utilizing the preceding information assuming the monthly payment option, the
following procedure illustrates the calculation of first year estimated net
annual interest income per Unit for the California IM-IT Trust:
The California IM-IT Trust accrues
$6.09 to the first record date plus
$44.60 which is 10 normal distributions at $4.46, and finally adding
$2.82 which has accrued from June 1, 1996 until June 20, 1996 which completes
the 360 day cycle (19 days times the daily factor)
Total $53.51 interest earned / $1,000.00 (Date of Deposit Public Offering
Price) = 5.35% Estimated Current Return as of the Date of Deposit.
ACCRUED INTEREST
Accrued Interest. Accrued interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although the Trust accrues
such interest daily. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the Trust the amount, if any, of accrued interest
paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee will advance the amount of accrued
interest to the Sponsor as the Unitholder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only accrued interest from the First
Settlement Date to the date of settlement, less any distributions from the
Interest Account subsequent to the First Settlement Date. See "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 accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest Account
for distributions to Unitholders and since such Account is
non-interest-bearing to Unitholders, the Trustee benefits thereby.
PUBLIC OFFERING
General. Units are offered at the Public Offering Price. 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 (5.152% of the aggregate offering price of the Securities) for
an IM-IT or a State Trust (other than a State Intermediate Laddered Maturity
Trust) , 4.3% of the Public Offering Price (4.493% of the aggregate offering
price of the Securities) for an IM-IT Limited Maturity Trust, 3.9% of the
Public Offering Price (4.058% of the aggregate offering price of the
Securities) for an IM-IT Intermediate Trust and 3.0% of the Public Offering
Price (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 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 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, 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
Aggregate Number of IM-IT, State
Units Purchased (other than
a State
Intermediate
Laddered
Maturity
Trust) and
National
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 American Capital-sponsored unit investment trusts which
are being offered in the initial offering period (a) on any one day (the
"Initial Purchase Date") or (b) on any day subsequent to the Initial Purchase
Date, if (1) the units purchased are of a unit investment trust purchased on
the Initial Purchase Date, and (2) the person purchasing the units purchased a
sufficient amount of units on the Initial Purchase Date to qualify for a
reduced sales charge on such date. In the event units of more than one trust
are purchased on the Initial Purchase Date, the aggregate dollar amount of
such purchases will be used to determine whether purchasers are eligible for a
reduced sales charge. Such aggregate dollar amount will be divided by the
public offering price per unit (on the day preceding the date of purchase) of
each respective trust purchased to determine the total number of units which
such amount could have purchased of each individual trust. Purchasers must
then consult the applicable trust's prospectus to determine whether the total
number of units which could have been purchased of a specific trust would have
qualified for a reduced sales charge and, if so qualified, the amount of such
reduction. Assuming a purchaser qualifies for a sales charge reduction or
reductions, to determine the applicable sales charge reduction or reductions
it is necessary to accumulate all purchases made on the Initial Purchase Date
and all purchases made in accordance with (b) above. Units purchased in the
name of the spouse of a purchaser or in the name of a child of such purchaser
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 American Capital Distributors, 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.
Units may be purchased in the primary or secondary market at the Public
Offering Price (for purchases which do not qualify for a sales charge
reduction for quantity purchases) less the concession the Sponsor typically
allows to brokers and dealers for purchases (see "Trust
Administration--General--Unit Distribution") by (1) investors who purchase
Units through registered investment advisers, certified financial planners and
registered broker-dealers who in each case either charge periodic fees for
financial planning, investment advisory or asset management services, or
provide such services in connection with the establishment of an investment
account for which a comprehensive "wrap fee"charge is imposed, (2) bank trust
departments investing funds over which they exercise exclusive discretionary
investment authority and that are held in a fiduciary, agency, custodial or
similar capacity, (3) any person who for at least 90 days, has been an
officer, director or bona fide employee of any firm offering Units for sale to
investors or their immediate family members (as described above) and (4)
officers and directors of bank holding companies that make Units available
directly or through subsidiaries or bank affiliates. Notwithstanding anything
to the contrary in this Prospectus, such investors, bank trust departments,
firm employees and bank holding company officers and directors who purchase
Units through this program will not receive sales charge reductions for
quantity purchases.
Offering Price. 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 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.
Such price determination as of the close of business on the day before the
Date of Deposit (except for the IM-IT as of 8:00 A.M. Central Time on 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 (except for the
IM-IT as of 8:00 A.M. Central Time on 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 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. 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) 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 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 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 three 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 three 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
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 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 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 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 that time under the
plan of distributions chosen. 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 semi-annual 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.
However, should the amount available for distribution in the Principal Account
equal or exceed $10.00 per Unit, the Trustee will make a special distribution
from the Principal Account on the next succeeding monthly distribution date to
holders of record on the related monthly record date.
The distribution to the Unitholders 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 attributable as is consistent with the distribution plan
chosen. 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 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, under the
applicable plan of distribution.
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 American Capital Distributors, 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
American Capital Distributors, 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 except if the participant selects the Van Kampen Merritt
Money Market Fund, the Van Kampen Merritt Tax Free Money Fund, the Van Kampen
Merritt Florida Insured Tax Free Income Fund, the Van Kampen Merritt New
Jersey Tax Free Income Fund, or the Van Kampen Merritt New York Tax Free
Income Fund, in which case no sales charge applies. A minimum of one-half of
such sales charge would be paid to Van Kampen American Capital Distributors,
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 third business day following such
tender the Unitholder will be entitled to receive in cash an amount for each
Unit equal to the Redemption Price per Unit next computed after receipt by the
Trustee of such tender of Units. The "date of tender"is deemed to be the date
on which Units are received by the Trustee, except that as regards Units
received after 4:00 P.M. Eastern time on days of trading on the New York Stock
Exchange, the date of tender is the next day on which such Exchange is open
for trading and such Units will be deemed to have been tendered to the Trustee
on such day for redemption at the Redemption Price computed on that day.
Under regulations issued by the Internal Revenue Service, the Trustee will be
required to withhold a specified percentage of the principal amount of a Unit
redemption if the Trustee has not been furnished the redeeming Unitholder's
tax identification number in the manner required by such regulations. Any
amount so withheld is transmitted to the Internal Revenue Service and may be
recovered by the Unitholder only when filing a return. Under normal
circumstances the Trustee obtains the Unitholder's tax identification number
from the selling broker. However, at any time a Unitholder elects to tender
Units for redemption, such Unitholder should provide a tax identification
number to the Trustee in order to avoid this possible "back-up withholding"in
the event the Trustee has not been previously provided such number.
Accrued interest paid on redemption shall be withdrawn from the Interest
Account 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 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 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) interest accrued
thereon, less (a) amounts representing taxes or other governmental charges
payable out of such Trust and (b) the accrued expenses of such Trust. The
Evaluator may determine the value of the 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, 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.
Each distribution statement of a Trust will reflect pertinent information in
respect of the other plan of distribution so that Unitholders may be informed
regarding the results of such other plan of distribution.
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
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 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 $1,988,000,000 (unaudited) and statutory capital of
approximately $1,148,000,000 (unaudited) as of March 31, 1994. 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 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.
MBIA Insurance Corporation ("MBIA") is the principal operating subsidiary of
MBIA Inc., a New York Stock Exchange listed company. MBIA Inc. is not
obligated to pay the debts of or claims against MBIA. MBIA is 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, the Commonwealth of the Northern Mariana
Islands, the Commonwealth of Puerto Rico, the Virgin Islands of the United
States and the Territory of Guam. As of March 31, 1995 MBIA had admitted
assets of $3.5 billion (unaudited), total liabilities of $2.4 billion
(unaudited), and total capital and surplus of $1.1 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. As of December 31, 1994, the
Insurer had admitted assets of $3.4 billion (audited), total liabilities of
$2.3 billion (audited), and total capital and surplus of $1.1 billion
(audited) 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 of its net insured risks, as well as its unearned
premium and contingency reserves, to MBIA and MBIA has reinsured BIG's net
outstanding exposure.
Moody's Investors Service, Inc. rates all bond issues insured by MBIA "Aaa"and
short term loans "MIG 1,"both designated to be of the highest quality.
Standard & Poor's rates all new issues insured by MBIA "AAA"Prime Grade.
The Moody's Investors Service, Inc. rating of MBIA should be evaluated
independently of the Standard & Poor's rating of MBIA. No application has been
made to any other rating agency in order to obtain additional ratings on the
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 March 31,
1995, the total capital and surplus of Financial Guaranty was approximately
$962,700,000. 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 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, 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 all 50 states, the
District of Columbia, the Commonwealth of Puerto Rico, Guam and the U.S.
Virgin Islands. 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. Therefore, if Capital Guaranty insures an
issue with a stand alone rating of less than "Triple-A,"such issue would be
"upgraded"to "Aaa/AAA"by virtue of Capital Guaranty's Insurance.
As of December 31, 1994, Capital Guaranty had more than $15.7 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$196,529,000, and the total admitted assets were $303,723,316 as reported to
the Insurance Department of the State of Maryland as of December 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 U.S. and international capital markets. CapMAC also provides financial
guarantee reinsurance for structured asset-backed, corporate, municipal and
other financial obligations written by other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa"by Moody's Investors Service,
Inc., "AAA"by Standard & Poor's, "AAA"by Duff & Phelps Credit Rating Co. (and
"AAA"by Nippon Investors Service Inc. Such ratings reflect only the views of
the respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such
rating agencies.
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 policy 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. Such insurance
laws regulate, among other things, the amount of net exposure per risk that
CapMAC may retain, capital transfers, dividends, investment of assets, changes
in control, transactions with affiliates and consolidations and acquisitions.
CapMAC is subject to periodic regulatory examinations by the same regulatory
authorities.
CapMAC's obligations under the Policy(s) may be reinsured. Such reinsurance
does not relieve CapMAC of any of its obligations under the Policy(s).
THE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY INSURANCE SECURITY FUND
SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
As at December 31, 1994 and 1993, CapMAC had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $170 million and $168 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 policies issued by CapMAC.
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 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 approval of
the offering of the Units by Standard & Poor's or as a guarantee of the market
value of such Trust or of the Units.
An objective of portfolio insurance obtained by an Insured Trust is to obtain
a higher yield on the portfolio of such Trust than would be available if all
the Securities in such portfolio had Standard & Poor's "AAA"rating and yet at
the same time to have the protection of insurance of prompt payment of
interest and principal, when due, on the Bonds. There is, of course, no
certainty that this result will be achieved. Preinsured Bonds in an Insured
Trust (all of which are rated "AAA"by Standard & Poor's) may or may not have a
higher yield than uninsured bonds rated "AAA"by Standard & Poor's. In
selecting such Bonds for an Insured Trust, the Sponsor has applied the
criteria hereinbefore described.
In the event of nonpayment of interest or principal, when due, in respect of a
Bond, AMBAC Indemnity shall make such payment not later than 30 days and
Financial Guaranty shall make such payment within one business day after the
respective insurer has been notified that such nonpayment has occurred or is
threatened (but not earlier than the date such payment is due). The insurer,
as regards any payment it may make, will succeed to the rights of the Trustee
in respect thereof. All policies issued by the Portfolio Insurers and the
Preinsured Bond Insurers are substantially identical insofar as obligations to
an Insured Trust are concerned.
The Internal Revenue Service has issued a letter ruling which holds in effect
that insurance proceeds representing maturing interest on defaulted municipal
obligations paid to holders of insured bonds, under policy provisions
substantially identical to the policies described herein, will be excludable
from Federal gross income under Section 103(a)(1) of the Internal Revenue Code
to the same extent as if such payments were made by the issuer of the
municipal obligations. Holders of Units in an Insured Trust should discuss
with their tax advisers the degree of reliance which they may place on this
letter ruling. However, Chapman and Cutler, counsel for the Sponsor, has given
an opinion to the effect such payment of proceeds would be excludable from
Federal gross income 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.
The Bonds in the Insured Trusts are insured as follows:
<TABLE>
<CAPTION>
Bonds insured Bonds insured
under AMBAC under Financial
Trust Indemnity Guaranty Preinsured Total
portfolio insurance portfolio insurance Bonds
<S> <C> <C> <C> <C>
IM-IT............................................. -- -- 100% 100%
California IM-IT Intermediate Laddered Maturity... -- -- 100% 100%
California IM-IT.................................. -- -- 100% 100%
Texas IM-IT....................................... -- -- 100% 100%
</TABLE>
The breakdown of the Preinsured Bonds is as follows: IM-IT--AMBAC Indemnity
6%, Capital Guaranty 11%, Financial Guaranty 1%, MBIA 41%, FSA 33% and CapMAC
8%; California IM-IT Intermediate Laddered Maturity Trust--AMBAC Indemnity
30%, Capital Guaranty 10%, Financial Guaranty 28% and MBIA 32%; California
IM-IT Trust--AMBAC Indemnity 14%, Capital Guaranty 17%, Financial Guaranty
20%, MBIA 32% and CapMAC 17%; Texas IM-IT Trust-- AMBAC Indemnity 19%,
Financial Guaranty 23% and MBIA 58%.
IM-IT
General. The IM-IT consists of 14 issues of Securities. One of the Bonds in
the 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 issuing power to levy taxes. These issues are located in 10 states or
territories, divided by purpose of issues (and percentage of principal amount
to total IM-IT) as follows: Water and Sewer, 4 (29%); Health Care, 2 (22%);
Higher Education, 2 (12%); General Obligations, 1 (11%); Retail Electric/Gas,
1 (11%); General Purpose, 1 (8%); Public Building, 1 (4%); Transportation, 1
(2%) and Tax District, 1 (1%). No Bond issue has received a provisional
rating. The dollar weighted average maturity of the Bonds in the Trust is 27
years.
Tax Status. For a discussion of the Federal tax status of income earned on
IM-IT Trust Units, see "Other Matters--Federal Tax Status".
<TABLE>
<CAPTION>
Semi-
<S> <C> <C>
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 55.54 $ 55.54
Less: Estimated Annual Expense per Unit <F2>.............................. $ 1.84 $ 1.41
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 53.70 $ 54.13
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 53.70 $ 54.13
Divided by 12 and 2, respectively......................................... $ 4.48 $ 27.07
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14916 $ .15035
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.37% 5.41%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.43% 5.47%
Estimated Initial Monthly Distribution (August 1995)....................... $ 6.12
Estimated Initial Semi-annual Distribution (December 1995)................. $ 24.20
Estimated Normal Distribution per Unit <F5>................................ $ 4.48 $ 27.07
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee <F1>...... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the IM-IT
Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... FIRST day of the month as follows: monthly--each month; semi-annual--June and December
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--June
and December commencing August 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.31
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 $55.85. Estimated Annual Expense per Unit (excluding
insurance) will be increased to $2.15 and $1.72 under the monthly and
semi-annual distribution plans, respectively; and Estimated Net Annual
Interest Income per Unit will remain the same as shown. See "Estimated Current
Returns and Estimated Long-Term Returns."
<F2>Excluding insurance costs. The Estimated Annual Expenses are expected to
fluctuate periodically (see "Trust Administration--Fund Administration and
Expenses--Miscellaneous Expenses").
<F3>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F4>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the 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 the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<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".
</TABLE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST
SERIES 351 (IM-IT AND QUALITY MULTI-SERIES 254)
PORTFOLIO As of June 15, 1995
<CAPTION>
Name of Issuer, Title, Interest Rate andMaturity Offering
Aggregate Date of either Bonds Deposited orBonds Redemption Price To
Principal<F1> Contracted for<F1><F5> Rating<F2> Feature<F3> IM-IT<F4>
<S> <C> <C> <C> <C> <C>
$ 330,000 Harris County Water Control and Improvement
District No. 110, Harris County, Texas,
Waterworks and Sewer System Combination
Unlimited Tax and Revenue Bonds, Series 1995
(AMBAC Indemnity Insured)** #5.375% Due
3/1/2019......................................... YAAA 2005 @ 100 $ 313,675
175,000 Texas Turnpike Authority, Dallas North Tollway
Revenue Refunding Bonds, Series 1993 (AMBAC 2004 @ 102
Indemnity Insured) #5.00% Due 1/1/2020......... AAA 2015 @ 100 S.F. 156,536
750,000 Pomona Public Financing Authority, California,
1993 Refunding Revenue Bonds, Series L
(Southwest Pomona Redevelopment Project) CapMAC 2004 @ 102
Insured #5.75% Due 2/1/2020.................... AAA 2014 @ 100 S.F. 728,797
1,000,000 Santa Margarita/Dana Point Authority, Orange
County, California, Revenue Bonds, Series B
(1994 Improvement Districts Nos. 3, 3A, 4 and 4A
General Obligation Bond Refinancing) MBIA 2004 @ 102
Insured #5.75% Due 8/1/2020.................... AAA 2015 @ 100 S.F. 976,660
340,000 Bellevue Convention Center Authority, King
County, Washington, Special Obligation Revenue
and Refunding Bonds, Series 1994 (MBIA Insured)
#0.00% Due 2/1/2021............................. AAA 71,502 <F6>
110,000 Metropolitan Pier and Exposition Authority
(Illinois) McCormick Place Expansion Project,
Revenue Bonds, Series 1992A (FGIC Insured)
#0.00% Due 6/15/2021............................ AAA 22,330 <F6>
1,000,000 Illinois Health Facilities Authority, Revenue
Refunding Bonds, Series 1994 (Servantcor Health
System) Capital Guaranty Insured #6.375% Due 2004 @ 102
8/15/2021........................................ AAA 2017 @ 100 S.F. 1,030,980
1,000,000 City of Rio Rancho, New Mexico, Water and
Wastewater System Revenue Bonds, Series 1995A 2006 @ 100
(FSA Insured)** #6.00% Due 5/15/2022............ YAAA 2016 @ 100 S.F. 1,005,000
1,000,000 City of Farmington, New Mexico, Pollution
Control Refunding Revenue Bonds (Southern
California Edison Company, Four Corners Project)
Series 1993A (MBIA Insured) 5.875% Due 6/1/2023. AAA 2003 @ 102 992,120
100,000 New Jersey Educational Facilities Authority,
Revenue Bonds (New Jersey Institute of
Technology) Series 1994A (MBIA Insured) #6.00% 2004 @ 102
Due 7/1/2024..................................... AAA 2016 @ 100 S.F. 102,110
1,000,000 City of Bloomington (Monroe County, Indiana)
Sewage Works Revenue Bonds, Series 1995 (MBIA 2005 @ 102
Insured) #5.875% Due 1/1/2025................... YAAA 2021 @ 100 S.F. 991,860
Name of Issuer, Title, Interest Rate andMaturity Offering
Aggregate Date of either Bonds Deposited orBonds Price To
Principal<F1> Contracted for<F1><F5> Rating<F2> Redemption Feature<F3> IM-IT<F4>
$ 250,000 Gogebic-Iron Wastewater Authority, County of
Gogebic, Michigan, Wastewater Treatment System
Revenue Refunding Bonds, Series 1995 (MBIA 2005 @ 100
Insured) #6.05% Due 1/1/2025.................... YAAA 2016 @ 100 S.F. $ 254,253
1,000,000 Maine Health and Higher Educational Facilities
Authority, Revenue Bonds, Series 1995A (FSA 2005 @ 102
Insured) #5.875% Due 7/1/2025................... YAAA 2016 @ 100 S.F. 991,780
1,000,000 Vermont Educational and Health Buildings
Financing Agency, Hospital Revenue Bonds
(Southwestern Vermont Medical Center Project)
Series 1995 (FSA Insured) ** #5.625% Due 2005 @ 102
10/1/2025........................................ YAAA 2016 @ 100 S.F. 952,820
$ 9,055,000 $ 8,590,423
</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".
CALIFORNIA IM-IT INTERMEDIATE LADDERED MATURITY TRUST
General. The California IM-IT Trust consists of 9 issues of Securities. Two of
the Bonds in the California 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 California IM-IT Trust) as follows: General Obligations, 2 (20%);
Airport, 1 (17%); Certificates of Participation, 1 (17%); General Purpose, 1
(17%); Higher Education, 2 (16%); Retail Electric/Gas, 1 (10%) and Water and
Sewer, 1 (3%). No Bond issue has received a provisional rating.
Risk Factors. The Trust will invest substantially all of its assets in
California Municipal Obligations. The Trust is therefore susceptible to
political, economic or regulatory factors affecting issuers of California
Municipal Obligations. These include the possible adverse effects of certain
California constitutional amendments, legislative measures, voter initiatives
and other matters that are described below. The following information provides
only a brief summary of the complex factors affecting the financial situation
in California (the "State") and is derived from sources that are generally
available to investors and are believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from
various State and local agencies in California or contained in official
statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of almost 32 million represents 12.3% of
the total United States population and grew by 27% in the 1980s. While the
State's substantial population growth during the 1980s stimulated local
economic growth and diversification and sustained a real estate boom between
1984 and 1990, it has increased strains on the State's limited water resources
and its infrastructure. Resultant traffic congestion, school over-crowding and
high housing costs have increased demands for government services and may
impede future economic growth. Population growth has slowed between 1991 and
1993 even while substantial immigration has continued, due to a significant
increase in outmigration by California residents. Generally, the household
incomes of new residents have been departing households, which may have a
major long-term socioeconomic and fiscal impact. However, with the California
economy improving, the recent net outmigration within the Continental U.S. is
expected to decrease or be reversed.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in
the aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing ut slowing job losses in the aerospace industry and restructuring
of the finance and utility sectors, Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
Certain California Municipal Obligations may be obligations of issuers which
rely in whole or in part, directly or indirectly, on ad valorem property taxes
as a source of revenue. The taxing powers of California local governments and
districts are limited by Article XIIIA of the California Constitution, enacted
by the voters in 1978 and commonly known as "Proposition 13."Briefly, Article
XIIIA limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to 2% per
year, except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, and on June 18, 1992 the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax."Court
decisions, however, allowed non-voter approved levy of "general taxes"which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62,"have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
California and its local governments are subject to an annual "appropriations
limit"imposed by Article XIIIB of the California Constitution, enacted by the
voters in 1979 and significantly amended by Propositions 98 and 111 in 1988
and 1990, respectively. Article XIIIB prohibits the State or any covered local
government from spending "appropriations subject to limitation"in excess of
the appropriations limit imposed. "Appropriations subject to limitation"are
authorizations to spend "proceeds of taxes,"which consists of tax revenues and
certain other funds, including proceeds from regulatory licenses, user charges
or other fees, to the extent that such proceeds exceed the cost of providing
the product or service, but "proceeds of taxes"excludes most State subventions
to local governments. No limit is imposed on appropriations of funds which are
not "proceeds of taxes,"such as reasonable user charges or fees and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January
1, 1979, or subsequently authorized by the voters, (2) appropriations arising
from certain emergencies declared by the Governor, (3) appropriations for
certain capital outlay projects, (4) appropriations by the State of post-1989
increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect changes
in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized in 1990 by Proposition 111 to follow more closely
growth in California's economy.
"Excess"revenues are measured over a two-year cycle. With respect to local
governments, excess revenues must be returned by a revision of tax rates or
fee schedules within the two subsequent fiscal years. The appropriations limit
for a local government may be overridden by referendum under certain
conditions for up to four years at a time. With respect to the State, 50% of
any excess revenues is to be distributed to K-12 school districts and
community college districts (collectively, "K-14 districts") and the other 50%
is to be refunded to taxpayers. With more liberal annual adjustment factors
since 1988, and depressed revenues since 1990 because of the recession, few
governments, including the State, are currently operating near their spending
limits, but this condition may change over time. Local governments may by
voter approval exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or
Article XIIIB on California Municipal Obligations or on the ability of
California or local governments to pay debt service on such California
Municipal Obligations. It is not presently possible to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or the impact of
any such determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future initiative or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. Total
outstanding general obligation bond and lease purchase debt of the State
increased from $9.4 billion at June 30, 1987 to $23.5 billion at June 30,
1994. In FY 1993-94, debt service on general obligation bonds and lease
purchase debt was approximately 5.2% of General Fund revenues.
The principal sources of General Fund revenues in 1992-93 were the California
personal income tax (44% of total revenues), the sales tax (38%), bank and
corporation taxes (12%), and the gross premium tax on insurance (3%).
California maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a reserve to meet
cash needs of the General Fund.
Throughout the 1980s, State spending increased rapidly as the State population
and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to
local public school districts. In 1988, an initiative (Proposition 98) was
enacted which (subject to suspension by a two-thirds vote of the Legislature
and the Governor) guarantees local school districts and community college
districts a minimum share of State General Fund revenues (currently about
33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with
the largest programs supported by the General Fund (education, health, welfare
and corrections) growing at rates significantly higher than the growth rates
for the principal revenue sources of the General Fund. These structured
concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes"law enacted in 1994. As a result, the State entered a
period of budget imbalance, with expenditures exceeding revenues for four of
the five fiscal years ending in 1991-92; revenues and expenditures were about
equal in 1992-93. By June 30, 1993, the State's General Fund had an
accumulated deficit, on a budget basis, of approximately $2.8 billion.
The State failed to enact its 1992-93 budget by July 1, 1992. Although the
State had no legal authority to pay many of its vendors, certain obligations
(such as debt service, school apportionments, welfare payments, and employee
salaries) were payable because of continuing or special appropriations, or
court orders. However, the State Controller did not have enough cash to pay as
they came due all of these ongoing obligations, as well as valid obligations
incurred in the prior fiscal year.
Starting on July 1, 1992, the Controller was required to issue "registered
warrants"in lieu of normal warrants backed by cash to pay many State
obligations. Available cash was used to pay constitutionally mandated and
priority obligations. Between July 1 and September 3, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered warrants, all
of which were called for redemption by September 4, 1992 following enactment
of the 1992-93 Budget Act and issuance by the State of Interim Notes.
The 1992-93 Budget Act, when finally adopted, was projected to eliminate the
State's accumulated deficit, with additional expenditure cuts and a $1.3
billion transfer of State education funding costs to local governments by
shifting local property taxes to school districts. However, as the recession
continued longer and deeper than expected, revenues once again were far below
projections, and only reached a level just equal to the amount of
expenditures. Thus, the State continued to carry its $2.8 billion budget
deficit at June 30, 1993.
The 1993-94 Budget Act represented a third consecutive year of difficult
budget choices. As in the prior year, the budget contained no general state
tax increases, and relied principally on expenditure cuts, particularly for
health and welfare and higher education, a two-year suspension of the renters'
tax credit, some one-time and accounting adjustments, and--the largest
component--an additional $2.6 billion transfer of property taxes from local
government, particularly counties, to school districts to reduce State
education funding requirements. A temporary state sales tax scheduled to
expire on June 30, 1993 was extended for six months, and dedicated to support
local government public safety costs.
A major feature of the budget was a two-year plan to eliminate the accumulated
deficit by borrowing into the 1994-95 fiscal year. With the recession still
continuing longer than expected, the General Fund had $800 million less
revenue and $800 million higher expenditures than budgeted. As a result
revenues only exceed expenditures by about $500 million. However, this was the
fist operating surplus in four years and reduced the accumulated deficit to
$2.0 billion at June 30, 1994 (after taking account of certain other
accounting reserves).
The 1994-95 Budget Act was passed on July 8, 1994, and provides for an
estimated $41.9 billion of General Fund revenues, and $40.9 billion of
expenditures. The budget assumed receipt of about $750 million of new federal
assistance for the costs of incarceration, education, health and welfare
related to undocumented immigrants. Other major components of the budget
include further reductions in health and welfare costs and miscellaneous
government costs, some additional transfers of funds from local government,
and a plan to defer retirement of $1 billion of the accumulated budget deficit
to the 1995-96 fiscal year. The federal government has apparently budgeted
only $33 million of the expected immigration aid. However, this shortfall is
expected to be almost fully offset by higher than projected revenues, and
lower than projected caseload growth, as the economy improves.
As noted above, the State issued $7.0 billion of short-term debt in July, 1994
to meet its cash flow needs and to finance the deferral of part of the
accumulated budget deficit to the 1995-96 fiscal year. In order to assure
repayment of the $4 billion, 22-month part of this borrowing, the State
enacted legislation (the "Trigger Law") which can lead to automatic,
across-the-board cuts in General Fund expenditures in either the 1994-95 or
1995-96 fiscal years if cash flow projections made at certain times during
those years show deterioration from the projections made in July 1994 when the
borrowings were made. On November 15, 1994, the State Controller as part of
the Trigger Law reported that the cash position of the General Fund on June
30, 1995 would be about $580 million better than earlier projected, so no
automatic budget adjustments were required in 1994-95. The Controller's report
showed that loss of federal funds was offset by higher revenues, lower
expenditures, and certain other increases in cash resources.
On January 10, 1995, the Governor presented his proposed FY 1995-96 Budget.
This budget projects total General Fund revenues and transfers of $42.5
billion, and expenditures of $41.7 billion, to complete the elimination of the
accumulated deficits from earlier years. However, this proposal leaves no
cushion, as the projected budget reserve at June 30, 1996 would be only about
$92 million. While proposing increases in funding for schools, universities
and corrections, the Governor proposes further cuts in welfare programs, and a
continuation of the "realignment"of functions with counties which would save
the State about $240 million. The Governor also expects about $800 million in
new federal aid for the State's costs of incarcerating and educating illegal
immigrants. The Budget proposal also does not account for possible additional
costs if the State loses its appeals on lawsuits which are currently pending
concerning such matters as school funding and pension payments, but these
appeals could take several years to resolve. Part of the Governor's proposal
also is a 15% cut in personal income and corporate taxes, to be phased in over
three years, starting with calendar year 1996 (which would have only a small
impact on 1995-96 income).
The State's difficult financial condition for the current and upcoming budget
years will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental
expenditures, there can be no assurance that the State will not face budget
gaps in the future.
State general obligation bonds ratings were reduced in July, 1994 to "A1"by
Moody's and "A"by S&P. Both of these ratings were reduced from "AAA"levels
which the State held until late 1991. There can be no assurance that such
ratings will be maintained in the future. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include a deferral of
payments by the State to the Public Employees Retirement System, reductions in
welfare payments, and the use of certain cigarette tax funds for health costs.
All of these cases are subject to further proceedings and appeals, and if the
State eventually loses, the final remedies may not have to be implemented in
one year.
There are a number of State agencies, instrumentalities and political
subdivisions of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private borrowers.
These entities are subject to various economic risks and uncertainties, and
the credit quality of the securities issued by them may vary considerably from
the credit quality of the obligations backed by the full faith and credit of
the State.
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13. Subsequently, the California Legislature
enacted measures to provide for the redistribution of the State's General Fund
surplus to local agencies, the reallocation of certain State revenues to local
agencies and the assumption of certain governmental functions by the State to
assist municipal issuers to raise revenues. Total local assistance from the
State's General Fund was budgeted at approximately 75% of General Fund
expenditures in recent years, including the effect of implementing reductions
in certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer $3.9 billion of property tax revenues to school districts,
representing loss of the post-Proposition 13 "bailout"aid. The largest share
of these transfers came from counties, and the balance from cities, special
districts and redevelopment agencies. In order to make up this shortfall, the
Legislature proposed and voters approved in 1993 dedicating 0.5% of the sales
tax to counties and cities for public safety purposes. In addition, the
Legislature has changed laws to relieve local governments of certain mandates,
allowing them to reduce costs.
To the extent the State should be constrained by its Article XIII
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At lease one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. The Richmond Unified School
District (Contra Costa County) entered bankruptcy proceedings in May 1991 but
the proceedings have been dismissed.
California Municipal Obligations which are assessment bonds may be adversely
affected by a general decline in real estate values or a slowdown in real
estate sales activity. In many cases, such bonds are secured by land which is
undeveloped at the time of issuance but anticipated to be developed within a
few years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed,
the lien on the property is the only security for the bonds. Moreover, in most
cases the issuer of these bonds is not required to make payments on the bonds
in the event of delinquency in the payment of assessments or taxes, except
from amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable from
the general fund of the municipality, are subject to "abatement"in the event
the facility being leased is unavailable for beneficial use and occupancy by
the municipality during the term of the lease. Abatement is not a default, and
there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may
be interrupted (if all available insurance proceeds and reserves are
exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were
taken over by a State receiver (including a brief period under bankruptcy
court protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The trial
court has upheld the validity of the District's lease, and the case has been
settled. Any judgment in any future case against the position asserted by the
Trustee in the Richmond case may have adverse implications for lease
transactions of a similar nature by other California entities.
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation"bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project decline (e.g., because of a major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest payments on these bonds. Both
Moody's and S&P suspended ratings on California tax allocation bonds after the
enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
Issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject to
major seismic activity. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing billions of dollars in damages. The
federal government provided more than $1.8 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Portfolio could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the Federal or State
government to appropriate sufficient funds within their respective budget
limitations.
On January 17, 1994, a major earthquake with an estimated magnitude 6.8 on the
Richter scale struck the Los Angeles area, causing significant property damage
to public and private facilities, presently estimated at $15-20 billion. While
over $9.5 billion of federal aid, and a projected $1.9 billion of State aid,
plus insurance proceeds, will reimburse much of that loss, there were bill be
come ultimate loss of health and income in the region, in addition to costs of
the disruption caused by the event. Short-term economic projections are
generally neutral, as the infusion of aid will restore billions of dollars to
the local economy within a few months; already the local construction industry
has picked up. Although the earthquake will hinder recovery from the recession
in Southern California, already hard-hit, its long-term impact is not expected
to be material in the context of the overall wealth of the region. Almost five
years after the event, there are few remaining effects of the 1989 Loma Prieta
earthquake in northern California (which, however, caused less severe damage
than Northridge).
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. Approximately 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1993, the County indicated that the Fund had lost about 27% of its initial
deposits of around $7.4 billion. The County may suffer further losses as it
sells investments to restructure the Fund. Many of the entities which kept
moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County and some of these entities have, and others may
in the future, default in payment of their obligations. Moody's and Standard &
Poor's have suspended, reduced to below investment grade levels, or placed on
"Credit Watch"various securities of the County and the entities participating
in the Fund.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, although
under existing legal precedents, the State may be obligated to ensure that
school districts have sufficient funds to operate.
Tax Status. For a discussion of the Federal tax status of income earned on
California IM-IT Intermediate Laddered Maturity Trust Units, see "Other
Matters--Federal Tax Status".
In the opinion of Orrick, Herrington & Sutcliffe, special counsel to the Fund
for California tax matters, under existing California income and property tax
law applicable to individuals who are California residents:
(1)the California IM-IT Intermediate Laddered Maturity Trust is not an
association taxable as a corporation and the income of the California IM-IT
Intermediate Laddered Maturity Trust will be treated as the income of the
Unitholders under the income tax laws of California;
(2)amounts treated as interest on the underlying Securities in the California
IM-IT Intermediate Laddered Maturity Trust which are exempt from tax under
California personal income tax and property tax laws when received by the
California IM-IT Intermediate Laddered Maturity Trust will, under such laws,
retain their status as tax-exempt interest when distributed to Unitholders.
However, interest on the underlying Securities attributed to a Unitholder
which is a corporation subject to the California franchise tax laws may be
includable in its gross income for purposes of determining its California
franchise tax. Further, certain interest which is attributable to a Unitholder
subject to the California personal income tax and which is treated as an item
of tax preference for purposes of the federal alternative minimum tax pursuant
to Section 57(a)(5) of the Internal Revenue Code of 1986 may also be treated
as an item of tax preference that must be taken into account in computing such
Unitholder's alternative minimum taxable income for purposes of the California
alternative minimum tax enacted by 1987 California Statutes, chapter 1138.
However, because of the provisions of the California Constitution exempting
the interest on bonds issued by the State of California, or by local
governments within the state, from taxes levied on income, the application of
the new California alternative minimum tax to interest otherwise exempt from
the California personal income tax in some cases may be unclear;
(3)under California income tax law, each Unitholder in the California IM-IT
Intermediate Laddered Maturity Trust will have a taxable event when the
California IM-IT Intermediate Laddered Maturity Trust disposes of a Security
(whether by sale, exchange, redemption, or payment at maturity) or when the
Unitholder redeems or sells Units. Because of the requirement that tax cost
basis be reduced to reflect amortization of bond premium, under some
circumstances a Unitholder may realize taxable gains when Units are sold or
redeemed for an amount equal to, or less than, their original cost. The total
cost of each Unit in the California IM-IT Intermediate Laddered Maturity Trust
to a Unitholder is allocated among each of the Bond issues held in the
California IM-IT Intermediate Laddered Maturity Trust (in accordance with the
proportion of the California IM-IT Intermediate Laddered Maturity Trust
comprised by each Bond issue) in order to determine his per Unit tax cost for
each Bond issue; and the tax cost reduction requirements relating to
amortization of bond premium will apply separately to the per Unit tax cost of
each Bond issue. Unitholders' bases in their units, and the bases for their
fractional interest in each Trust asset, may have to be adjusted for their pro
rata share of accrued interest received, if any, on Securities delivered after
the Unitholders' respective settlement dates;
(4)under the California personal property tax laws, bonds (including the
Securities in the California IM-IT Intermediate Laddered Maturity Trust) or
any interest therein is exempt from such tax;
(5)any proceeds paid under the insurance policy issued to the California IM-IT
Intermediate Laddered Maturity Trust with respect to the Securities which
represent maturing interest on defaulted obligations held by the Trustee will
be exempt from California personal income tax if, and to the same extent as,
such interest would have been so exempt if paid by the issuer of the defaulted
obligations; and
(6)under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units of
the California IM-IT Intermediate Laddered Maturity Trust is not deductible
for the purposes of the California personal income tax. While there presently
is no California authority interpreting this provision, Section 17280(b)(2)
directs the California Franchise Tax Board to prescribe regulations
determining the proper allocation and apportionment of interest costs for this
purpose. The Franchise Tax Board has not yet proposed or prescribed such
regulations. In interpreting the generally similar Federal provision, the
Internal Revenue Service has taken the position that such indebtedness need
not be directly traceable to the purchase or carrying of Units (although the
Service has not contended that a deduction for interest on indebtedness
incurred to purchase or improve a personal residence or to purchase goods or
services for personal consumption will be disallowed). In the absence of
conflicting regulations or other California authority, the California
Franchise Tax Board generally has interpreted California statutory tax
provisions in accord with Internal Revenue Service interpretations of similar
Federal provisions.
At the respective times of issuance of the Securities, opinions relating to
the validity thereof and to the exemption of interest thereon from Federal
income tax and California personal income tax are rendered by bond counsel to
the respective issuing authorities. Except in certain instances in which
Orrick, Herrington & Sutcliffe acted as bond counsel to issuers of Securities,
and as such made a review of proceedings relating to the issuance of certain
Securities at the time of their issuance, Orrick, Herrington & Sutcliffe has
not made any special review for the California IM-IT Intermediate Laddered
Maturity Trust of the proceedings relating to the issuance of the Securities
or of the basis for such opinions.
<TABLE>
<CAPTION>
Semi-
<S> <C> <C>
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 45.26 $ 45.26
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.04 $ 1.58
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 43.22 $ 43.68
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 43.22 $ 43.68
Divided by 12 and 2, respectively......................................... $ 3.60 $ 21.84
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .12004 $ .12132
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 4.21% 4.26%
Estimated Long-Term Return <F3><F4><F5>.................................... 4.29% 4.33%
Estimated Initial Monthly Distribution (August 1995)....................... $ 4.92
Estimated Initial Semi-annual Distribution (November 1995)................. $ 15.89
Estimated Normal Distribution per Unit <F5>................................ $ 3.60 $ 21.84
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee <F1>...... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the
California IM-IT Intermediate Laddered Maturity Trust under the monthly and semi-annual
distribution plans
Record and Computation Dates... FIRST day of the month as follows: monthly--each month; semi-annual--May and November
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--May
and November commencing August 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.26
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 $45.52. Estimated Annual Expense per Unit (excluding
insurance) will be increased to $2.30 and $1.84 under the monthly and
semi-annual distribution plans, respectively; and Estimated Net Annual
Interest Income per Unit will remain the same as shown. See "Estimated Current
Returns and Estimated Long-Term Returns."
<F2>Excluding insurance costs. The Estimated Annual Expenses are expected to
fluctuate periodically (see "Trust Administration--Fund Administration and
Expenses--Miscellaneous Expenses").
<F3>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F4>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the 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 the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<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".
</TABLE>
<TABLE>
CALIFORNIA IM-IT INTERMEDIATE LADDERED MATURITY
SERIES 21 (IM-IT AND QUALITY MULTI-SERIES 254)
PORTFOLIO As of June 15, 1995
<CAPTION>
Offering
Price To
California
IM-IT
Intermediate
Laddered
Aggregate Name of Issuer, Title, Interest Rate andMaturity Date of Redemption Maturity
Principal<F1> either Bonds Deposited orBonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 365,000 County of Stanislaus, California, Refunding Certificates of
Participation (Capital Improvement Program) Series 1995 (AMBAC
Indemnity Insured)** 4.20% Due 5/1/1999...................... YAAA $ 363,142
235,000 San Francisco Bay Area Rapid Transit District (California)
Sales Tax Revenue Bonds, Series 1995 (FGIC Insured) 4.60%
Due 7/1/1999................................................... YAAA 237,165
300,000 City of Bakersfield, California, Hospital Revenue Refunding
Bonds (Adventist Health System/West Issue) Series 1993 (MBIA
Insured) #4.75% Due 3/1/2000................................. AAA 303,618
600,000 San Diego County Regional Transportation Commission,
California, Second Senior Sales Tax Revenue Bonds (Limited Tax
Bonds) Series 1994A (FGIC Insured) 290M- 4.70% Due 4/1/2000 YAAA 292,917
310M- 4.80% Due 4/1/2001...................................... YAAA 312,694
290,000 Imperial Irrigation District, California, 1993 Refunding
Certificates of Participation (1990 Electric System Project)
MBIA Insured #4.50% Due 11/1/2001............................ AAA 287,912
300,000 City and County of San Francisco, California, Certificates of
Participation (San Francisco Courthouse Project) Series 1995
(Capital Guaranty Insured)** #4.80% Due 4/1/2002............. YAAA 301,125
300,000 County of San Joaquin (California) San Joaquin County Public
Facilities Financing Corporation, Certificates of
Participation, Series 1993 (MBIA Insured) #4.40% Due
11/15/2002..................................................... AAA 293,706
70,000 Northern California Power Agency, Transmission Project Number
One Revenue Bonds, 1989 Refunding Series A (MBIA Insured)
#0.00% Due 8/15/2003.......................................... AAA 46,862 <F6>
540,000 Paradise Unified School District Corporation, Butte County,
California, Certificates of Participation (Measure M Project)
Series 1995A (AMBAC Indemnity Insured)** 5.00% Due 9/1/2003.. YAAA 545,594
$ 3,000,000 $ 2,984,735
</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".
CALIFORNIA IM-IT TRUST
General. The California IM-IT Trust consists of 9 issues of Securities. Two of
the Bonds in the California 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 California IM-IT Trust) as follows: General Obligations, 2 (20%);
Airport, 1 (17%); Certificates of Participation, 1 (17%); General Purpose, 1
(17%); Higher Education, 2 (16%); Retail Electric/Gas, 1 (10%) and Water and
Sewer, 1 (3%). No Bond issue has received a provisional rating.
Risk Factors. The Trust will invest substantially all of its assets in
California Municipal Obligations. The Trust is therefore susceptible to
political, economic or regulatory factors affecting issuers of California
Municipal Obligations. These include the possible adverse effects of certain
California constitutional amendments, legislative measures, voter initiatives
and other matters that are described below. The following information provides
only a brief summary of the complex factors affecting the financial situation
in California (the "State") and is derived from sources that are generally
available to investors and are believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from
various State and local agencies in California or contained in official
statements for various California Municipal Obligations.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local governmental finances
generally, will not adversely affect the market value of California Municipal
Obligations held in the portfolio of the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
California's economy is the largest among the 50 states and one of the largest
in the world. The State's population of almost 32 million represents 12.3% of
the total United States population and grew by 27% in the 1980s. While the
State's substantial population growth during the 1980s stimulated local
economic growth and diversification and sustained a real estate boom between
1984 and 1990, it has increased strains on the State's limited water resources
and its infrastructure. Resultant traffic congestion, school over-crowding and
high housing costs have increased demands for government services and may
impede future economic growth. Population growth has slowed between 1991 and
1993 even while substantial immigration has continued, due to a significant
increase in outmigration by California residents. Generally, the household
incomes of new residents have been departing households, which may have a
major long-term socioeconomic and fiscal impact. However, with the California
economy improving, the recent net outmigration within the Continental U.S. is
expected to decrease or be reversed.
From mid-1990 to late 1993, the State's economy suffered its worst recession
since the 1930s, with recovery starting later than for the nation as a whole.
The State has experienced the worst job losses of any post-war recession.
Prerecession job levels may not be realized until near the end of the decade.
The largest job losses have been in Southern California, led by declines in
the aerospace and construction industries. Weakness statewide occurred in
manufacturing, construction, services and trade. Additional military base
closures will have further adverse effects on the State's economy later in the
decade.
Since the start of 1994, the California economy has shown signs of steady
recovery and growth. The State Department of Finance reports net job growth,
particularly in construction and related manufacturing, wholesale and retail
trade, transportation, recreation and services. This growth has offset the
continuing ut slowing job losses in the aerospace industry and restructuring
of the finance and utility sectors, Unemployment in the State was down
substantially in 1994 from its 10% peak in January, 1994, but still remains
higher than the national average rate. Retail sales were up strongly in 1994
from year-earlier figures. Delay or slowdown in recovery will adversely affect
State revenues.
Certain California Municipal Obligations may be obligations of issuers which
rely in whole or in part, directly or indirectly, on ad valorem property taxes
as a source of revenue. The taxing powers of California local governments and
districts are limited by Article XIIIA of the California Constitution, enacted
by the voters in 1978 and commonly known as "Proposition 13."Briefly, Article
XIIIA limits to 1% of full cash value the rate of ad valorem property taxes on
real property and generally restricts the reassessment of property to 2% per
year, except upon new construction or change of ownership (subject to a number
of exemptions). Taxing entities may, however, raise ad valorem taxes above the
1% limit to pay debt service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, and on June 18, 1992 the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax."Court
decisions, however, allowed non-voter approved levy of "general taxes"which
were not dedicated to a specific use. In response to these decisions, the
voters of the State in 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62,"have been overturned in recent
court cases. An initiative proposed to re-enact the provisions of Proposition
62 as a constitutional amendment was defeated by the voters in November 1990,
but such a proposal may be renewed in the future.
California and its local governments are subject to an annual "appropriations
limit"imposed by Article XIIIB of the California Constitution, enacted by the
voters in 1979 and significantly amended by Propositions 98 and 111 in 1988
and 1990, respectively. Article XIIIB prohibits the State or any covered local
government from spending "appropriations subject to limitation"in excess of
the appropriations limit imposed. "Appropriations subject to limitation"are
authorizations to spend "proceeds of taxes,"which consists of tax revenues and
certain other funds, including proceeds from regulatory licenses, user charges
or other fees, to the extent that such proceeds exceed the cost of providing
the product or service, but "proceeds of taxes"excludes most State subventions
to local governments. No limit is imposed on appropriations of funds which are
not "proceeds of taxes,"such as reasonable user charges or fees and certain
other non-tax funds, including bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January
1, 1979, or subsequently authorized by the voters, (2) appropriations arising
from certain emergencies declared by the Governor, (3) appropriations for
certain capital outlay projects, (4) appropriations by the State of post-1989
increases in gasoline taxes and vehicle weight fees, and (5) appropriations
made in certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect changes
in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such
adjustments were liberalized in 1990 by Proposition 111 to follow more closely
growth in California's economy.
"Excess"revenues are measured over a two-year cycle. With respect to local
governments, excess revenues must be returned by a revision of tax rates or
fee schedules within the two subsequent fiscal years. The appropriations limit
for a local government may be overridden by referendum under certain
conditions for up to four years at a time. With respect to the State, 50% of
any excess revenues is to be distributed to K-12 school districts and
community college districts (collectively, "K-14 districts") and the other 50%
is to be refunded to taxpayers. With more liberal annual adjustment factors
since 1988, and depressed revenues since 1990 because of the recession, few
governments, including the State, are currently operating near their spending
limits, but this condition may change over time. Local governments may by
voter approval exceed their spending limits for up to four years.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or
Article XIIIB on California Municipal Obligations or on the ability of
California or local governments to pay debt service on such California
Municipal Obligations. It is not presently possible to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or the impact of
any such determinations upon State agencies or local governments, or upon
their ability to pay debt service on their obligations. Future initiative or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. Total
outstanding general obligation bond and lease purchase debt of the State
increased from $9.4 billion at June 30, 1987 to $23.5 billion at June 30,
1994. In FY 1993-94, debt service on general obligation bonds and lease
purchase debt was approximately 5.2% of General Fund revenues.
The principal sources of General Fund revenues in 1992-93 were the California
personal income tax (44% of total revenues), the sales tax (38%), bank and
corporation taxes (12%), and the gross premium tax on insurance (3%).
California maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a reserve to meet
cash needs of the General Fund.
Throughout the 1980s, State spending increased rapidly as the State population
and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by
Proposition 13 and other laws. The largest State program is assistance to
local public school districts. In 1988, an initiative (Proposition 98) was
enacted which (subject to suspension by a two-thirds vote of the Legislature
and the Governor) guarantees local school districts and community college
districts a minimum share of State General Fund revenues (currently about
33%).
Since the start of 1990-91 Fiscal Year, the State has faced adverse economic,
fiscal and budget conditions. The economic recession seriously affected State
tax revenues. It also caused increased expenditures for health and welfare
programs. The State is also facing a structural imbalance in its budget with
the largest programs supported by the General Fund (education, health, welfare
and corrections) growing at rates significantly higher than the growth rates
for the principal revenue sources of the General Fund. These structured
concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes"law enacted in 1994. As a result, the State entered a
period of budget imbalance, with expenditures exceeding revenues for four of
the five fiscal years ending in 1991-92; revenues and expenditures were about
equal in 1992-93. By June 30, 1993, the State's General Fund had an
accumulated deficit, on a budget basis, of approximately $2.8 billion.
The State failed to enact its 1992-93 budget by July 1, 1992. Although the
State had no legal authority to pay many of its vendors, certain obligations
(such as debt service, school apportionments, welfare payments, and employee
salaries) were payable because of continuing or special appropriations, or
court orders. However, the State Controller did not have enough cash to pay as
they came due all of these ongoing obligations, as well as valid obligations
incurred in the prior fiscal year.
Starting on July 1, 1992, the Controller was required to issue "registered
warrants"in lieu of normal warrants backed by cash to pay many State
obligations. Available cash was used to pay constitutionally mandated and
priority obligations. Between July 1 and September 3, 1992, the Controller
issued an aggregate of approximately $3.8 billion of registered warrants, all
of which were called for redemption by September 4, 1992 following enactment
of the 1992-93 Budget Act and issuance by the State of Interim Notes.
The 1992-93 Budget Act, when finally adopted, was projected to eliminate the
State's accumulated deficit, with additional expenditure cuts and a $1.3
billion transfer of State education funding costs to local governments by
shifting local property taxes to school districts. However, as the recession
continued longer and deeper than expected, revenues once again were far below
projections, and only reached a level just equal to the amount of
expenditures. Thus, the State continued to carry its $2.8 billion budget
deficit at June 30, 1993.
The 1993-94 Budget Act represented a third consecutive year of difficult
budget choices. As in the prior year, the budget contained no general state
tax increases, and relied principally on expenditure cuts, particularly for
health and welfare and higher education, a two-year suspension of the renters'
tax credit, some one-time and accounting adjustments, and--the largest
component--an additional $2.6 billion transfer of property taxes from local
government, particularly counties, to school districts to reduce State
education funding requirements. A temporary state sales tax scheduled to
expire on June 30, 1993 was extended for six months, and dedicated to support
local government public safety costs.
A major feature of the budget was a two-year plan to eliminate the accumulated
deficit by borrowing into the 1994-95 fiscal year. With the recession still
continuing longer than expected, the General Fund had $800 million less
revenue and $800 million higher expenditures than budgeted. As a result
revenues only exceed expenditures by about $500 million. However, this was the
fist operating surplus in four years and reduced the accumulated deficit to
$2.0 billion at June 30, 1994 (after taking account of certain other
accounting reserves).
The 1994-95 Budget Act was passed on July 8, 1994, and provides for an
estimated $41.9 billion of General Fund revenues, and $40.9 billion of
expenditures. The budget assumed receipt of about $750 million of new federal
assistance for the costs of incarceration, education, health and welfare
related to undocumented immigrants. Other major components of the budget
include further reductions in health and welfare costs and miscellaneous
government costs, some additional transfers of funds from local government,
and a plan to defer retirement of $1 billion of the accumulated budget deficit
to the 1995-96 fiscal year. The federal government has apparently budgeted
only $33 million of the expected immigration aid. However, this shortfall is
expected to be almost fully offset by higher than projected revenues, and
lower than projected caseload growth, as the economy improves.
As noted above, the State issued $7.0 billion of short-term debt in July, 1994
to meet its cash flow needs and to finance the deferral of part of the
accumulated budget deficit to the 1995-96 fiscal year. In order to assure
repayment of the $4 billion, 22-month part of this borrowing, the State
enacted legislation (the "Trigger Law") which can lead to automatic,
across-the-board cuts in General Fund expenditures in either the 1994-95 or
1995-96 fiscal years if cash flow projections made at certain times during
those years show deterioration from the projections made in July 1994 when the
borrowings were made. On November 15, 1994, the State Controller as part of
the Trigger Law reported that the cash position of the General Fund on June
30, 1995 would be about $580 million better than earlier projected, so no
automatic budget adjustments were required in 1994-95. The Controller's report
showed that loss of federal funds was offset by higher revenues, lower
expenditures, and certain other increases in cash resources.
On January 10, 1995, the Governor presented his proposed FY 1995-96 Budget.
This budget projects total General Fund revenues and transfers of $42.5
billion, and expenditures of $41.7 billion, to complete the elimination of the
accumulated deficits from earlier years. However, this proposal leaves no
cushion, as the projected budget reserve at June 30, 1996 would be only about
$92 million. While proposing increases in funding for schools, universities
and corrections, the Governor proposes further cuts in welfare programs, and a
continuation of the "realignment"of functions with counties which would save
the State about $240 million. The Governor also expects about $800 million in
new federal aid for the State's costs of incarcerating and educating illegal
immigrants. The Budget proposal also does not account for possible additional
costs if the State loses its appeals on lawsuits which are currently pending
concerning such matters as school funding and pension payments, but these
appeals could take several years to resolve. Part of the Governor's proposal
also is a 15% cut in personal income and corporate taxes, to be phased in over
three years, starting with calendar year 1996 (which would have only a small
impact on 1995-96 income).
The State's difficult financial condition for the current and upcoming budget
years will result in continued pressure upon almost all local governments,
particularly school districts and counties which depend on State aid. Despite
efforts in recent years to increase taxes and reduce governmental
expenditures, there can be no assurance that the State will not face budget
gaps in the future.
State general obligation bonds ratings were reduced in July, 1994 to "A1"by
Moody's and "A"by S&P. Both of these ratings were reduced from "AAA"levels
which the State held until late 1991. There can be no assurance that such
ratings will be maintained in the future. It should be noted that the
creditworthiness of obligations issued by local California issuers may be
unrelated to the creditworthiness of obligations issued by the State of
California, and that there is no obligation on the part of the State to make
payment on such local obligations in the event of default.
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or
injunctions which would overturn several parts of the State's recent budget
compromises. The matters covered by these lawsuits include a deferral of
payments by the State to the Public Employees Retirement System, reductions in
welfare payments, and the use of certain cigarette tax funds for health costs.
All of these cases are subject to further proceedings and appeals, and if the
State eventually loses, the final remedies may not have to be implemented in
one year.
There are a number of State agencies, instrumentalities and political
subdivisions of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private borrowers.
These entities are subject to various economic risks and uncertainties, and
the credit quality of the securities issued by them may vary considerably from
the credit quality of the obligations backed by the full faith and credit of
the State.
Property tax revenues received by local governments declined more than 50%
following passage of Proposition 13. Subsequently, the California Legislature
enacted measures to provide for the redistribution of the State's General Fund
surplus to local agencies, the reallocation of certain State revenues to local
agencies and the assumption of certain governmental functions by the State to
assist municipal issuers to raise revenues. Total local assistance from the
State's General Fund was budgeted at approximately 75% of General Fund
expenditures in recent years, including the effect of implementing reductions
in certain aid programs. To reduce State General Fund support for school
districts, the 1992-93 and 1993-94 Budget Acts caused local governments to
transfer $3.9 billion of property tax revenues to school districts,
representing loss of the post-Proposition 13 "bailout"aid. The largest share
of these transfers came from counties, and the balance from cities, special
districts and redevelopment agencies. In order to make up this shortfall, the
Legislature proposed and voters approved in 1993 dedicating 0.5% of the sales
tax to counties and cities for public safety purposes. In addition, the
Legislature has changed laws to relieve local governments of certain mandates,
allowing them to reduce costs.
To the extent the State should be constrained by its Article XIII
appropriations limit, or its obligation to conform to Proposition 98, or other
fiscal considerations, the absolute level, or the rate of growth, of State
assistance to local governments may be reduced. Any such reductions in State
aid could compound the serious fiscal constraints already experienced by many
local governments, particularly counties. At lease one rural county (Butte)
publicly announced that it might enter bankruptcy proceedings in August 1990,
although such plans were put off after the Governor approved legislation to
provide additional funds for the county. Other counties have also indicated
that their budgetary condition is extremely grave. The Richmond Unified School
District (Contra Costa County) entered bankruptcy proceedings in May 1991 but
the proceedings have been dismissed.
California Municipal Obligations which are assessment bonds may be adversely
affected by a general decline in real estate values or a slowdown in real
estate sales activity. In many cases, such bonds are secured by land which is
undeveloped at the time of issuance but anticipated to be developed within a
few years after issuance. In the event of such reduction or slowdown, such
development may not occur or may be delayed, thereby increasing the risk of a
default on the bonds. Because the special assessments or taxes securing these
bonds are not the personal liability of the owners of the property assessed,
the lien on the property is the only security for the bonds. Moreover, in most
cases the issuer of these bonds is not required to make payments on the bonds
in the event of delinquency in the payment of assessments or taxes, except
from amounts, if any, in a reserve fund established for the bonds.
Certain California long-term lease obligations, though typically payable from
the general fund of the municipality, are subject to "abatement"in the event
the facility being leased is unavailable for beneficial use and occupancy by
the municipality during the term of the lease. Abatement is not a default, and
there may be no remedies available to the holders of the certificates
evidencing the lease obligation in the event abatement occurs. The most common
cases of abatement are failure to complete construction of the facility before
the end of the period during which lease payments have been capitalized and
uninsured casualty losses to the facility (e.g., due to earthquake). In the
event abatement occurs with respect to a lease obligation, lease payments may
be interrupted (if all available insurance proceeds and reserves are
exhausted) and the certificates may not be paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were
taken over by a State receiver (including a brief period under bankruptcy
court protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was a named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The trial
court has upheld the validity of the District's lease, and the case has been
settled. Any judgment in any future case against the position asserted by the
Trustee in the Richmond case may have adverse implications for lease
transactions of a similar nature by other California entities.
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by health care and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation"bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment
project area after the start of redevelopment activity. In the event that
assessed values in the redevelopment project decline (e.g., because of a major
natural disaster such as an earthquake), the tax increment revenue may be
insufficient to make principal and interest payments on these bonds. Both
Moody's and S&P suspended ratings on California tax allocation bonds after the
enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity
which increased such tax rate to repay that entity's general obligation
indebtedness. As a result, redevelopment agencies (which, typically, are the
Issuers of tax allocation securities) no longer receive an increase in tax
increment when taxes on property in the project area are increased to repay
voter-approved bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not presently possible to determine the impact of any
such legislation on California Municipal Obligations in which the Fund may
invest, future allocations of state revenues to local governments or the
abilities of state or local governments to pay the interest on, or repay the
principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject to
major seismic activity. Northern California in 1989 and Southern California in
1994 experienced major earthquakes causing billions of dollars in damages. The
federal government provided more than $1.8 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Portfolio could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the Federal or State
government to appropriate sufficient funds within their respective budget
limitations.
On January 17, 1994, a major earthquake with an estimated magnitude 6.8 on the
Richter scale struck the Los Angeles area, causing significant property damage
to public and private facilities, presently estimated at $15-20 billion. While
over $9.5 billion of federal aid, and a projected $1.9 billion of State aid,
plus insurance proceeds, will reimburse much of that loss, there were bill be
come ultimate loss of health and income in the region, in addition to costs of
the disruption caused by the event. Short-term economic projections are
generally neutral, as the infusion of aid will restore billions of dollars to
the local economy within a few months; already the local construction industry
has picked up. Although the earthquake will hinder recovery from the recession
in Southern California, already hard-hit, its long-term impact is not expected
to be material in the context of the overall wealth of the region. Almost five
years after the event, there are few remaining effects of the 1989 Loma Prieta
earthquake in northern California (which, however, caused less severe damage
than Northridge).
On December 7, 1994, Orange County, California (the "County"), together with
its pooled investment fund (the "Fund") filed for protection under Chapter 9
of the federal Bankruptcy Code, after reports that the Fund had suffered
significant market losses in its investments caused a liquidity crisis for the
Fund and the County. Approximately 180 other public entities, most but not all
located in the County, were also depositors in the Fund. As of December 13,
1993, the County indicated that the Fund had lost about 27% of its initial
deposits of around $7.4 billion. The County may suffer further losses as it
sells investments to restructure the Fund. Many of the entities which kept
moneys in the Fund, including the County, are facing cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. The County and some of these entities have, and others may
in the future, default in payment of their obligations. Moody's and Standard &
Poor's have suspended, reduced to below investment grade levels, or placed on
"Credit Watch"various securities of the County and the entities participating
in the Fund.
The State of California has no obligation with respect to any obligations or
securities of the County or any of the other participating entities, although
under existing legal precedents, the State may be obligated to ensure that
school districts have sufficient funds to operate.
Tax Status. For a discussion of the Federal tax status of income earned on
California IM-IT Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Orrick, Herrington & Sutcliffe, special counsel to the Fund
for California tax matters, under existing California income and property tax
law applicable to individuals who are California residents:
(1)the California IM-IT Trust is not an association taxable as a corporation
and the income of the California IM-IT Trust will be treated as the income of
the Unitholders under the income tax laws of California;
(2)amounts treated as interest on the underlying Securities in the California
IM-IT Trust which are exempt from tax under California personal income tax and
property tax laws when received by the California IM-IT Trust will, under such
laws, retain their status as tax-exempt interest when distributed to
Unitholders. However, interest on the underlying Securities attributed to a
Unitholder which is a corporation subject to the California franchise tax laws
may be includable in its gross income for purposes of determining its
California franchise tax. Further, certain interest which is attributable to a
Unitholder subject to the California personal income tax and which is treated
as an item of tax preference for purposes of the federal alternative minimum
tax pursuant to Section 57(a)(5) of the Internal Revenue Code of 1986 may also
be treated as an item of tax preference that must be taken into account in
computing such Unitholder's alternative minimum taxable income for purposes of
the California alternative minimum tax enacted by 1987 California Statutes,
chapter 1138. However, because of the provisions of the California
Constitution exempting the interest on bonds issued by the State of
California, or by local governments within the state, from taxes levied on
income, the application of the new California alternative minimum tax to
interest otherwise exempt from the California personal income tax in some
cases may be unclear;
(3)under California income tax law, each Unitholder in the California IM-IT
Trust will have a taxable event when the California IM-IT Trust disposes of a
Security (whether by sale, exchange, redemption, or payment at maturity) or
when the Unitholder redeems or sells Units. Because of the requirement that
tax cost basis be reduced to reflect amortization of bond premium, under some
circumstances a Unitholder may realize taxable gains when Units are sold or
redeemed for an amount equal to, or less than, their original cost. The total
cost of each Unit in the California IM-IT Trust to a Unitholder is allocated
among each of the Bond issues held in the California IM-IT Trust (in
accordance with the proportion of the California IM-IT Trust comprised by each
Bond issue) in order to determine his per Unit tax cost for each Bond issue;
and the tax cost reduction requirements relating to amortization of bond
premium will apply separately to the per Unit tax cost of each Bond issue.
Unitholders' bases in their units, and the bases for their fractional interest
in each Trust asset, may have to be adjusted for their pro rata share of
accrued interest received, if any, on Securities delivered after the
Unitholders' respective settlement dates;
(4)under the California personal property tax laws, bonds (including the
Securities in the California IM-IT Trust) or any interest therein is exempt
from such tax;
(5)any proceeds paid under the insurance policy issued to the California IM-IT
Trust with respect to the Securities which represent maturing interest on
defaulted obligations held by the Trustee will be exempt from California
personal income tax if, and to the same extent as, such interest would have
been so exempt if paid by the issuer of the defaulted obligations; and
(6)under Section 17280(b)(2) of the California Revenue and Taxation Code,
interest on indebtedness incurred or continued to purchase or carry Units of
the California IM-IT Trust is not deductible for the purposes of the
California personal income tax. While there presently is no California
authority interpreting this provision, Section 17280(b)(2) directs the
California Franchise Tax Board to prescribe regulations determining the proper
allocation and apportionment of interest costs for this purpose. The Franchise
Tax Board has not yet proposed or prescribed such regulations. In interpreting
the generally similar Federal provision, the Internal Revenue Service has
taken the position that such indebtedness need not be directly traceable to
the purchase or carrying of Units (although the Service has not contended that
a deduction for interest on indebtedness incurred to purchase or improve a
personal residence or to purchase goods or services for personal consumption
will be disallowed). In the absence of conflicting regulations or other
California authority, the California Franchise Tax Board generally has
interpreted California statutory tax provisions in accord with Internal
Revenue Service interpretations of similar Federal provisions.
At the respective times of issuance of the Securities, opinions relating to
the validity thereof and to the exemption of interest thereon from Federal
income tax and California personal income tax are rendered by bond counsel to
the respective issuing authorities. Except in certain instances in which
Orrick, Herrington & Sutcliffe acted as bond counsel to issuers of Securities,
and as such made a review of proceedings relating to the issuance of certain
Securities at the time of their issuance, Orrick, Herrington & Sutcliffe has
not made any special review for the California IM-IT Trust of the proceedings
relating to the issuance of the Securities or of the basis for such opinions.
<TABLE>
<CAPTION>
Semi-
<S> <C> <C>
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 55.84 $ 55.84
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.33 $ 1.85
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 53.51 $ 53.99
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 53.51 $ 53.99
Divided by 12 and 2, respectively......................................... $ 4.46 $ 27.00
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14865 $ .14999
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.35% 5.40%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.38% 5.43%
Estimated Initial Monthly Distribution (August 1995)....................... $ 6.09
Estimated Initial Semi-annual Distribution (January 1996).................. $ 28.64
Estimated Normal Distribution per Unit <F5>................................ $ 4.46 $ 27.00
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee <F1>...... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the
California IM-IT Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... FIRST day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing August 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.05
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 $55.89. Estimated Annual Expense per Unit (excluding
insurance) will be increased to $2.38 and $1.90 under the monthly and
semi-annual distribution plans, respectively; and Estimated Net Annual
Interest Income per Unit will remain the same as shown. See "Estimated Current
Returns and Estimated Long-Term Returns."
<F2>Excluding insurance costs. The Estimated Annual Expenses are expected to
fluctuate periodically (see "Trust Administration--Fund Administration and
Expenses--Miscellaneous Expenses").
<F3>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F4>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the 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 the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<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".
</TABLE>
<TABLE>
CALIFORNIA INSURED MUNICIPALS INCOME TRUST
SERIES 141 (IM-IT AND QUALITY MULTI-SERIES 254)
PORTFOLIO As of June 15, 1995
<CAPTION>
Offering
Price To
Aggregate Name of Issuer, Title, Interest Rate andMaturity Date of Redemption California
Principal<F1> either Bonds Deposited orBonds Contracted for<F1><F5> Rating<F2> Feature<F3> IM-IT Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 350,000 California State University, Fresno Association, Inc.,
Auxillary Organization Revenue Bonds (Student Residence 2005 @ 101
Project) Series 1995 (MBIA Insured) #6.25% Due 2/1/2017.. YAAA 2010 @ 100 S.F. $ 360,409
100,000 Orchard School District, County of Santa Clara,
California, 1995 General Obligation Bonds, Series A (FGIC
Insured) #0.00% Due 2/1/2018............................. YAAA 26,075 <F6>
110,000 Santa Ana Financing Authority, California, Water Revenue 2003 @ 102
Bonds, Series 1994 (MBIA Insured) #6.10% Due 9/1/2019.... YAAA 2017 @ 100 S.F. 111,932
500,000 Pomona Public Financing Authority, California, 1993
Refunding Revenue Bonds, Series L (Southwest Pomona
Redevelopment Project) CapMAC Insured #5.75% Due 2004 @ 102
2/1/2020 .................................................. AAA 2014 @ 100 S.F. 485,860
300,000 M-S-R Public Power Agency (California) San Juan Refunding
Revenue Bonds, Series F (AMBAC Indemnity Insured) #6.00% 2003 @ 102
Due 7/1/2020............................................... AAA 2014 @ 100 S.F. 302,988
500,000 Santa Margarita/Dana Point Authority, Orange County,
California, Revenue Bonds, Series B (1994 Improvement
Districts Nos. 3, 3A, 4 and 4A General Obligation Bond 2004 @ 102
Refinancing) MBIA Insured #5.75% Due 8/1/2020........... AAA 2015 @ 100 S.F. 488,895
120,000 California State University, Fresno Student Union Revenue
Bonds, Series B (AMBAC Indemnity Insured) 5.80% Due
11/1/2020.................................................. YAAA 2004 @ 102 118,720
500,000 City and County of San Francisco, California, Certificates
of Participation (San Francisco Courthouse Project) Series
1995 (Capital Guaranty Insured)** 5.875% Due 4/1/2021.... YAAA 2005 @ 102 499,550
500,000 Airports Commission, City and County of San Francisco,
California, San Francisco International Airport, Second
Series Revenue Bonds, Issue 7, Superbay Hangar (FGIC 2004 @ 102
Insured) 6.00% Due 5/1/2025.............................. YAAA 2021 @ 100 S.F. 505,180
$ 2,980,000 $ 2,899,609
</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".
TEXAS IM-IT TRUST
General. The Texas IM-IT Trust consists of 10 issues of Securities. None of
the Bonds in the Texas IM-IT Trust are general obligations of the governmental
entities issuing them and 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
purpose of issues (and percentage of principal amount to total Texas IM-IT
Trust) as follows: Retail Electric/Gas, 3 (35%); General Purpose, 1 (18%);
Industrial Revenue, 2 (17%); Water and Sewer, 2 (16%) and Health Care, 2
(14%). No Bond issue has received a provisional rating.
Risk Factors. Historically, the primary sources of the State's revenues have
been sales taxes, mineral severance taxes and federal grants. Due to the
collapse of oil and gas prices in 1986 and a resulting enactment by recent
legislatures of new tax measures, including those increasing the rates of
existing taxes and expanding the tax base for certain taxes, there has been a
reordering in the relative importance of the State's taxes in terms of their
contribution to the State's revenue in any year. Due to the State's expansion
in Medicaid spending and other Health and Human Services programs requiring
federal matching revenues, federal receipts was the State's number one source
of income in fiscal 1994. Sales tax, which had been the main source of revenue
for the previous 12 years prior to fiscal 1993, was second, accounting for
26.7% of total revenues in fiscal 1994. Licenses, fees and permits is now the
third largest revenue source, contributing 8.6% of total revenues in fiscal
1994. The motor fuels tax is now the State's fourth largest revenue source and
the second largest tax, accounting for approximately 5.9% of total revenue in
fiscal year 1994. Interest and investment income, the State's fifth largest
revenue source, accounted for 4.6% of the total revenue in fiscal year 1994.
The remainder of the State's revenues are derived primarily from other excise
taxes. The State currently has no personal or corporate income tax. The State
does, however, impose a corporate franchise tax based in certain circumstances
in part on a corporation's profit.
Heavy reliance on the energy and agricultural sectors for jobs and income
resulted in a general downturn in the Texas economy beginning in 1982 as those
industries suffered significantly. The effects of this downturn continued to
adversely affect the State's real estate industry and its financial
institutions for several years. As a result of these problems, the general
revenue fund had a $231 million cash deficit at the beginning of the 1987
fiscal year and ended the 1987 fiscal year with a $745 million cash deficit.
In 1987, the Texas economy began to move toward a period of recovery. The
expansion continued in 1988 and 1989. In fiscal year 1994, the State ended the
year with a general revenue fund cash surplus of $2,225 million. This was the
seventh consecutive year that Texas ended a fiscal year with a positive
balance.
The 73rd Legislature meeting in 1993 passed the 1994-1995 biennial all funds
budget of $71.2 billion without increasing state taxes. This was accomplished
by cutting spending in certain areas and increasing federal funding. The state
Comptroller has estimated that total state revenues from all sources would
total $74.1 billion for the 1994-1995 biennium. The Comptroller has estimated
that total revenues for fiscal 1995 will be 37.44 billion, compared to actual
revenues of 36.7 billion for fiscal 1994. The revenue estimate for fiscal 1995
is based on an assumption that the Texas economy will show a steady growth.
The Texas Constitution prohibits the State from levying ad valorem taxes on
property for general revenue purposes and limits the rate of such taxes for
other purposes to $.35 per $100 of valuation. The Constitution also permits
counties to levy, in addition to all other ad valorem taxes permitted by the
Constitution, ad valorem taxes on property within the county for flood control
and road purposes in an amount not to exceed $.30 per $100 of valuation. The
Constitution prohibits counties, cities and towns from levying a tax rate
exceeding $.80 per $100 of valuation for general fund and other specified
purposes.
With certain specific exceptions, the Texas Constitution generally prohibits
the creation of debt by or on behalf of the State unless the voters of the
State, by constitutional amendment, authorize the issuance of debt (including
general obligation indebtedness backed by the State's taxing power and full
faith and credit). In excess of $8.49 billion of general obligation bonds have
been authorized in Texas and almost $4.54 billion of such bonds are currently
outstanding. Of these, approximately 78.6% were issued by the Veterans' Land
Board and the Texas Public Finance Authority.
Though the full faith and credit of the State are pledged for the payment of
all general obligations issued by the State, much of that indebtedness is
designed to be eventually self-supporting from fees, payments, and other
sources of revenues; in some instances, the receipt of such revenues by
certain issuing agencies has been in sufficient amounts to pay the principal
of and interest on the issuer's outstanding bonds without requiring the use of
appropriated funds.
Pursuant to Article 717k-2, Texas Revised Civil Statutes, as presently
amended, the net effective interest rate for any issue or series of Bonds in
the Texas IM-IT Trust is limited to 15%.
From the time Standard & Poor's began rating Texas general obligation bonds in
1956 until early 1986, that firm gave such bonds its highest rating, "AAA."In
April 1986, in response to the State economic problems, Standard & Poor's
downgraded its rating of Texas general obligation bonds to "AA+."Such rating
was further downgraded in July 1987 to "AA."Moody's Investors Service, Inc.
has rated Texas bonds since prior to the Great Depression. Moody's upgraded
its rating of Texas general obligation bonds in 1962 from "Aa"to "Aaa", its
highest rating, following the imposition of a statewide sales tax by the
Legislature. Moody's downgraded such rating to "Aa"in March 1987. No
prediction can be made concerning future changes in ratings by national rating
agencies of Texas general obligation bonds or concerning the effect of such
ratings changes on the market for such issues.
The same economic and other factors affecting the State of Texas and its
agencies also have affected cities, counties, school districts and other
issuers of bonds located throughout the State. Declining revenues caused by
the downturn in the Texas economy in the mid-1980s forced these various other
issuers to raise taxes and cut services to achieve the balanced budget
mandated by their respective charters or applicable State law requirements.
Standard & Poor's and Moody's Investors Service, Inc. assign separate ratings
to each issue of bonds sold by these other issuers. Such ratings may be
significantly lower than the ratings assigned by such rating agencies to Texas
general obligation bonds.
In March 1993, the Legislature passed a proposed constitutional amendment
which would allow a limited amount of money to be "recaptured"from wealthy
school districts and redistributed to property-poor school districts. However,
the amendment was rejected by the voters on May 1, 1993, requiring the
Legislature to develop a new school finance plan. At the end of May 1993, the
legislature passed a new school finance bill that provides school districts
with certain choices to achieve funding equalization. The Texas Supreme Court
upheld this school finance law in January 1995.
A wide variety of Texas laws, rules and regulations affect, directly, or
indirectly, the payment of interest on, or the repayment of the principal of,
Bonds in the Texas IM-IT Trust. The impact of such laws and regulations on
particular Bonds may vary depending upon numerous factors including, among
others, the particular type of Bonds involved, the public purpose funded by
the Bonds and the nature and extent of insurance or other security for payment
of principal and interest on the Bonds. For example, Bonds in the Texas IM-IT
Trust which are payable only from the revenues derived from a particular
facility may be adversely affected by Texas laws or regulations which make it
more difficult for the particular facility to generate revenues sufficient to
pay such interest and principal, including, among others, laws and regulations
which limit the amount of fees, rates or other charges which may be imposed
for use of the facility or which increase competition among facilities of that
type or which limit or otherwise have the effect of reducing the use of such
facilities generally, thereby reducing the revenues generated by the
particular facility. Bonds in the Texas IM-IT Trust, the payment of interest
and principal on which is payable from annual appropriations, may be adversely
affected by local laws or regulations that restrict the availability of monies
with which to make such appropriations. Similarly, Bonds in the Texas IM-IT
Trust, the payment of interest and principal on which is secured, in whole or
in part, by an interest in real property may be adversely affected by declines
in real estate values and by Texas laws that limit the availability of
remedies or the scope of remedies available in the event of a default on such
Bonds. Because of the diverse nature of such laws and regulations and the
impossibility of predicting the nature or extent of future changes in existing
laws or regulations or the future enactment or adoption of additional laws or
regulations, it is not presently possible to determine the impact of such laws
and regulations on the Bonds in the Texas IM-IT Trust and, therefore, on the
Units.
The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of Bonds in the Texas
IM-IT Trust and does not purport to be a complete or exhaustive description of
all adverse conditions to which the issuers in the Texas 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 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
Bond, the market value or marketability of the Bonds or the ability of the
respective issuers of the Bonds acquired by the Texas 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
Texas IM-IT Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Leonard Hurt Terry & Blinn, a professional corporation,
special counsel to the Fund, under existing Texas law:
(1)Neither the State nor any political subdivision of the State currently
imposes an income tax on individuals. Therefore, no portion of any
distribution received by an individual Unitholder of the Trust in respect of
his Units, including a distribution of the proceeds of insurance in respect of
such Units, is subject to income taxation by the State or any political
subdivision of the State;
(2)Except in the case of certain transportation businesses, savings and loan
associations and insurance companies, no Unit of the Trust is taxable under
any property tax levied in the State;
(3)The "inheritance tax"of the State, imposed upon certain transfers of
property of a deceased resident individual Unitholder, may be measured in part
upon the value of Units of the Trust included in the estate of such
Unitholder; and
(4)With respect to any Unitholder which is subject to the State corporate
franchise tax, Units in the Trust held by such Unitholder, and distributions
received thereon, will be taken into account in computing the "taxable
capital"of the Unitholder allocated to the State, one of the bases by which
such franchise tax is currently measured (the other being a corporation's "net
capital earned surplus", which is, generally, its net corporate income plus
officers and directors income).
The opinion set forth in clause (2), above, is limited to the extent that
Units of the Trust may be subject to property taxes levied in the State if
held on the relevant date: (i) by a transportation business described in
V.T.C.A., Tax Code, Subchapter A, Chapter 24; (ii) by a savings and loan
association formed under the laws of the State (but only to the extent
described in section 11.09 of the Texas Savings and Loan Act, Vernon's Ann.
Civ. St. art. 852a); or (iii), by an insurance company incorporated under the
laws of the State (but only to the extent described in V.A.T.S., Insurance
Code, Art. 4.01). Each Unitholder described in the preceding sentence should
consult its own tax advisor with respect to such matters.
Corporations subject to the State franchise tax should be aware that State
corporate franchise tax law may be subject to taxation all or a portion of any
gains realized by such a corporate Unitholder upon the sale, exchange or other
disposition of a Unit. Each corporation which is subject to the State
franchise tax and which is considering the purchase of Units should consult
its tax advisor regarding the effect of these provisions of Texas franchise
tax law.
<TABLE>
<CAPTION>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income During the First Year<F1>:
Estimated Annual Interest Income per Unit...................................................... $ 53.80 $ 53.80
Less: Estimated Annual Expense per Unit <F2>................................................... $ 1.66 $ 1.21
Less: Annual Premium on Portfolio Insurance per Unit........................................... -- --
Estimated Net Annual Interest Income per Unit.................................................. $ 52.14 $ 52.59
Calculation of Estimated Interest Earnings per Unit During the First Year:
Estimated Net Annual Interest Income per Unit.................................................. $ 52.14 $ 52.59
Divided by 12 and 2, respectively.............................................................. $ 4.35 $ 26.30
Estimated Daily Rate of Net Interest Accrual per Unit During the First Year..................... $ .14485 $ .14610
Estimated Current Return Based on Public Offering Price During the First Year<F1><F3><F4><F5>... 5.21% 5.26%
Calculation of Estimated Net Annual Unit Income After the First Year<F1>:
Estimated Annual Interest Income per Unit...................................................... $ 54.67 $ 54.67
Less: Estimated Annual Expense per Unit <F2>................................................... $ 2.49 $ 2.04
Less: Annual Premium on Portfolio Insurance per Unit........................................... $ 52.18 $ 52.63
Calculation of Estimated Interest Earnings per Unit After the First Year:
Estimated Net Annual Interest Income per Unit.................................................. $ 52.18 $ 52.63
Divided by 12 and 2, respectively.............................................................. $ 4.35 $ 26.32
Estimated Daily Rate of Net Interest Accrual per Unit After the First Year...................... $ .14496 $ .14622
Estimated Current Return Based on Public Offering Price After the First Year<F1><F3><F4><F5>.... 5.22% 5.26%
Estimated Long-Term Return <F1><F3><F4><F5>..................................................... 5.26% 5.31%
Estimated Initial Monthly Distribution (August 1995)............................................ $ 5.94
Estimated Initial Semi-annual Distribution (January 1996)....................................... $ 27.92
Estimated Normal Distribution per Unit <F5>..................................................... $ 4.35 $ 26.32
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee <F1>...... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the
Texas IM-IT Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... FIRST day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing August 15, 1995
<FN>
<F1>The differences between the Estimated Current Returns during the first year
and after the first year are shown in the table above. Due to inclusion in the
portfolio of "when, as and if issued"Bonds a portion of the monies received by
the Trust (the net interest accruing on such bonds prior to their respective
deliveries to the Trust--the last of which is expected to be on July 6, 1995)
will be treated, in the first year only, as a distribution which is not deemed
to be income to Unitholders. During the first year $.87 per Unit (for those
purchasing units on the Date of Deposit) will be "when issued"interest.
However, because the Trustee will reduce its expenses during the first year to
the extent of its annual fee which is expected to be approximately $.83 per
Unit, only $.04 or .004% per Unit will be considered such a distribution and
is the difference between the first and second year Estimated Current Returns
indicated above. It should be noted that the actual cash generated in
connection with each Unit during the first year will equal the amount
indicated under Estimated Net Annual Interest Income per Unit. This cash
amount during the first year includes $.04 per Unit, which is a distribution
not deemed to be income. See "The Fund"and "Estimated Current Returns and
Estimated Long-Term Returns". The fact that there is a distribution not deemed
to be income during the first year would not effect the Estimated Long-Term
Returns by more than 0.1% per Unit."
<F2>Excluding insurance costs. The Estimated Annual Expenses are expected to
fluctuate periodically (see "Trust Administration--Fund Administration and
Expenses--Miscellaneous Expenses").
<F3>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F4>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the 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 the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<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".
</TABLE>
<TABLE>
TEXAS INSURED MUNICIPALS INCOME TRUST
SERIES 40 (IM-IT AND QUALITY MULTI-SERIES 254)
PORTFOLIO As of June 15, 1995
<CAPTION>
Offering
Price To
Aggregate Name of Issuer, Title, Interest Rate andMaturity Date of either Redemption Texas
Principal<F1> Bonds Deposited orBonds Contracted for<F1><F5> Rating<F2> Feature<F3> IM-IT Trust<F4>
<S> <C> <C> <C> <C>
$ 100,000 Lubbock, Texas, Health Facilities Development Corporation,
Hospital Revenue Refunding Bonds (Methodist Hospital Issue) 2003 @ 102
Series A (AMBAC Indemnity Insured) #5.875% Due 12/1/2013....... AAA 2009 @ 100 S.F. $ 100,689
495,000 City of League City, Texas, Section 4B, Industrial Development
Corporation, Sales Tax Revenue Bonds, Series 1995 (MBIA YAAA 2005 @ 100 286,289
Insured)** #295M- 5.50% Due 9/1/2014 #200M- 5.50% Due 9/1/2015 YAAA 2005 @ 100 193,902
485,000 Harris County, Texas, Water Control and Improvement District No.
110, Waterworks and Sewer System, Combination Unlimited Tax and
Revenue Bonds, Series 1995 (Bank Qualified) AMBAC Indemnity
Insured** #285M- 5.375% Due 3/1/2017 #200M- 5.375% Due YAAA 2005 @ 100 271,548
3/1/2018......................................................... YAAA 2005 @ 100 190,336
320,000 Tarrant County, Texas, Health Facilities Development
Corporation, Hospital Revenue Bonds (Adventist Health 2005 @ 102
System/Sunbelt Inc. Issue) MBIA Insured #5.50% Due 11/15/2017.. YAAA 2011 @ 100 S.F. 305,779
450,000 Brazos River Authority, Texas, Collateralized Revenue Refunding
Bonds, Houston Lighting and Power Company Project, Series 1993
(MBIA Insured) #5.60% Due 12/1/2017............................ AAA 2003 @ 102 438,268
550,000 Brazos River Authority, Texas, Special Facilities Revenue
Refunding Bonds, Series 1995 (FGIC Insured)** #5.50% Due 2005 @ 100
8/15/2021........................................................ YAAA 2016 @ 100 S.F. 528,930
125,000 Austin, Texas, Utility System Revenue Refunding Bonds, Series 2004 @ 100
1994 (FGIC Insured) #5.75% Due 5/15/2024....................... AAA 2020 @ 100 S.F. 123,884
475,000 Matagorda County, Texas, Navigation District No. 1, Pollution
Control Revenue Refunding Bonds, Series 1993 (Central Power &
Light Company Project) MBIA Insured 6.00% Due 7/1/2028......... AAA 2003 @ 102 480,918
$ 3,000,000 $ 2,920,543
</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".
KENTUCKY QUALITY TRUST
General. The Kentucky Quality Trust consists of 9 issues of Securities. None
of the Bonds in the Kentucky Quality Trust are general obligations of the
governmental entities issuing them and 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 purpose of issues (and percentage of principal amount to
total Kentucky Quality Trust) as follows: Health Care, 3 (32%); Retail
Electric/Gas, 3 (30%); Multi-Family Mortgage Revenue, 1 (16%); Public
Building, 1 (14%) and Water and Sewer, 1 (8%). No Bond issue has received a
provisional rating.
Risk Factors. The Commonwealth of Kentucky leads the nation in total tonnage
of coal produced and ranks among the top 10 states in the value of all
minerals produced. Tobacco is the dominant agricultural crop and Kentucky
ranks second among the states in the total cash value of tobacco raised. The
manufacturing mix in the state reflects a significant diversification. In
addition to the traditional concentration of tobacco processing plants and
bourbon distilleries, there is considerable durable goods production, such as
automobiles, heavy machinery, consumer appliances, and office equipment. The
State's parks system and the horse breeding and racing industry, symbolized by
the Kentucky Derby, play an important role in an expanding tourist business in
the state.
Current economic problems, including particularly the continuing high
unemployment rate, have had varying effects on the differing geographic areas
of the State and the political subdivisions located within such geographic
areas. Although revenue obligations of the State or its political subdivisions
may be payable from a specific source or project, there can be no assurance
that further economic difficulties and the resulting impact on State and local
governmental finances will not adversely affect the market value of the Bonds
in the Kentucky Quality Trust or the ability of the respective obligors to pay
debt service of such Bonds.
Prospective investors should study with care the portfolio of Bonds in the
Kentucky Quality Trust and should consult with their investment advisors as to
the merits of particular issues in the portfolio.
Tax Status. For a discussion of the Federal tax status of income earned on
Kentucky Quality Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Harper, Ferguson & Davis, special counsel to the Fund for
Kentucky tax matters, under existing Kentucky law:
Because Kentucky income tax law is based upon the Federal law and in explicit
reliance upon the opinion of Chapman and Cutler referred to above, and in
further reliance on the determination letter to us of the Revenue Cabinet of
Kentucky dated May 10, 1984, it is our opinion that the application of
existing Kentucky income tax law would be as follows:
(1)Each Kentucky Unitholder will be treated as the owner of a pro rata portion
of the Kentucky Quality Trust for Kentucky income tax purposes, and the income
of the Kentucky Quality Trust will therefore be treated as the income of the
Kentucky Unitholders under Kentucky law;
(2)Interest on Bonds that would be exempt from Federal income taxation when
paid directly to a Kentucky Unitholder will be exempt from Kentucky income
taxation when: (i) received by the Kentucky Quality Trust and attributed to
such Kentucky Unitholder; and (ii) when distributed to such Kentucky
Unitholder;
(3)Each Kentucky Unitholder will realize taxable gain or loss when the
Kentucky Quality Trust disposes of a Bond (whether by sale, exchange,
redemption or payment at maturity) or when the Kentucky Unitholder redeems or
sells Units at a price that differs from original cost as adjusted for
amortization or accrual, as appropriate, of bond discount or premium and other
basis adjustments (including any basis reduction that may be required to
reflect a Kentucky Unitholder's share of interest, if any, accruing on Bonds
during the interval between the Kentucky Unitholder's settlement date and the
date such Bonds are delivered to the Kentucky Quality Trust, if later);
(4)Tax cost reduction requirements relating to amortization of bond premium
may, under some circumstances, result in Kentucky Unitholders realizing
taxable gain when their Units are sold or redeemed for an amount equal to or
less than their original cost;
(5)Units of the Kentucky Quality Trust, to the extent the same represent an
ownership in obligations issued by or on behalf of the Commonwealth of
Kentucky or governmental units of the Commonwealth of Kentucky, the interest
on which is exempt from Federal and Kentucky income taxation will not be
subject to ad valorem taxation by the Commonwealth of Kentucky or any
political subdivision thereof; and
(6)If interest or indebtedness incurred or continued by a Kentucky Unitholder
to purchase Units in the Kentucky Quality Trust is not deductible for Federal
income tax purposes, it also will be nondeductible for Kentucky income tax
purposes.
<TABLE>
<CAPTION>
Semi-
<S> <C> <C>
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 54.44 $ 54.44
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.30 $ 1.94
Estimated Net Annual Interest Income per Unit......................... $ 52.14 $ 52.50
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 52.14 $ 52.50
Divided by 12 and 2, respectively..................................... $ 4.35 $ 26.25
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14482 $ .14583
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.21% 5.25%
Estimated Long-Term Return <F2><F3><F4>................................ 5.24% 5.28%
Estimated Initial Monthly Distribution (August 1995)................... $ 5.94
Estimated Initial Semi-annual Distribution (November 1995)............. $ 19.10
Estimated Normal Distribution per Unit <F4>............................ $ 4.35 $ 26.25
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee <F1>...... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the
Kentucky Quality Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... FIRST day of the month as follows: monthly--each month; semi-annual--May and November
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--May
and November commencing August 15, 1995
<FN>
<F1>The estimated annual expenses are expected to fluctuate periodically (see
"Trust Administration--Fund Administration and Expenses--Miscellaneous
Expenses").
<F2>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General".
<F3>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the 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 the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<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".
</TABLE>
KENTUCKY INVESTORS' QUALITY TAX-EXEMPT TRUST
SERIES 55 (IM-IT AND QUALITY MULTI-SERIES 254)
PORTFOLIO As of June 15, 1995
<TABLE>
<CAPTION>
Offering
Price To
Kentucky
Quality
Trust<F4>
Name of Issuer, Title, Interest Rate andMaturity
Date of either Bonds Deposited orBonds Contracted
for<F1><F5> Rating<F2>
Aggregate Standard Redemption
Principal<F1> & Poor's Moody's Feature<F3>
<S> <C> <C> <C> <C> <C> <C>
$ 255,000 Boyle County, Kentucky, Hospital Revenue Bonds,
Series 1994 (Ephraim McDowell Regional Medical 2004 @ 102
Center Project) FGIC Insured #5.80% Due 4/1/2014. AAA Aaa 2012 @ 100 S.F. $ 257,262
75,000 City of Owensboro, Kentucky, Electric Light and
Power System Revenue Bonds, Series 1991B (AMBAC
Indemnity Insured) #0.00% Due 1/1/2016........... AAA Aaa 23,029 <F6>
440,000 Kentucky Infrastructure Authority, Governmental
Agencies Program, Revenue Refunding Bonds, Series 2003 @ 102
1993E #5.75% Due 8/1/2018........................ A N/R 2014 @ 100 S.F. 436,626
500,000 Kentucky Economic Development Finance Authority,
Hospital Facilities Revenue Refunding Bonds,
Series 1994 (St. Claire Medical Center Project) 2004 @ 102
Connie Lee Insured #5.625% Due 9/1/2021......... AAA N/R 2014 @ 100 S.F. 489,515
500,000 Jefferson County, Kentucky, Pollution Control
Revenue Bonds, Louisville Gas and Electric
Company, Series A 5.90% Due 4/15/2023........... AA Aa2 2005 @ 102 506,685
250,000 Louisville and Jefferson County, Kentucky,
Metropolitan Sewer District, Sewer and Drainage
System Revenue Refunding Bonds, Series 1993B (MBIA 2003 @ 102
Insured) #5.50% Due 5/15/2023.................... AAA Aaa 2021 @ 100 S.F. 243,665
360,000 Boone County, Kentucky, Collateralized Pollution
Control Revenue Refunding Bonds (The Cincinnati
Gas & Electric Company) Series 1994A (MBIA
Insured) 5.50% Due 1/1/2024...................... AAA Aaa 2004 @ 102 350,798
225,000 Kentucky Economic Development Finance Authority,
Hospital Facilities Revenue Refunding Bonds,
Series 1994 (Baptist Healthcare System Project) 2004 @ 102
MBIA Insured #5.00% Due 8/15/2024................ AAA Aaa 2016 @ 100 S.F. 201,816
500,000 Dayton, Kentucky, Elderly Housing Corporation,
Mortgage Revenue Refunding Bonds (FHA Insured
Mortgage-Speers Court Apartments) Series 1993A 2003 @ 102
6.00% Due 9/1/2024................................ AAA N/R 2004 @ 100 S.F. 504,335
$ 3,105,000 $ 3,013,731
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
As of the Date of Deposit: June 15, 1995
(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 May 17,1995 to June 14,1995. These
Securities have expected settlement dates ranging from June 15,1995 to July
6,1995 (see "Unitholder Explanations").
(2)All ratings are by Standard & Poor's 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
Annual Profit Interest Bid Side
Trust Insurance Cost to (Loss) to Income to Evaluation of
Cost Sponsor Sponsor Trust Bonds
<S> <C> <C> <C> <C> <C>
IM-IT............................................. $-- $ 8,572,440 $ 17,983 $ 504,488 $ 8,521,840
California IM-IT Intermediate Laddered Maturity... $-- $ 2,958,573 $ 26,162 $ 136,550 $ 2,962,181
California IM-IT.................................. $-- $ 2,898,937 $ 672 $ 170,420 $ 2,877,665
Texas IM-IT....................................... $-- $ 2,897,335 $ 23,208 $ 167,906 $ 2,897,306
Kentucky Quality.................................. $-- $ 3,007,192 $ 6,539 $ 172,515 $ 2,990,848
</TABLE>
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
Trust Aggregate Principal Range of Days Subsequent
Amount to First Settlement Date
<S> <C> <C>
IM-IT............................................. 26% 1 to 13 days
California IM-IT Intermediate Laddered Maturity... 40% 2 to 8 days
California IM-IT.................................. 17% 2 days
Texas IM-IT....................................... 51% 9 to 16 days
Kentucky Quality.................................. -- --
</TABLE>
On the Date of Deposit, the offering side evaluations of the Securities in the
IM-IT, California IM-IT Intermediate Laddered Maturity, California IM-IT,
Texas IM-IT and Kentucky Quality Trusts were higher than the bid side
evaluations of such Securities by 0.76%, 0.75%, 0.74%, 0.77% and 0.74%,
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. To the extent that zero coupon bonds are sold or called prior
to maturity, there is no guarantee that the value of the proceeds received
therefrom by the Trust will equal or exceed the par value that would have been
obtained at maturity of such zero coupon bonds. Approximately 5%, 2%, 3% and
2% of the aggregate principal amount of the Securities in the IM-IT,
California IM-IT Intermediate Laddered Maturity Trust, California IM-IT Trust
and Kentucky Quality Trust, respectively, are "zero coupon" bonds.
Underwriting. The Underwriters named below have severally purchased Units in
the following respective amounts from the Sponsor.
<TABLE>
<CAPTION>
Name IM-IT
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 4,433
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 1,000
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 500
J.C. Bradford & Co. 330 Commerce Street, Nashville, Tennessee 37201 250
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 250
J.J.B. Hilliard, W.L. Lyons, Inc. 501 South Fourth Street, Louisville, Kentucky 40202 250
William R. Hough & Company 100 Second Avenue South, 8th Floor, St. Petersburg, Florida 33701 250
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 250
Stifel, Nicolaus & Company, Incorporated 500 North Broadway, St. Louis, Missouri 63102 250
B.C. Ziegler and Company 215 North Main Street, West Bend, Wisconsin 53095 200
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
Robert W. Baird & Co. Inc. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 100
Dain Bosworth Plaza, 60 South Sixth Street, P15C, Minneapolis, Minnesota
Dain Bosworth Incorporated 55402 100
Fidelity Capital Markets 164 Northern Avenue, Boston, Massachusetts 02210 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Kemper Securities, Inc. 77 West Wacker Drive, 28th Floor, Chicago, Illinois 60601 100
McDonald Investment Center, 800 Superior Avenue, Suite 2100, Cleveland, Ohio
McDonald & Company Securities, Inc. 44114 100
Oppenheimer & Co., Inc. World Financial Center, 8th Floor, New York, New York 10281 100
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
Principal Financial Securities, Inc. Fountain Place, 1445 Ross Avenue, Suite 2300, Dallas, Texas 75201 100
Raymond James & Associates, Inc. 880 Carillon Parkway, St. Petersburg, Florida 33733 100
Roosevelt & Cross Inc. 20 Exchange Place, New York, New York 10005 100
Smith Barney Inc. 388 Greenwich Street, 23rd Floor, New York, New York 10013 100
Southwest Securities Inc. 1201 Elm Street, Suite 4300, Dallas, Texas 75270 100
9,033
</TABLE>
<TABLE>
<CAPTION>
California
IM-IT
Intermediate
Laddered
Name Maturity Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,100
Stephens Inc. 111 Center Street, Little Rock, Arkansas 72201 1,000
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 700
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
3,000
</TABLE>
<TABLE>
<CAPTION>
California
Name IM-IT Trust
Address Units
<S> <C> <C>
Stephens Inc. 111 Center Street, Little Rock, Arkansas 72201 1,000
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 999
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 250
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
Crowell, Weedon & Company One Wilshire Boulevard, Los Angeles, California 90017 100
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Parkway 109 Office Center, 328 Newman Springs Road, Redbank,
First Montauk Securities New Jersey 07701 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
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
3,049
</TABLE>
<TABLE>
<CAPTION>
Texas
Name IM-IT Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,771
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
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
3,071
</TABLE>
<TABLE>
<CAPTION>
Kentucky
Name Quality Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,369
J.J.B. Hilliard, W.L. Lyons, Inc. 501 South Fourth Street, Louisville, Kentucky 40202 400
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
Smith Barney Inc. 388 Greenwich Street, 23rd Floor, New York, New York 10013 100
3,169
</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 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.
FUND ADMINISTRATION AND EXPENSES
Sponsor. Van Kampen American Capital Distributors, Inc., a Delaware
corporation, is the Sponsor of the Trust. Van Kampen American Capital
Distributors, Inc. is primarily owned by Clayton, Dubilier & Rice, Inc., a New
York-based private investment firm. Van Kampen American Capital Distributors,
Inc. management owns a significant minority equity position. Effective
December 20, 1994, the parent of Van Kampen Merritt Inc. acquired American
Capital Management & Research, Inc. As a result, Van Kampen Merritt Inc., has
changed its name to Van Kampen American Capital Distributors, Inc. Van Kampen
American Capital Distributors, 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 offices
at One Parkview Plaza, Oakbrook Terrace, Illinois 60181, (708) 684-6000 and
2800 Post Oak Boulevard, Houston, Texas, 77056, (713) 993-0500. It maintains a
branch office in Philadelphia and has regional representatives in Atlanta,
Dallas, Los Angeles, New York, San Francisco, Seattle and Tampa. As of
December 31, 1994 the total stockholders' equity of Van Kampen Merritt Inc.
was $117,357,000 (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, 1995, the Sponsor and its affiliates managed or supervised
approximately $51.7 billion of investment products, of which over $24.7
billion is invested in municipal securities. The Sponsor and its affiliates
managed $38.9 billion of assets, consisting of $20.3 billion for 42 open end
mutual funds, $9.4 billion for 38 closed-end funds and $5.6 billion for 82
institutional accounts. The Sponsor has also deposited approximately $26
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 Municipals
Income Trust(R)or the IM-IT(R) trust. The Sponsor also provides surveillance
and evaluation services at cost for approximately $13 billion of unit
investment trust assets outstanding. Since 1976, the Sponsor has serviced over
one million retail investor accounts, opened through retail distribution
firms. Van Kampen American Capital Distributors, Inc. is the sponsor of the
various series of the trusts listed below. Some of the mutual funds and
closed-end funds for which Van Kampen American Capital Distributors, Inc. acts
as distributor are also listed below. Only those mutual funds available for
reinvestment under the Reinvestment Option to Unitholders of unit investment
trusts are 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 Multi-Series............ Tax-exempt income by investing in insured municipal securities;
(Premium Bond Series, National, Limited Maturity, Intermediate, all issuers of bonds in a state trust are located in such state
Short Intermediate, Discount, Alabama, Arizona, Arkansas, or in territories or possessions of the United States--
California, California Intermediate, California Intermediate providing exemptions from all state income tax for residents of
Laddered Maturity, California Premium, Colorado, Connecticut, such state (except for the Oklahoma IM-IT Trust where a portion
Florida, Florida Intermediate, Florida Intermediate Laddered of the income of the Trust may be subject to the Oklahoma state
Maturity, Georgia, Louisiana, Massachusetts, Massachusetts income tax)
Premium, Michigan, Michigan Intermediate, Michigan Intermediate
Laddered Maturity, Michigan Premium, Minnesota, Missouri,
Missouri Intermediate 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 Intermediate Laddered Maturity,
Ohio Premium, Oklahoma, Pennsylvania, Pennsylvania Intermediate,
Pennsylvania Intermediate Laddered Maturity, Pennsylvania
Premium, Tennessee, Texas, Texas Intermediate Laddered
Maturity, Washington, West Virginia
Insured Tax Free Bond Trust...................................... Tax-exempt income by investing in insured municipal securities
Insured Tax Free Bond Trust, Insured Multi-Series................ Tax-exempt income by investing in insured municipal securities;
(National, Limited Maturity, New York) all issuers of bonds in a state trust are located in such state--
providing exemptions from state income tax for residents
of such state
Investors' Quality Tax-Exempt Trust.............................. Tax-exempt income by investing in municipal securities
Investors' Quality Tax-Exempt Trust, Multi-Series ............... Tax-exempt income by investing in municipal securities; all
(National, National AMT, Intermediate, Alabama, Arizona, issuers of bonds in a state trust are located in such state or in
Arkansas, California, Colorado, Connecticut, Delaware, territories or possessions of the United States--providing
Florida, Georgia, Hawaii, Kansas, Kentucky, Maine, Maryland, exemptions from state income tax for residents of such state
Massachusetts, Michigan, Minnesota, Missouri, Nebraska,
New Jersey, New York, North Carolina, Ohio, Oregon,
Pennsylvania, South Carolina, Virginia)
Investors' Quality Municipals Trust, AMT Series.................. Tax-exempt income for investors not subject to the alternative
minimum 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 Trust................. Taxable income by investing in government-backed GNMA securities
Van Kampen Merritt International Bond Income Trust............... High current income through an investment in a diversified
portfolio of 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 American Capital 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 Select Equity Trust........................... Provide the potential for capital appreciation and income by
investing 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 Select Equity and Treasury Trust.............. Protect Unitholders' capital and provide the potential for
capital 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 Blue Chip Opportunity Trust................... Provide the potential for capital appreciation and income by
investing 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 Treasury Trust ..... Protect Unitholders' capital and provide the potential for
capital appreciation and income by investing a portion of its
capital 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 Trust................. High current income consistent with preservation of capital
through a 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 Trust............... Provide the potential for capital appreciation and income
consistent 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 the
energy industry 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 Portfolios) potential capital appreciation and dividend income, consistent
with 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
Van Kampen Merritt Brand Name Equity 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 non-durable consumer products industry
Govett Smaller Companies Fund and Treasury Trust..................Provide the potential for long-term capital appreciation by
investing in shares of Govett Smaller Companies Fund and to
protect Unitholders' capital by investing a portion of its
portfolio in "zero coupon" U.S. Treasury obligations.
____________________
*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.
</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
High current income exempt from Federal income taxes by investing in
Van Kampen Merritt Insured Tax Free Income Fund............insured municipal securities
High level of current income exempt from Federal income tax, consistent
Van Kampen Merritt Municipal Income Fund...................with preservation of capital
High current income exempt from Federal income taxes by investing in
Van Kampen Merritt Tax Free High Income Fund...............medium and lower grade municipal securities
High current income exempt from Federal and California income taxes by
Van Kampen Merritt California Insured Tax Free Fund........investing in insured California municipal securities
Provide a high level of current income by investing in medium and lower
grade domestic and foreign government and corporate debt securities.
Van Kampen Merritt High Yield Fund.........................The Fund will seek capital appreciation as a secondary objective
Long-term growth of both capital and dividend income by investing in
Van Kampen Merritt Growth and Income Fund..................dividend paying common stocks
High current income exempt from Federal and Pennsylvania state and
local income taxes by investing in medium and lower grade Pennsylvania
Van Kampen Merritt Pennsylvania Tax Free Income Fund.......municipal securities
High current income by investing in a broad range of money market
Van Kampen Merritt Money Market Fund.......................instruments that will mature within twelve months
High current income exempt from Federal income taxes by investing in a
broad range of municipal securities that will mature within twelve
Van Kampen Merritt Tax Free Money Fund.....................months
High current income by investing in a global portfolio of high quality
debt securities denominated in various currencies having remaining
Van Kampen Merritt Short-Term Global Income Fund...........maturities of not more than three years
High level of current income with a relatively stable net asset value
Van Kampen Merritt Adjustable Rate U.S. Government Fund....investing in U.S. Government securities
High level of current income exempt from Federal income tax, consistent
Van Kampen Merritt Limited Term Municipal Income Fund......with preservation of capital
Provide capital appreciation and current income by investing in a
diversified portfolio of common stocks and income securities issued by
Van Kampen Merritt Utility Fund............................companies engaged in the utilities industry
Provide shareholders with high current income. The Fund will seek
Van Kampen Merritt Strategic Income Fund...................capital appreciation as a secondary objective
High level of current income exempt from Federal income tax and Florida
intangible personal property taxes consistent with preservation of
Van Kampen Merritt Florida Insured Tax Free Income Fund....capital
High level of current income exempt from Federal income tax and New
Van Kampen Merritt New Jersey Tax Free Income Fund.........Jersey gross income tax consistent with preservation of capital
High level of current income exempt from Federal as well as New York
State and New York City income taxes, consistent with preservation of
Van Kampen Merritt New York Tax Free Income Fund...........capital
To provide shareholders current income while also seeking to provide
Van Kampen Merritt Balanced Fund...........................capital growth
</TABLE>
<TABLE>
<CAPTION>
Name of Closed-end Fund Fund Investment Objective
<S> <C>
High current income exempt from Federal income taxes with
safety of principal by investing in a diversified portfolio of
Van Kampen Merritt Municipal Income Trust...........................investment grade municipal securities
High current income exempt from Federal and California income
taxes with safety of principal by investing in a diversified
Van Kampen Merritt California Municipal Trust.......................portfolio of investment grade California municipal securities
High current income while seeking to preserve shareholders'
capital by investing in a diversified portfolio of high yield
Van Kampen Merritt Intermediate Term High Income Trust..............fixed income securities
High current income while seeking to preserve shareholders'
capital by investing in a diversified portfolio of high yield
Van Kampen Merritt Limited Term High Income Trust...................fixed income securities
High current income, consistent with preservation of capital
by investing in interests in floating or variable rate senior
Van Kampen Merritt Prime Rate Income Trust..........................loans
High current income exempt from Federal income tax, consistent
Van Kampen Merritt Investment Grade Municipal Trust.................with preservation of capital
High level of current income exempt from Federal income tax,
Van Kampen Merritt Municipal Trust..................................consistent with preservation of capital
High current income exempt from Federal and California income
taxes with safety of principal by investing in a diversified
Van Kampen Merritt California Quality Municipal Trust...............portfolio of investment grade California municipal securities
High current income exempt from Federal income taxes and
Florida intangible personal property taxes with safety of
principal by investing in a diversified portfolio of
Van Kampen Merritt Florida Quality Municipal Trust..................investment grade Florida municipal securities
High current income exempt from Federal as well as New York
State and New York City income taxes with safety of principal
by investing in a diversified portfolio of investment grade
Van Kampen Merritt New York Quality Municipal Trust.................New York municipal securities
High current income exempt from Federal and Ohio income taxes
with safety of principal by investing in a diversified
Van Kampen Merritt Ohio Quality Municipal Trust.....................portfolio of investment grade Ohio municipal securities
High current income exempt from Federal and Pennsylvania
income taxes with safety of principal by investing in a
diversified portfolio of investment grade Pennsylvania
Van Kampen Merritt Pennsylvania Quality Municipal Trust.............municipal securities
High level of current income exempt from Federal income tax,
Van Kampen Merritt Trust for Investment Grade Municipals............consistent with preservation of capital
High level of current income exempt from Federal income tax,
consistent with preservation of capital by investing in a
diversified portfolio of municipal securities which are
covered by insurance with respect to timely payment of
Van Kampen Merritt Trust for Insured Municipals.....................principal and interest
High level of current income exempt from Federal and
California income taxes, consistent with preservation of
Van Kampen Merritt Trust for Investment Grade CA capital by investing in a diversified portfolio of California
Municipals.........................................................municipal securities
High level of current income exempt from Federal income taxes,
consistent with preservation of capital. The Fund also seeks
Van Kampen Merritt Trust for Investment Grade FL to offer its Shareholders the opportunity to own securities
Municipals.........................................................exempt from Florida intangible personal property taxes
High level of current income exempt from Federal income taxes
Van Kampen Merritt Trust for Investment Grade NJ and New Jersey gross income taxes, consistent with
Municipals ........................................................preservation of capital
High level of current income exempt from Federal as well as
Van Kampen Merritt Trust for Investment Grade NY from New York State and New York City income taxes, consistent
Municipals.........................................................with preservation of capital
High level of current income exempt from Federal and
Pennsylvania income taxes and, where possible under local law,
Van Kampen Merritt Trust for Investment Grade PA local income and property taxes, consistent with preservation
Municipals.........................................................of capital
High level of current income exempt from Federal income tax,
consistent with preservation of capital by investing in a
Van Kampen Merritt Municipal Opportunity Trust......................diversified portfolio of municipal securities
High level of current income exempt from Federal income tax,
consistent with preservation of capital by investing in a
Van Kampen Merritt Advantage Municipal Income Trust.................diversified portfolio of municipal securities
High level of current income exempt from Federal and
Pennsylvania income taxes and, where possible under local law,
local income and property taxes, consistent with preservation
Van Kampen Merritt Advantage Pennsylvania Municipal Income Trust....of capital
Provide common shareholders with a high level of current
income exempt from Federal income taxes, consistent with
Van Kampen Merritt Strategic Sector Municipal Trust.................preservation of capital
High level of current income exempt from Federal income taxes,
Van Kampen Merritt Value Municipal Income Trust.....................consistent with preservation of capital
High level of current income exempt from Federal and
Van Kampen Merritt California Value Municipal California income taxes, consistent with preservation of
Income Trust.......................................................capital
High level of current income exempt from Federal income taxes
Van Kampen Merritt Massachusetts Value Municipal and Massachusetts personal income taxes, consistent with
Income Trust......................................................preservation of capital
High level of current income exempt from Federal income taxes
Van Kampen Merritt New Jersey Value Municipal and New Jersey gross income tax, consistent with preservation
Income Trust.......................................................of capital
High level of current income exempt from Federal as well as
Van Kampen Merritt New York Value Municipal New York State and New York City income taxes, consistent with
Income Trust.......................................................preservation of capital
Van Kampen Merritt Ohio Value Municipal Income High level of current income exempt from Federal and Ohio
Trust..............................................................income taxes, consistent with preservation of capital
High level of current income exempt from Federal and
Van Kampen Merritt Pennsylvania Value Municipal Pennsylvania income taxes, consistent with preservation of
Income Trust......................................................capital
High level of current income exempt from Federal income tax,
Van Kampen Merritt Municipal Opportunity Trust II...................consistent with preservation of capital
High level of current income exempt from Federal income tax,
consistent with preservation of capital. The Fund seeks to
offer its common shareholders the opportunity to own
securities exempt from Florida intangible personal property
Van Kampen Merritt Florida Municipal Opportunity Trust .............taxes
Provide common shareholders with a high level of current
income exempt from Federal income tax, consistent with
Van Kampen Merritt Advantage Municipal Income Trust II..............preservation of capital
To provide common shareholders with a high level of current
income exempt from Federal income tax, consistent with
Van Kampen Merritt Select Sector Municipal Trust....................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 American Capital
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 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. After the first year such fee will be computed at $.51
per $1,000 principal amount of Securities for that portion of each Trust under
the semi-annual distribution plan and $.91 per $1,000 principal amount of
Securities for that portion of each Trust under the monthly distribution plan.
Based on the size of the Trust on the Date of Deposit and assuming all
Unitholders had chosen the semi-annual distribution plan, the Trustee's
estimated annual fees for ordinary recurring services would initially amount
to $4,618, $1,530, $1,520, $1,530 and $1,584, for the IM-IT, California IM-IT
Intermediate Laddered Maturity, California IM-IT, Texas IM-IT and Kentucky
Quality Trusts, respectively. Assuming in the alternative that all Unitholders
had elected the monthly distribution plan such fees would have initially
amount to $8,240, $2,730, $2,712, $2,730 and $2,826, for the above mentioned
Trusts, respectively. 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 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, (g) expenditures incurred in contacting
Unitholders upon termination of the Trusts and (h) costs incurred to reimburse
the Trustee for advancing funds to the Trusts to meet scheduled distributions
(which costs may be adjusted periodically in response to fluctuations in
short-term interest rates).
The fees and expenses set forth herein are payable out of the Trusts. When
such fees and expenses are paid by or owing to the Trustee, they are secured
by a lien on the portfolio 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 an IM-IT or 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 IM-IT Limited Maturity, IM-IT Intermediate, State Intermediate
Laddered Maturity and IM-IT Short Intermediate Trusts. 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 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 interest accrued but unpaid
from the First Settlement Date to the date of settlement as described above
under "Unitholder Explanations--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 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, in the case of an IM-IT or 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.
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 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 Trust and other Insured
Trusts, respectively, as of the Date of Deposit. In connection with quantity
sales to purchasers of any IM-IT or State Trust (other than a State
Intermediate Laddered Maturity 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. A. G.
Edwards & Sons, Inc. ("Edwards"), which acts as a Managing Underwriter of
Units of the various series of the IM-IT, will receive from the Sponsor
reimbursement for certain costs and further compensation in the amount of
$5.00 for each Unit of the IM-IT it underwrites. Also, if The Principal
Financial Securities, Inc. commits (on the Date of Deposit) to underwrite a
total of 4,000 or more Units of this series of the IM-IT, any other series of
the IM-IT and/or any series of Texas Insured Municipals Income Trust during
any calendar month, then The Principal Financial Securities, Inc. will receive
an additional $1.00 per Unit for each of the Units of such Trust it commits to
underwrite in said month. Also, the Sponsor will receive from the Managing
Underwriters of the California IM-IT Trust (who underwrite 15% of the
respective Trusts or 1,000 Units, whichever is greater) the excess of such
gross sales commission over $38.00 per Unit of the respective trusts, as of
the Date of Deposit. Also, any such Managing Underwriter that sells a total of
25% or 1500 Units, whichever is greater, of any California IM-IT Trust will
receive an additional $2.00 per each such Unit. In addition, the Sponsor and
J. J. B. Hilliard, W. L. Lyons, Inc. ("Hilliard, Lyons") have entered into an
agreement under which Hilliard, Lyons may receive an additional $2.00 for each
Unit of the Kentucky Quality Trust which it underwrites, provided it
underwrites a minimum of 400 Units of such Trust. See "Unitholder
Explanations--Public Offering--General."Further, each Underwriter who
underwrites 1,000 or more Units in any Trust will receive additional
compensation from the Sponsor of $1.00 for each Unit it underwrites. 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.
OTHER MATTERS
Legal Opinions. The legality of the Units offered hereby and certain matters
relating to Federal tax law have been passed upon by Chapman and Cutler, 111
West Monroe Street, Chicago, Illinois 60603, as counsel for the Sponsor.
Orrick, Herrington & Sutcliffe has acted as special counsel to the Fund for
California tax matters. Harper, Ferguson & Davis has acted as special counsel
to the Fund for Kentucky tax matters. Leonard Hurt Terry & Blinn has acted as
special counsel to the Fund for Texas 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 LLP, independent certified
public accountants, as set forth in their report in this prospectus, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing.
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 provided
that, at the time such policies are purchased, the amounts paid for such
policies are reasonable, customary and consistent with the reasonable
expectation that the issuer of the obligations, rather than the insurer, will
pay debt service on the obligations; and
(4)Any proceeds paid under individual policies obtained by issuers of Bonds
which represent maturing interest on defaulted 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 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), subject to a statutory de minimis
rule. Market discount can arise based on the price a Trust pays for Bonds or
the price a Unitholder pays for his or her Units. Under the Tax Act, accretion
of market discount is taxable as ordinary income; under prior law the
accretion had been treated as capital gain. Market discount that accretes
while a Trust holds a Bond would be recognized as ordinary income by the
Unitholders when principal payments are received on the Bond, upon sale or at
redemption (including early redemption), or upon the sale or redemption of his
or her Units, unless a Unitholder elects to include market discount in taxable
income as it accrues. The market discount rules are complex and Unitholders
should consult their tax advisers regarding these rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depends upon
the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the
Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings"over an
amount equal to its alternative minimum taxable income (before such adjustment
item and the alternative tax net operating loss deduction). "Adjusted current
earnings"includes all tax exempt interest, including interest on all of the
Bonds in the Fund. 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.
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.
DESCRIPTION OF SECURITIES RATINGS
Standard & Poor's, A Division of The McGraw-Hill Companies. A Standard &
Poor's, a Division of The McGraw-Hill Companies ("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.
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.
*As published by the rating companies.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 254 (IM-IT, California IM-IT Intermediate
Laddered Maturity, California IM-IT, Texas IM-IT and Kentucky Quality Trusts):
We have audited the accompanying statements of condition and the related
portfolios of Insured Municipals Income Trustand Investors' Quality Tax-Exempt
Trust, Multi-Series 254 (IM-IT, California IM-IT Intermediate Laddered
Maturity, California IM-IT, Texas IM-IT and Kentucky Quality Trusts) as of
June 15, 1995. 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 254 (IM-IT,
California IM-IT Intermediate Laddered Maturity, California IM-IT, Texas IM-IT
and Kentucky Quality Trusts) as of June 15, 1995, in conformity with generally
accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
June 15, 1995
<TABLE>
INSURED MUNICIPALS INCOME TRUST
and
INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES 254
Statements of Condition
As of
June 15, 1995
<CAPTION>
California
IM-IT
Intermediate
INVESTMENT IN SECURITIES Laddered California
IM-IT Maturity Trust IM-IT Trust
<S> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 8,590,423 $ 2,984,735 $ 2,899,609
Accrued interest to the First Settlement Date <F1><F4>..... 103,615 12,924 50,210
Total...................................................... $ 8,694,038 $ 2,997,659 $ 2,949,819
LIABILITY AND INTEREST OF UNITHOLDERS
Liability-- ...............................................
Accrued interest payable to Sponsor <F1><F4> $ 103,615 $ 12,924 $ 50,210
Interest of Unitholders-- .................................
Cost to investors <F3>..................................... 9,033,000 3,077,040 3,049,000
Less: Gross underwriting commission <F3>................... 442,577 92,305 149,391
Net interest to Unitholders <F1><F3><F4>................... 8,590,423 2,984,735 2,899,609
Total...................................................... $ 8,694,038 $ 2,997,659 $ 2,949,819
<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:
</TABLE>
<TABLE>
<CAPTION>
Accrued
Principal Offering Interest to
Amount of Amount of Price of Expected
Letter of Bonds Under Bonds Under Delivery
Credit Contracts Contracts Dates
<S> <C> <C> <C> <C>
IM-IT....................................................$8,693,179 $9,055,000 $8,590,423 $102,756
California IM-IT Intermediate Laddered Maturity Trust....$2,997,316 $3,000,000 $2,984,735 $12,581
California IM-IT Trust...................................$2,948,103 $2,980,000 $2,899,609 $48,494
<FN>
<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, by the Sponsor prior to the
deposit of such 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>The Trustee will advance to the Trust the amount of net interest accrued to
June 20, 1995, the First Settlement Date, for distribution to the Sponsor as
the Unitholder of record as of the First Settlement Date.
</TABLE>
<TABLE>
INSURED MUNICIPALS INCOME TRUST
and
INVESTORS' QUALITY TAX-EXEMPT TRUST,
MULTI-SERIES 254
Statements of Condition (Continued)
As of
June 15, 1995
<CAPTION>
INVESTMENT IN SECURITIES Texas Kentucky
IM-IT Trust Quality Trust
<S> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 2,920,543 $ 3,013,731
Accrued interest to the First Settlement Date <F1><F4>..... 21,838 50,478
Total...................................................... $ 2,942,381 $ 3,064,209
LIABILITY AND INTEREST OF UNITHOLDERS
Liability-- ...............................................
Accrued interest payable to Sponsor <F1><F4> $ 21,838 $ 50,478
Interest of Unitholders-- .................................
Cost to investors <F3>..................................... 3,071,000 3,169,000
Less: Gross underwriting commission <F3>................... 150,457 155,269
Net interest to Unitholders <F1><F3><F4>................... 2,920,543 3,013,731
Total...................................................... $ 2,942,381 $ 3,064,209
<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:
</TABLE>
<TABLE>
<CAPTION>
Accrued
Principal Offering Interest to
Amount of Amount of Price of Expected
Letter of Bonds Under Bonds Under Delivery
Credit Contracts Contracts Dates
<S> <C> <C> <C> <C>
Texas IM-IT Trust........ $ 2,944,167 $ 3,000,000 $ 2,920,543 $ 23,624
Kentucky Quality Trust... $ 3,062,224 $ 3,105,000 $ 3,013,731 $ 48,493
<FN>
<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, by the Sponsor prior to the
deposit of such 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>The Trustee will advance to the Trust the amount of net interest accrued to
June 20, 1995, the First Settlement Date, for distribution to the Sponsor as
the Unitholder of record as of the First Settlement Date.
</TABLE>
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 1995. 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 $114,700. 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.
IM-IT
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax
Return Return Bracket 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
$ 0 - 23.35 $ 0 - 39.00 15% 5.88% 6.47% 7.06 % 7.65 % 8.24 % 8.82 % 9.41%
23.35 - 56.55 39.00 - 94.25 28 6.94 7.64 8.33 9.03 9.72 10.42 11.11
56.55 - 117.95 94.25 - 143.60 31 7.25 7.97 8.70 9.42 10.14 10.87 11.59
117.95 - 256.50 143.60 - 256.50 36 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over 256.50 Over 256.50 39.6 8.28 9.11 9.93 10.76 11.59 12.42 13.25
</TABLE>
CALIFORNIA INTERMEDIATE LADDERED MATURITY
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax
Return Return Bracket* 4% 4 1/2% 5% 5 1/2% 6% 6 1/2% 7%
Equivalent Taxable Estimated Current Return
$ 0 - 23.35 $ 0 - 39.00 20.1% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
23.35 - 56.55 39.00 - 94.25 34.7 6.13 6.89 7.66 8.42 9.19 9.95 10.72
94.25 - 143.60 37.4 6.39 7.19 7.99 8.79 9.58 10.38 11.18
56.55 - 117.95 37.9 6.44 7.25 8.05 8.86 9.66 10.47 11.27
117.95 - 214.93 143.60 - 256.50 42.4 6.94 7.81 8.68 9.55 10.42 11.28 12.15
214.93 - 256.50 43 7.02 7.89 8.77 9.65 10.53 11.40 12.28
256.50 - 429.86 45.6 7.35 8.27 9.19 10.11 11.03 11.95 12.87
Over 256.50 Over 429.86 46.2 7.43 8.36 9.29 10.22 11.15 12.08 13.01
</TABLE>
*The State tax rates assumed take into account recent adjustments of tax
brackets based on changes in the Consumer Price Index. The table reflects
California income tax laws that increase State income tax rates for high
income taxpayers. However, the table does not reflect the limitation on
itemized deductions and the phase out of the benefit of the personal exemption
credit and the dependent exemption credit that are imposed by the California
income tax laws in a manner similar to Federal tax law.
CALIFORNIA
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax
Return Return Bracket* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
$ 0 - 23.35 $ 0 - 39.00 20.1% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39% 10.01%
23.35 - 56.55 39.00 - 94.25 34.7 7.66 8.42 9.19 9.95 10.72 11.49 12.25
94.25 - 143.60 37.4 7.99 8.79 9.58 10.38 11.18 11.98 12.78
56.55 - 117.95 37.9 8.05 8.86 9.66 10.47 11.27 12.08 12.88
117.95 - 214.93 143.60 - 256.50 42.4 8.68 9.55 10.42 11.28 12.15 13.02 13.89
214.93 - 256.50 43 8.77 9.65 10.53 11.40 12.28 13.16 14.04
256.50 - 429.86 45.6 9.19 10.11 11.03 11.95 12.87 13.79 14.71
Over 256.50 Over 429.86 46.2 9.29 10.22 11.15 12.08 13.01 13.94 14.87
</TABLE>
*The State tax rates assumed take into account recent adjustments of tax
brackets based on changes in the Consumer Price Index. The table reflects
California income tax laws that increase State income tax rates for high
income taxpayers. However, the table does not reflect the limitation on
itemized deductions and the phase out of the benefit of the personal exemption
credit and the dependent exemption credit that are imposed by the California
income tax laws in a manner similar to Federal tax law.
TEXAS
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax
Return Return Bracket* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
$ 0 - 23.35 $ 0 - 39.00 15% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
23,35 - 56.55 39.00 - 94.25 28 6.94 7.64 8.33 9.03 9.72 10.42 11.11
56.55 - 117.95 94.25 - 143.60 31 7.25 7.97 8.70 9.42 10.14 10.87 11.59
117.95 - 256.50 143.60 - 256.50 36 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over 256.50 Over 256.50 39.6 8.28 9.11 9.93 10.76 11.59 12.42 13.25
</TABLE>
*The State of Texas currently imposes no income tax on individuals;
accordingly, the table reflects only exemption from Federal income taxes.
KENTUCKY
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single Joint Tax
Return Return Bracket 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
$ 0 - 23.35 $ 0 - 39.00 20.1% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39% 10.01%
23.35 - 56.55 39.00 - 94.25 32.3 7.39 8.12 8.86 9.60 10.34 11.08 11.82
56.55 - 117.95 94.25 - 143.60 35.1 7.70 8.47 9.24 10.02 10.79 11.56 12.33
117.95 - 256.50 143.60 - 256.50 39.8 8.31 9.14 9.97 10.80 11.63 12.46 13.29
Over 256.50 Over 256.50 43.2 8.80 9.68 10.56 11.44 12.32 13.20 14.08
</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
American Capital 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.
ESTIMATED CASH FLOWS TO UNITHOLDERS
The tables below set forth the per Unit estimated monthly and semi-annual
distributions of interest and principal to Unitholders. The tables assume no
changes in expenses, no changes in the current interest rates, no exchanges,
redemptions, sales or prepayments of the underlying 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.
IM-IT
Monthly
<TABLE>
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
August 1995 $ 6.12 $ 6.12
September 1995 - December 2004 4.48 4.48
January 2005 4.48 $ 27.67 32.15
February 2005 - May 2006 4.37 4.37
June 2006 4.08 110.71 114.79
July 2006 3.83 11.07 14.90
August 2006 3.78 3.78
September 2006 3.47 110.70 114.17
October 2006 - February 2019 3.20 3.20
March 2019 3.20 36.53 39.73
April 2019 - December 2019 3.04 3.04
January 2020 3.04 19.38 22.42
February 2020 2.96 83.03 85.99
March 2020 - July 2020 2.57 2.57
August 2020 2.57 110.70 113.27
September 2020 - January 2021 2.05 2.05
February 2021 2.05 37.64 39.69
March 2021 - June 2021 2.05 2.05
July 2021 2.05 12.18 14.23
August 2021 - May 2023 2.05 2.05
June 2023 2.05 110.70 112.75
July 2023 - December 2024 1.53 1.53
January 2025 1.53 110.71 112.24
February 2025 - June 2025 .99 .99
July 2025 .99 110.71 111.70
August 2025 - September 2025 .46 .46
October 2025 .46 110.70 111.16
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each June and December Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
December 1995 $ 24.20 $ 24.20
June 1996 - December 2004 27.07 27.07
January 2005 $ 27.67 27.67
June 2005 26.55 26.55
December 2005 26.44 26.44
June 2006 26.15 110.71 136.86
July 2006 11.07 11.07
September 2006 110.70 110.70
December 2006 20.84 20.84
June 2007 - December 2018 19.36 19.36
March 2019 36.53 36.53
June 2019 18.87 18.87
December 2019 18.39 18.39
January 2020 19.38 19.38
February 2020 83.03 83.03
June 2020 16.42 16.42
August 2020 110.70 110.70
December 2020 13.47 13.47
February 2021 37.64 37.64
June 2021 12.43 12.43
July 2021 12.18 12.18
December 2021 - December 2022 12.43 12.43
June 2023 12.43 110.70 123.13
December 2023 - December 2024 9.23 9.23
January 2025 110.71 110.71
June 2025 6.56 6.56
July 2025 110.71 110.71
October 2025 2.41 110.70 113.11
</TABLE>
California IM-IT Intermediate Laddered Maturity Trust
Monthly
<TABLE>
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
August 1995 $ 4.92 $ 4.92
September 1995 - April 1999 3.60 3.60
May 1999 3.60 $ 121.66 125.26
June 1999 3.21 3.21
July 1999 3.21 78.34 81.55
August 1999 - February 2000 2.92 2.92
March 2000 2.92 100.00 102.92
April 2000 2.53 96.66 99.19
May 2000 - March 2001 2.17 2.17
April 2001 2.17 103.34 105.51
May 2001 - October 2001 1.76 1.76
November 2001 1.76 96.66 98.42
December 2001 - March 2002 1.41 1.41
April 2002 1.41 100.00 101.41
May 2002 - November 2002 1.02 1.02
December 2002 .83 100.00 100.83
January 2003 - August 2003 .66 .66
September 2003 .66 203.34 204.00
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each May and November Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
November 1995 $ 15.89 $ 15.89
May 1996 - November 1998 21.84 21.84
May 1999 21.84 $ 121.66 143.50
July 1999 78.34 78.34
November 1999 18.30 18.30
March 2000 100.00 100.00
April 2000 96.66 96.66
May 2000 16.56 16.56
November 2000 13.15 13.15
April 2001 103.34 103.34
May 2001 12.74 12.74
November 2001 10.71 96.66 107.37
April 2002 100.00 100.00
May 2002 8.18 8.18
November 2002 6.21 6.21
December 2002 100.00 100.00
May 2003 4.22 4.22
September 2003 2.70 203.34 206.04
</TABLE>
California IM-IT Trust
Monthly
<TABLE>
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
August 1995 $ 6.09 $ 6.09
September 1995 - June 2005 4.46 4.46
July 2005 4.46 $ 98.39 102.85
August 2005 4.01 4.01
September 2005 4.01 36.08 40.09
October 2005 - January 2006 3.83 3.83
February 2006 3.83 114.79 118.62
March 2006 - April 2006 3.25 3.25
May 2006 3.25 163.99 167.24
June 2006 - January 2018 2.44 2.44
February 2018 2.44 32.79 35.23
March 2018 - January 2020 2.44 2.44
February 2020 2.44 163.99 166.43
March 2020 - July 2020 1.68 1.68
August 2020 1.68 163.99 165.67
September 2020 - October 2020 .91 .91
November 2020 .91 39.36 40.27
December 2020 - March 2021 .72 .72
April 2021 .72 163.98 164.70
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each January and July Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
January 1996 $ 28.64 $ 28.64
July 1996 - January 2005 27.00 27.00
July 2005 26.99 $ 98.39 125.38
September 2005 36.08 36.08
January 2006 23.57 23.57
February 2006 114.79 114.79
May 2006 163.99 163.99
July 2006 18.64 18.64
January 2007 - January 2018 14.81 14.81
February 2018 32.79 32.79
July 2018 - January 2020 14.81 14.81
February 2020 163.99 163.99
July 2020 10.95 10.95
August 2020 163.99 163.99
November 2020 39.36 39.36
January 2021 5.93 5.93
April 2021 2.20 163.98 166.18
</TABLE>
Texas IM-IT Trust
Monthly
<TABLE>
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
August 1995 $ 5.94 $ 5.94
September 1995 - June 2005 4.35 4.35
July 2005 4.35 $ 154.67 159.02
August 2005 - November 2005 3.63 3.63
December 2005 3.63 32.56 36.19
January 2006 - August 2014 3.48 3.48
September 2014 3.48 96.06 99.54
October 2014 - August 2015 3.05 3.05
September 2015 3.05 65.13 68.18
October 2015 - February 2017 2.76 2.76
March 2017 2.76 92.80 95.56
April 2017 - November 2017 2.35 2.35
December 2017 2.10 250.73 252.83
January 2018 - February 2018 1.21 1.21
March 2018 1.21 65.13 66.34
April 2018 - August 2021 .93 .93
September 2021 .50 179.09 179.59
October 2021 - May 2024 .13 .13
June 2024 .02 40.71 40.73
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each January and July Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
January 1996 $ 27.92 $ 27.92
July 1996 - January 2005 26.32 26.32
July 2005 26.31 $ 154.67 180.98
December 2005 32.56 32.56
January 2006 21.85 21.85
July 2006 - July 2014 21.06 21.06
September 2014 96.06 96.06
January 2015 19.32 19.32
July 2015 18.46 18.46
September 2015 65.13 65.13
January 2016 17.28 17.28
July 2016 - January 2017 16.69 16.69
March 2017 92.80 92.80
July 2017 15.05 15.05
December 2017 250.73 250.73
January 2018 12.84 12.84
March 2018 65.13 65.13
July 2018 6.22 6.22
January 2019 - July 2021 5.64 5.64
September 2021 179.09 179.09
January 2022 1.98 1.98
July 2022 - January 2024 .79 .79
June 2024 .56 40.71 41.27
</TABLE>
Kentucky Quality Trust
Monthly
<TABLE>
<CAPTION>
Estimated Estimated Estimated
Distribution Dates Interest Principal Total
(Each Month) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
August 1995 $ 5.94 $ 5.94
September 1995 - August 2005 4.35 4.35
September 2005 4.35 $ 157.77 162.12
October 2005 - March 2006 3.61 3.61
April 2006 3.61 80.47 84.08
May 2006 - April 2007 3.23 3.23
May 2007 2.82 157.78 160.60
June 2007 - December 2015 2.47 2.47
January 2016 2.47 23.67 26.14
February 2016 - July 2018 2.47 2.47
August 2018 2.47 138.84 141.31
September 2018 - August 2021 1.82 1.82
September 2021 1.82 157.78 159.60
October 2021 - May 2023 1.09 1.09
June 2023 .91 78.89 79.80
July 2023 - December 2023 .74 .74
January 2024 .74 113.60 114.34
February 2024 - August 2024 .23 .23
September 2024 .08 71.00 71.08
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each May and November Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
November 1995 $ 19.10 $ 19.10
May 1996 - May 2005 26.25 26.25
September 2005 $ 157.77 157.77
November 2005 24.76 24.76
April 2006 80.47 80.47
May 2006 21.41 21.41
November 2006 19.49 19.49
May 2007 19.09 157.78 176.87
November 2007 - November 2015 14.90 14.90
January 2016 23.67 23.67
May 2016 - May 2018 14.90 14.90
August 2018 138.84 138.84
November 2018 12.95 12.95
May 2019 - May 2021 10.98 10.98
September 2021 157.78 157.78
November 2021 9.52 9.52
May 2022 - May 2023 6.60 6.60
June 2023 78.89 78.89
November 2023 4.63 4.63
January 2024 113.60 113.60
May 2024 2.41 2.41
September 2024 .77 71.00 71.77
</TABLE>
No person is authorized to give any information or to make any representations
not contained in this Prospectus; and any information or representation not
contained herein must not be relied upon as having been authorized by the
Fund, the Sponsor or the Underwriters. This Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, securities in any state
to any person to whom it is not lawful to make such offer in such state.
[THIS PAGE INTENTIONALLY LEFT BLANK]
<TABLE>
<CAPTION>
Title Page
<S> <C>
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
Risk Factors 10
Replacement Bonds 13
Bond Redemptions 13
Distributions 14
Change of Distribution Option 14
Certificates 14
Estimated Current Returns and Estimated Long-Term Returns 15
Interest Earning Schedule 16
Calculation of Estimated Net Annual Interest Income 16
Accrued Interest 16
Accrued Interest 16
Public Offering 16
General 16
Offering Price 19
Market for Units 20
Distributions of Interest and Principal 20
Reinvestment Option 21
Redemption of Units 22
Reports Provided 23
Insurance on the Bonds in the Insured Trusts 24
IM-IT TRUST 30
CALIFORNIA IM-IT INTERMEDIATE LADDERED
MATURITY TRUST 34
CALIFORNIA IM-IT TRUST 44
TEXAS IM-IT TRUST 54
KENTUCKY QUALITY TRUST 60
NOTES TO PORTFOLIOS 63
UNDERWRITING 65
TRUST ADMINISTRATION 68
Fund Administration and Expenses 68
Sponsor 68
Compensation of Sponsor and Evaluator 72
Trustee 73
Trustee's Fee 73
Portfolio Administration 74
Sponsor Purchases of Units 75
Insurance Premiums 75
Miscellaneous Expenses 75
General 75
Amendment or Termination 75
Limitation on Liabilities 76
Unit Distribution 77
Sponsor and Underwriter Compensation 77
OTHER MATTERS 78
Legal Opinions 78
Independent Certified Public Accountants 79
FEDERAL TAX STATUS 79
DESCRIPTION OF SECURITIES RATINGS 82
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS 84
STATEMENTS OF CONDITION 85
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
TABLES 87
ESTIMATED CASH FLOWS TO UNITHOLDERS 90
</TABLE>
This Prospectus contains information concerning the Fund and the Sponsor, but
does not contain all of the information set forth in the registration
statements and exhibits relating thereto, which the Fund has filed with the
Securities and Exchange Commission, Washington, D.C., under the Securities Act
of 1933 and the Investment Company Act of 1940, and to which reference is
hereby made.
PROSPECTUS
June 15, 1995
Insured Municipals
Income Trust and
Investors' Quality Tax-Exempt
Trust,Multi-Series 254
IM-IT 351
California IM-IT Intermediate
Laddered Maturity Series 21
California IM-IT 141
Texas IM-IT 40
Kentucky Quality 55
A Wealth of Knowledge A Knowledge of Wealth(sm)
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Please retain this Prospectus for future reference.
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
The consents of independent public accountants, rating services and
legal counsel
The following exhibits:
1.1 Proposed form of Trust Agreement among Van Kampen American Capital
Distributors, Inc., Depositor, and The Bank of New York, as Trustee,
and American Portfolio Evaluation Services, a division of Van Kampen
American Capital Investment Advisory Corp., as Evaluator (to be
supplied by amendment).
1.4 Copy of Municipal Bond Fund Portfolio Insurance Policy issued by
AMBAC Indemnity Corporation and/or Financial Guaranty Insurance
Company
(to be supplied by amendment).
1.5 Form of Agreement Among Underwriters (to be supplied by amendment).
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be supplied by amendment).
3.2 Opinion and consent of counsel as to Federal income tax status of
securities being registered (to be supplied by amendment).
3.3 Opinion and consent of counsel as to New York tax status of
securities being registered (to be supplied by amendment).
4.1 Consent of Interactive Data Services, Inc. (to be supplied by
amendment).
4.2 Consent of Standard & Poor's (to be supplied by amendment).
4.3 Consent of Grant Thornton LLP (to be supplied by amendment).
4.4 Financial Data Schedule (to be supplied by amendment).
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 257 has duly caused this 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 30th day
of June, 1995.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt
Trust, Multi-Series 257
(Registrant)
By Van Kampen American Capital
Distributors, Inc. (Depositor)
By Sandra A. Waterworth
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on June 30, 1995.
Signature Title
Don G. Powell Chairman and Chief Executive )
Officer )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Ronald A. Nyberg Director )
William R. Molinari Director )
Sandra A Waterworth
(Attorney-in-fact*)
_______________________________________________________________________
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Insured Municipals Income
Trust and Investors' Quality Tax-Exempt Trust Multi-Series 203
(File No. 33-65744) and with the Registration Statement on Form S-6
of Insured Municipals Income Trust, 170th Insured Multi-Series
(file No. 33-55891) and the same are hereby incorporated herein by
this reference.
