Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
November 13, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-1004
Attn: Filing Desk, Stop 1-4
Re: Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 262
(File No. 33-51751) CIK #896920
Gentlemen:
In accordance with the requirements of Rule 497(b) of the General
Rules and Regulations under the Securities Act of 1933, there is hereby
filed a copy of the form of Prospectus to be used in connection with the
public offering of the securities covered by the subject Registration
Statement in the exact form in which such Prospectus will be used.
Very truly yours,
CHAPMAN AND CUTLER
By: Mark J. Kneedy
MJK/cjw
Attachment
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any State.
Preliminary Prospectus Dated November 9, 1995
Subject To Completion
November 9, 1995
Van Kampen American Capital
Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 262
IM-IT 360 Ohio IM-IT 99 National Quality 92
California IM-IT 147 Pennsylvania IM-IT 210 North Carolina Quality 84
New York IM-IT 129
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 seven underlying separate unit investment trusts designated as Insured
Municipals Income Trust, Series 360 (the "IM-IT"), California Insured
Municipals Income Trust, Series 147 (the "California IM-IT Trust"),
New York Insured Municipals Income Trust, Series 129 (the "New York IM-IT
Trust"), Ohio Insured Municipals Income Trust, Series 99 (the "Ohio
IM-IT Trust"), Pennsylvania Insured Municipals Income Trust, Series 210
(the "Pennsylvania IM-IT Trust"), Investors' Quality Tax-Exempt Trust,
Series 92 (the "National Quality Trust") and North Carolina Investors'
Quality Tax-Exempt Trust, Series 84 (the "North Carolina Quality Trust"
). The various trusts are collectively referred to herein as the
"Trusts". The California IM-IT, New York IM-IT, Ohio IM-IT, Pennsylvania
IM-IT and North Carolina Quality Trusts are sometimes collectively referred to
herein as the "State Trusts", while the IM-IT, California IM-IT, New
York IM-IT, Ohio IM-IT and Pennsylvania IM-IT Trusts are sometimes
collectively referred to herein as the "Insured Trusts" and the
National Quality and North Carolina Quality Trusts are sometimes referred to
herein as the "Quality Trusts". 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 23. 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 and the Pennsylvania IM-IT Trusts 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. The minimum purchase requirement is
one Unit except for certain transactions described under "Trust
Administration--Unit Distribution". 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 and
the Pennsylvania IM-IT Trusts 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 262
Summary of Essential Financial Information
At the Close of Business on the day before the Date of Deposit:
November 8, 1995
(except for the IM-IT and the Pennsylvania IM-IT Trusts
as of 8:00 A.M. Central Time on the Date of Deposit: November 9, 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 New York Ohio
GENERAL INFORMATION IM-IT IM-IT Trust IM-IT Trust IM-IT Trust
<S> <C> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>................... $ 9,075,000 $ 2,965,000 $ 3,035,000 $ 3,020,000
Number of Units............................................................ 9,068 3,024 3,109 3,063
Fractional Undivided Interest in the Trust per Unit ....................... 1/9,068 1/3,024 1/3,109 1/3,063
Principal Amount (Par Value) of Securities per Unit <F2>................... $ 1,000.77 $ 980.49 $ 976.20 $ 985.96
Public Offering Price: ....................................................
Aggregate Offering Price of Securities in Portfolio....................... $ 8,623,698 $ 2,875,837 $ 2,956,670 $ 2,912,934
Aggregate Offering Price of Securities per Unit........................... $ 951.00 $ 951.00 $ 951.00 $ 951.01
Sales Charge <F3>......................................................... $ 49.00 $ 49.00 $ 49.00 $ 48.99
Public Offering Price per Unit <F4>....................................... $ 1,000.00 $ 1,000.00 $ 1,000.00 $ 1,000.00
Redemption Price per Unit <F4>............................................. $ 943.64 $ 943.62 $ 943.77 $ 943.96
Secondary Market Repurchase Price per Unit <F4>............................ $ 951.00 $ 951.00 $ 951.00 $ 951.01
Excess of Public Offering Price per Unit Over Redemption Price per Unit.... $ 56.36 $ 56.38 $ 56.23 $ 56.04
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption
Price per Unit............................................................. $ 7.36 $ 7.38 $ 7.23 $ 7.05
Minimum Value of the Trust under which Trust Agreement may be terminated... $ 1,815,000 $ 593,000 $ 607,000 $ 604,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution...........$1.00 per Unit
First Settlement Date....................November 14, 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 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 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, National Quality or a State
Trust- 4.9% (5.152%); an IM-IT Limited Maturity Trust - 4.3% (4.493%); an
IM-IT Intermediate Trust - 3.9% (4.058%); or an IM-IT Short Intermediate Trust
- - 2% (2.041%).
<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 262
Summary of Essential Financial Information (Continued)
At the Close of Business on the day before the Date of Deposit:
November 8, 1995
(except for the IM-IT and the Pennsylvania IM-IT Trusts
as of 8:00 A.M. Central Time on the Date of Deposit: November 9, 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>
North
Pennsylvania National Carolina
GENERAL INFORMATION IM-IT Trust Quality Trust Quality Trust
<S> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>............................... $ 3,015,000 $ 5,000,000 $ 3,085,000
Number of Units........................................................................ 3,084 5,068 3,162
Fractional Undivided Interest in the Trust per Unit.................................... 1/3,084 1/5,068 1/3,162
Principal Amount (Par Value) of Securities per Unit <F2>............................... $ 977.63 $ 986.58 $ 975.65
Public Offering Price: ................................................................
Aggregate Offering Price of Securities in Portfolio................................... $ 2,932,895 $ 4,819,692 $ 3,007,078
Aggregate Offering Price of Securities per Unit....................................... $ 951.00 $ 951.00 $ 951.00
Sales Charge <F3>..................................................................... $ 49.00 $ 49.00 $ 49.00
Public Offering Price per Unit <F4>................................................... $ 1,000.00 $ 1,000.00 $ 1,000.00
Redemption Price per Unit <F4>......................................................... $ 943.47 $ 943.73 $ 943.63
Secondary Market Repurchase Price per Unit <F4>........................................ $ 951.00 $ 951.00 $ 951.00
Excess of Public Offering Price per Unit Over Redemption Price per Unit................ $ 56.53 $ 56.27 $ 56.37
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit... $ 7.53 $ 7.27 $ 7.37
Minimum Value of the Trust under which Trust Agreement may be terminated............... $ 603,000 $ 1,000,000 $ 617,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution...........$1.00 per Unit
First Settlement Date....................November 14, 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 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 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, National Quality or State
Trust - 4.9% (5.152%); an IM-IT Limited Maturity Trust - 4.3% (4.493%); an
IM-IT Intermediate Trust - 3.9% (4.058%); or an IM-IT Short Intermediate Trust
- - 2% (2.041%).
<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 262 (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 seven 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, Virginia and Washington may purchase Units of
the IM-IT and National Quality Trusts 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, State or National Quality 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 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, State or National Quality Trust consists of Bonds
maturing approximately 15 to 40 years from the Date of Deposit. The
approximate range of maturities from the Date of Deposit for Bonds in any
IM-IT Limited Maturity Trust, IM-IT Intermediate Trust and IM-IT Short
Intermediate Trust is 12 to 15 years, 5 to 15 years and 3 to 7 years,
respectively. The dollar-weighted average maturity of the Bonds in any IM-IT
Intermediate Trust and IM-IT Short Intermediate Trust is less than or equal to
10 years and 5 years, respectively.
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. 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
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
Trusts and "A-" in the case of the Quality Trusts, or the Moody's
Investors Service, Inc. rating of the Securities was in no case less than
"Baa" in the case of the Insured Trusts and "A" in the case of the
Quality Trusts, including provisional or conditional ratings, respectively,
or, if not rated, the Securities had, in the opinion of the Sponsor, credit
characteristics sufficiently similar to the credit characteristics of
interest-bearing tax-exempt obligations that were so rated as to be acceptable
for acquisition by the Fund (see "Other Matters--Description of Securities
Ratings"), (b) the prices of the Securities relative to other bonds of
comparable quality and maturity, (c) the diversification of Securities as to
purpose of issue and location of issuer and (d) with respect to the Insured
Trusts, the availability and cost of insurance for the prompt payment of
principal and interest, when due, on the Securities. Subsequent to the Date of
Deposit, a Security may cease to be rated or its rating may be reduced below
the minimum required as of the Date of Deposit. Neither event requires
elimination of such Security from the portfolio of a Trust but may be
considered in the Sponsor's determination as to whether or not to direct the
Trustee to dispose of the Security (see "Trust Administration--Fund
Administration and Expenses--Portfolio Administration").
To the best knowledge of the Sponsor, there is no litigation pending as of the
Date of Deposit in respect of any Securities which might reasonably be
expected to have a material adverse effect upon the Fund or any of the Trusts.
At any time after the Date of Deposit, litigation may be initiated on a
variety of grounds with respect to Securities in the Fund. Such litigation,
as, for example, suits challenging the issuance of pollution control revenue
bonds under environmental protection statutes, may affect the validity of such
Securities or the tax-free nature of the interest thereon. While the outcome
of litigation of such nature can never be entirely predicted, the Fund has
received or will receive opinions of bond counsel to the issuing authorities
of each Security on the date of issuance to the effect that 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, State or National
Quality Trust or, in the case of an IM-IT Limited Maturity, IM-IT Intermediate
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 and the Pennsylvania IM-IT Trusts 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 November 14, 1995. The first
monthly record date for each Trust (December 1, 1995) is 17 days from such
date. The daily rates of estimated net annual interest income per Unit accrued
on a monthly basis are $.14449, $.14416, $.14327, $.14003, $.14251, $.15184
and $.14221 for the IM-IT, California IM-IT, New York IM-IT, Ohio IM-IT,
Pennsylvania IM-IT, National Quality and North Carolina Quality Trusts,
respectively. This amounts to $2.46, $2.45, $2.44, $2.38, $2.42, $2.58 and
$2.42 for the IM-IT, California IM-IT, New York IM-IT, Ohio IM-IT,
Pennsylvania IM-IT, National Quality and North Carolina 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
$2.45 to the first record date plus
$43.30 which is 10 normal distributions at $4.33, and finally adding
$6.15 which has accrued from October 1, 1996 until November 14, 1996 which
completes the 360 day cycle (43 days times the daily factor)
Total $51.90 interest earned /$1,000.00 (Date of Deposit Public Offering
Price) = 5.19% 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
IM-IT, State Trust or National Quality Trusts, 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 2.0% of the Public Offering Price (2.041% of the aggregate offering price
of the Securities) for an IM-IT Short Intermediate 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
IM-IT, State and
<S> <C> <C> <C>
Aggregate Number of National Quality IM-IT Short
Units Purchased Trusts Intermediate Trust Other Trusts
100-249 Units......... $ 4.00 $ 2.00 $ 4.00
250-499 Units......... $ 6.00 $ 3.00 $ 6.00
500-999 Units......... $ 14.00 $ 4.00 $ 9.00
1,000 or more Units... $ 19.00 $ 6.00 $ 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 or less the dealer's
concession in the absence of an underwriting commission. 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 and the Pennsylvania IM-IT Trusts 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
Corporation, 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 and the Pennsylvania IM-IT
Trusts 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 American
Capital Reserve Fund, the Van Kampen American Capital Tax Free Money Fund, the
Van Kampen American Capital Florida Insured Tax Free Income Fund, the Van
Kampen American Capital New Jersey Tax Free Income Fund, or the Van Kampen
American Capital 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 $2,145,000,000 (unaudited) and
statutory capital of approximately $782,000,000 (unaudited) as of December 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 June 30, 1995, the total capital and surplus of
Financial Guaranty was approximately $978,500,000. 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..... -- -- 100% 100%
New York IM-IT....... -- -- 100% 100%
Ohio IM-IT........... -- -- 100% 100%
Pennsylvania IM-IT... -- -- 100% 100%
</TABLE>
The breakdown of the Preinsured Bonds is as follows: IM-IT-- AMBAC Indemnity
21%, Capital Guaranty 11%, Financial Guaranty 38%, MBIA 22%, FSA 2%, and
CapMAC 6%; California IM-IT Trust-- AMBAC Indemnity 34%, Financial Guaranty
13%, MBIA 13%, FSA 23% and CapMac 17%; New York IM-IT Trust-- AMBAC Indemnity
32%, Financial Guaranty 5%, MBIA 55% and FSA 8%; Ohio IM-IT Trust-- AMBAC
Indemnity 62%, Financial Guaranty 17% and MBIA 21%; Pennsylvania IM-IT Trust--
AMBAC Indemnity 20%, Financial Guaranty 63% and MBIA 17%.
IM-IT
General. The IM-IT consists of 18 issues of Securities. Three of the Bonds in
the IM-IT 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 located in 13 states or
territories, divided by purpose of issues (and percentage of principal amount
to total IM-IT) as follows: Health Care, 5 (22%); General Obligations, 3
(18%); Certificates of Participation, 2 (12%); Transportation, 1 (11%); Water
and Sewer, 1 (11%); Public Building, 3 (8%); Retail Electric/Gas, 1 (7%);
General Purpose, 1 (6%) and Higher Education, 1 (5%). No Bond issue has
received a provisional rating. The dollar weighted average maturity of the
Bonds in the Trust is 28 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>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 53.81 $ 53.81
Less: Estimated Annual Expense per Unit <F2>.............................. $ 1.79 $ 1.40
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 52.02 $ 52.41
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 52.02 $ 52.41
Divided by 12 and 2, respectively......................................... $ 4.34 $ 26.21
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14449 $ .14557
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.20% 5.24%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.25% 5.29%
Estimated Initial Monthly Distribution (December 1995)..................... $ 2.46
Estimated Initial Semi-annual Distribution (December 1995)................. $ 2.47
Estimated Normal Distribution per Unit <F5>................................ $ 4.34 $ 26.21
</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 December 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.30
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 $54.11. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.09 and $1.70 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 360 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Name of Issuer, Title, Interest Rate and Maturity Offering
Aggregate Date of either Bonds Deposited or Bonds Contracted Redemption Price To
Principal<F1> for<F1><F5> Rating<F2> Feature<F3> IM-IT<F4>
<S> <C> <C> <C> <C> <C>
$ 250,000 Washington Health Care Facilities Authority, Revenue
Bonds (Peace Health) Series 1995 (MBIA Insured)**
#5.625% Due 11/15/2015............................... AAA 2005 @ 102 $ 246,110
590,000 Greenville County Public Facilities Corporation,
Greenville County, South Carolina, Certificates of
Participation (Courthouse Project and Detention
Center Facilities Project) Series 1995 (AMBAC 2005 @ 102
Indemnity Insured) #5.70% Due 4/1/2017............. AAA 2013 @ 100 S.F. 585,728
165,000 West Lafayette Junior-Senior High School Building
Corporation, Indiana, First Mortgage Bonds
(Unlimited Tax-General Obligation) Series 1995 (MBIA 2004 @ 101
Insured) #5.85% Due 1/15/2018...................... AAA 2016 @ 100 S.F. 166,459
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. 494,765
130,000 Metropolitan Pier and Exposition Authority
(Illinois) McCormick Place Expansion Project
Refunding Revenue Bonds, Series 1994A (MBIA Insured)
#0.00% Due 6/15/2020............................... AAA 30,498 <F6>
1,000,000 New Prairie United School Building Corporation
(Indiana) First Mortgage Refunding Bonds (General
Obligation-Unlimited Tax) Series 1995 (Capital 2005 @ 101
Guaranty Insured)** #5.50% Due 7/5/2020............ AAA 2016 @ 100 S.F. 965,820
250,000 Bellevue Convention Center Authority, King County,
Washington, Special Obligation Revenue and Refunding
Bonds, Series 1994 (MBIA Insured) #0.00% Due
2/1/2021............................................. AAA 56,550 <F6>
360,000 Oklahoma City Industrial and Cultural Facilities
Trust (Oklahoma) Health Facilities Revenue Bonds
(St. Anthony and Sisters of St. Mary Hospital
Project) Series 1995A (MBIA Insured) #5.875% Due 2005 @ 102
6/1/2021............................................. AAA 2013 @ 100 S.F. 361,634
1,000,000 New Hampshire Higher Educational and Health
Facilities Authority, Hospital Revenue Bonds, Mary
Hitchcock Memorial Hospital Issue, Series 1993A 2003 @ 102
(FGIC Insured) #5.25% Due 8/15/2021................ AAA 2018 @ 100 S.F. 934,330
325,000 Rhode Island Convention Center Authority, Refunding
Revenue Bonds, Series 1993C (MBIA Insured) #5.00% 2004 @ 102
Due 5/15/2023........................................ AAA 2009 @ 100 S.F. 292,738
1,000,000 State of Michigan, State Trunk Line Fund Bonds, 2004 @ 102
Series 1994A (FGIC Insured) #5.80% Due 11/15/2024.. AAA 2021 @ 100 S.F. 1,006,600
Name of Issuer, Title, Interest Rate and Maturity Offering
Aggregate Date of either Bonds Deposited or Bonds Contracted Price To
Principal<F1> for<F1><F5> Rating<F2> Redemption Feature<F3> IM-IT<F4>
$ 1,000,000 Harrison County Wastewater Management District
(Mississippi) Wastewater Treatment Facilities
Revenue Bonds, Series 1995 (FGIC Insured) #5.875% 2005 @ 102
Due 2/1/2025......................................... AAA 2018 @ 100 S.F. $ 1,006,930
500,000 Paw Paw Public Schools, County of Van Buren,
Michigan, 1995 School Building and Site Bonds
(General Obligation-Unlimited Tax) FGIC Insured** 2005 @ 100
#5.625% Due 5/1/2025................................. AAA 2016 @ 100 S.F. 493,665
150,000 Maine Health and Higher Educational Facilities
Authority, Revenue Bonds, Series 1995C (FSA Insured) 2005 @ 102
#6.20% Due 7/1/2025................................ AAA 2021 @ 100 S.F. 154,746
500,000 California Statewide Communities Development
Authority, Insured Health Facilities Revenue
Certificates of Participation (UniHealth America)
Series 1993A (AMBAC Indemnity Insured) #5.75% Due 2003 @ 102
10/1/2025............................................ AAA 2015 @ 100 S.F. 496,830
500,000 Board of Trustees of Oakland University, Michigan,
General Revenue Bonds, Series 1995 (MBIA Insured) 2005 @ 102
#5.75% Due 5/15/2026................................. AAA 2016 @ 100 S.F. 500,355
605,000 Beaver County Industrial Development Authority,
Pennsylvania, Pollution Control Revenue Refunding
Bonds, Series 1993A (Ohio Edison Company Mansfield
Project) AMBAC Indemnity Insured #5.45% Due
9/15/2033............................................ AAA 2003 @ 102 575,657
250,000 New York State Medical Care Facilities Finance
Agency, Montefiore Medical Center, FHA Insured
Mortgage Revenue Bonds, Series 1995A (AMBAC 2005 @ 102
Indemnity Insured) #6.00% Due 2/15/2035............ AAA 2023 @ 100 S.F. 254,283
$ 9,075,000 $ 8,623,698
</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. Three
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, 3 (19%);
Certificates of Participation, 1 (17%); General Purpose, 1 (17%); Higher
Education, 1 (17%); Public Building, 1 (17%); Retail Electric/Gas, 1 (7%) and
Health Care, 1 (6%). 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 1993-94 were the California
personal income tax (44% of total revenues), the sales tax (35%), 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 structural
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 of these factors, among others, from the late 1980's until
1992-1993, the State had a period of nearly chronic budget imbalance, with
expenditures exceeding revenues in four out of six years, and the State
accumulated and sustained a budget deficit in the budget reserve, the Special
Fund for Economic Uncertainties ("SFEU") approaching $2.8 billion at
its peak at June 30, 1993. Starting in the 1990-91 Fiscal Year and for each
year thereafter, each budget required multibillion dollar actions to bring
projected revenues and expenditures into balance and to close large
"budget gaps" which were identified. The Legislature and Governor
eventually agreed on a number of different steps to produce Budget Acts in the
years 1991-92 to 1994-95, including: significant cuts in health and welfare
program expenditures; transfers of program responsibilities and funding from
the State to local governments, coupled with some reduction in mandates on
local government; transfer of about $3.6 billion in annual local property tax
revenues from cities, counties, redevelopment agencies and some other
districts to local school districts, thereby reducing State funding for
schools; reduction in growth of support for higher education programs, coupled
with increases in student fees; revenue increases (particularly in the 1992-92
Fiscal Year budget), most of which were for a short duration; increased
reliance on aid from the federal government to offset the costs of
incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal
aid than the State Administration has requested) and various on-time
adjustments and accounting changes.
Despite these budget actions, the effects of the recession led to large,
unanticipated deficits in the SFEU, as compared to projected positive
balances. By the start of the 1993-94 Fiscal Year, the accumulated deficit was
so large (almost $2.8 billion) that it was impractical to budget to retire it
in one year, so a two-year program was implemented, using the issuance of
revenue anticipation warrants to carry a portion of the deficit over the end
of the fiscal year. When the economy failed to recover sufficiently in
1993-94, a second two-year plan was implemented in 1994-95, to carry the final
retirement of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures
over revenues), the General Fund had positive operating results in FY 1993-94
and 1994-95, which have reduced the accumulated budget deficit to around $600
million as of June 30, 1995.
A consequence of the accumulated budget deficits in the early 1990's, together
with other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to
pay its ongoing obligations. When the Legislature and the Governor failed to
adopt a budget for the 1992-93 Fiscal Year by July 1, 1992, which would have
allowed the State to carry out its normal annual cash flow borrowing to
replenish its cash reserves, the State Controller was forced to issue
registered warrants ("IOUs") to pay a variety of obligations
representing prior years' or continuing appropriations, and mandates from
court orders. Available funds were used to make constitutionally-mandated
payments, such as debt service on bonds and warrants. Between July 1 and
September 4, 1992 the State Controller issued a total of approximately $3.8
billion of registered warrants. After that date, all remaining outstanding
registered warrants (about $2.9 billion) were called for redemptions from
proceeds of the issuance of 1992 Interim Notes after the budget was adopted.
The State's cash condition became so serious in late spring of 1992 that the
State Controller was required to issue revenue anticipation warrants maturing
in the following fiscal year in order to pay the State's continuing
obligations. The State was forced to rely increasingly on external debt
markets to meet its cash needs, as a succession of notes and warrants (both
forms of short-term cash flow financing) were issued in the period from June
1992 to July 1994, often needed to pay previously-maturing notes or warrants.
These borrowings were used also in part to spread out the repayment of the
accumulated budget deficit over the end of a fiscal year.
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.
For the first time in four years, the State entered the 1995-96 fiscal year
with strengthening revenues based on an improving economy. The major feature
of the Governor's proposed Budget, a 15% phased tax cut, was rejected by the
Legislature.
The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projects General Fund
revenues and transfers of $44.1 billion. Expenditures are budgeted at $43.4
billion. The Department of Finance projects that, after repaying the last of
the carryover budget deficit, there will be positive balance of less than $30
million in the budget reserve, the Special Fund for Economic Uncertainties, at
June 30, 1996, providing no margin for adverse results during the year.
The Department of Finance projects cash flow borrowings in the 1995-96 Fiscal
Year will be the smallest in many years, comprising about $2 billion of notes
to be issued in April, 1996, and maturing by June 30, 1996. With full payment
of $4 billion of revenue anticipation warrants on April 25, 1996, the
Department sees no further need for borrowing over the end of the fiscal year.
The Department projects that available cash resources to pay State obligations
will be almost $2 billion at June 30, 1996. This "cushion" will be
re-examined by the State Controller on October 15, 1995, in the third step in
the Budget Adjustment Law process. If the Controller believes the available
cash resources on June 30, 1996 will, in fact, be zero or less, her report
would start a process which could lead to automatic budget cuts starting in
December, 1995.
The principal features of the 1995-96 Budget Act, in addition to those noted
above, are additional cuts in health and welfare expenditures (some of which
are subject to approvals or waivers by the federal government); assumed
further federal aid for illegal immigrant costs; and an increase in per-pupil
funding for public schools and community colleges, the first such significant
increase in four years.
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 further 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. Los Angeles County, the
largest in the State, has reported severe fiscal problems, leading to a
nominal $1.2 billion deficit in its $11 billion budget for the 1995-96 Fiscal
Year. To balance the budget, the county has imposed severe cuts in services,
particularly for health care. The Legislature is considering actions to help
alleviate the County's fiscal problems, but none were completed before August
15, 1995. As a result of its bankruptcy proceedings (discussed further below)
Orange County also has implemented stringent cuts in services and has laid off
workers.
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 "Pools") filed for
protection under Chapter 9 of the federal Bankruptcy Code, after reports that
the Pools had suffered significant market losses in its investments caused a
liquidity crisis for the Pools and the County. Approximately 180 other public
entities, most but not all located in the County, were also depositors in the
Pools. The County estimated the Pools' loss at about $1.64 billion, or 23%, of
its initial deposits of around $7.5 billion. Many of the entities which kept
moneys in the Pools, including the County, faced cash flow difficulties
because of the bankruptcy filing and may be required to reduce programs or
capital projects. 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 Pools.
On May 2, 1995, the Bankruptcy Court approved a settlement agreement covering
claims of the other participating entities against the County and the Pools.
Most participants have received in cash 80% (90% for school districts) of
their Pools' investment; the balance is to be paid in the future. The County
succeeded in deferring, by consent, until June 30, 1996, the repayment of $800
million of short-term obligations due in July and August, 1995; these notes
are, however, considered to be in default by Moody's and S&P. On June 27,
1995, County voters turned down a proposal for a temporary 0.5% increase in
the local sales tax, making the County's fiscal recovery much harder.
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. All school districts were
able to meet their obligations in the 1994-95 Fiscal Year.
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>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 54.29 $ 54.29
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.39 $ 1.96
Less: Annual Premium on Portfolio Insurance per Unit.................. -- --
Estimated Net Annual Interest Income per Unit......................... $ 51.90 $ 52.33
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 51.90 $ 52.33
Divided by 12 and 2, respectively..................................... $ 4.33 $ 26.17
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14416 $ .14536
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.19% 5.23%
Estimated Long-Term Return <F2><F3><F4>................................ 5.22% 5.26%
Estimated Initial Monthly Distribution (December 1995)................. $ 2.45
Estimated Initial Semi-annual Distribution (January 1996).............. $ 6.83
Estimated Normal Distribution per Unit <F4>............................ $ 4.33 $ 26.17
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee........... $.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 December 15, 1995
<FN>
<F1>Excluding insurance costs. 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>
<TABLE>
CALIFORNIA INSURED MUNICIPALS INCOME TRUST
SERIES 147 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To
California
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of Redemption IM-IT
Principal<F1> either Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 500,000 State Public Works Board of California, Lease Revenue
Bonds, Series 1995A (Department of Justice Building) FSA 2005 @ 101
Insured #5.80% Due 5/1/2015.............................. AAA 2011 @ 100 S.F. $ 502,500
100,000 Orchard School District, County of Santa Clara,
California, General Obligation Bonds, Series 1995A (FGIC
Insured) #0.00% Due 2/1/2019............................. AAA 26,306 <F6>
500,000 Pomona Public Financing Authority, California, 1993
Refunding Revenue Bonds, Series L (Southwest Pomona 2004 @ 102
Redevelopment Project) CapMAC Insured #5.75% Due 2/1/2020 AAA 2014 @ 100 S.F. 495,275
200,000 State of California, Various Purpose General Obligation 2004 @ 102
Bonds (FSA Insured) #5.50% Due 3/1/2020.................. AAA 2016 @ 100 S.F. 195,504
275,000 City of Industry, California, General Obligation Bonds,
Issue of 1995 (Unlimited Tax) FGIC Insured 5.875% Due
7/1/2023................................................... AAA 2005 @ 102.25 279,345
200,000 Department of Water and Power of the City of Los Angeles,
California, Electric Plant Revenue Bonds, Issue of 1994 2004 @ 102
(MBIA Insured) #5.30% Due 2/15/2025...................... AAA 2022 @ 100 S.F. 188,846
500,000 California Statewide Communities Development Authority,
Insured Health Facilities Revenue Certificates of
Participation (UniHealth America) Series 1993A (AMBAC 2003 @ 102
Indemnity Insured) #5.75% Due 10/1/2025................... AAA 2015 @ 100 S.F. 496,830
500,000 California State University, Fresno Student Union Revenue
Bonds, Series B (AMBAC Indemnity Insured) #5.80% Due 2004 @ 102
11/1/2025.................................................. AAA 2021 @ 100 S.F. 502,500
190,000 County of Madera, California, Certificates of
Participation (Valley Children's Hospital Project) Series 2005 @ 102
1995 (MBIA Insured) #5.75% Due 3/15/2028................. AAA 2024 @ 100 S.F. 188,731
$ 2,965,000 $ 2,875,837
</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".
NEW YORK IM-IT TRUST
General. The New York IM-IT Trust consists of 10 issues of Securities. Two of
the Bonds in the New York 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 New York IM-IT Trust) as follows: Higher Education, 3 (38%); Health
Care, 2 (32%); Public Building, 1 (12%); Water and Sewer, 2 (10%) and General
Obligations, 2 (8%). No Bond issue has received a provisional rating.
Risk Factors. A resident of New York State (or New York City) will be subject
to New York State (or New York City) personal income tax with respect to gains
realized when New York Obligations held in the New York IM-IT Trust are sold,
redeemed or paid at maturity or when his Units are sold or redeemed, such gain
will equal the proceeds of sale, redemption or payment less the tax basis of
the New York Obligation or Unit (adjusted to reflect (a) the amortization of
premium or discount, if any, on New York Obligations held in the Trust, (b)
accrued original issue discount, with respect to each New York Obligation
which, at the time the New York Obligation was issued had original issue
discount, and (c) the deposit of New York Obligations with accrued interest in
the Trust after the Unitholder's settlement date).
Interest or gain from the New York IM-IT Trust derived by a Unitholder who is
not a resident of New York State (or New York City) will not be subject to New
York State (or New York City) personal income tax, unless the Units are
property employed in a business, trade, profession or occupation carried on in
New York State (or New York City).
Amounts paid on defaulted New York Obligations held by the Trustee under
policies of insurance issued with respect to such New York Obligations will be
excludable from income for New York State and New York City income tax
purposes, if and to the same extent as, such interest would have been
excludable if paid by the respective issuer.
For purposes of the New York State and New York City franchise tax on
corporations, Unitholders which are subject to such tax will be required to
include in their entire net income any interest or gains distributed to them
even though distributed in respect of New York obligations.
If borrowed funds are used to purchase Units in the Trust, all (or part) of
the interest on such indebtedness will not be deductible for New York State
and New York City tax purposes. The purchase of Units may be considered to
have been made with borrowed funds even though such funds are not directly
traceable to the purchase of Units in any New York Trust.
The Portfolio of the New York IM-IT Trust includes obligations issued by New
York State (the "State"), by its various public bodies (the
"Agencies"), and/or by other entities located within the State, including
the City of New York (the "City").
Some of the more significant events relating to the financial situation in New
York are summarized below. This section provides only a brief summary of the
complex factors affecting the financial situation in New York and is based in
part on Official Statements issued by, and on other information reported by
the State, the City and the Agencies in connection with the issuance of their
respective securities.
There can be no assurance that future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New York Municipal
Obligations held in the portfolio of the Trust or the ability of particular
obligors to make timely payments of debt service on (or relating to) those
obligations.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State economy has grown more slowly than that of the
nation as a whole, gradually eroding the State's relative economic affluence.
Statewide, urban centers have experienced significant changes involving
migration of the more affluent to the suburbs and an influx of generally less
affluent residents. Regionally, the older Northeast cities have suffered
because of the relative success that the South and the West have had in
attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
The State has for many years had a very high state and local tax burden
relative to other states. The burden of State and local taxation, in
combination with the many other causes of regional economic dislocation, has
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
A national recession commenced in mid-1990. The downturn continued throughout
the State's 1990-91 fiscal year and was followed by a period of weak economic
growth during the 1991 calendar year. For calendar year 1992, the national
economy continued to recover, although at a rate below all post-war
recoveries. For calendar year 1993, the economy is expected to grow faster
than 1992, but still at a very moderate rate, as compared to other recoveries.
The national recession has been more severe in the State because of factors
such as a significant retrenchment in the financial services industry,
cutbacks in defense spending, and an overbuilt real estate market.
1993-94 Fiscal Year. On April 5, 1993, the State Legislature approved a $32.08
billion budget. Following enactment of the budget the 1993-94 State Financial
Plan was formulated on April 16, 1993. This Plan projects General Fund
receipts and transfers from other funds at $32.367 billion and disbursements
and transfers to other funds at $32.300 billion. In comparison to the
Governor's recommended Executive Budget for the 1993-94 fiscal year, as
revised on February 18, 1993, the 1993-94 State Financial Plan reflects
increases in both receipts and disbursements in the General Fund of $811
million.
While a portion of the increased receipts was the result of a $487 million
increase in the State's 1992-93 positive year-end margin at March 31, 1993 to
$671 million, the balance of such increased receipts is based upon (i) a
projected $269 million increase in receipts resulting from improved 1992-93
results and the expectation of an improving economy, (ii) projected additional
payments of $200 million from the Federal government as reimbursements for
indigent medical care, (iii) the early payment of $50 million of personal tax
returns in 1992-93 which otherwise would have been paid in 1993-94; offset by
(iv) the State Legislature's failure to enact $195 million of additional
revenue-raising recommendations proposed by the Governor. There can be no
assurances that all of the projected receipts referred to above will be
received.
Despite the $811 million increase in disbursements included in the 1993-94
State Financial Plan, a reduction in aid to some local government units can be
expected. To offset a portion of such reductions, the 1993-94 State Financial
Plan contains a package of mandate relief, cost containment and other
proposals to reduce the costs of many programs for which local governments
provide funding. There can be no assurance, however, that localities that
suffer cuts will not be adversely affected, leading to further requests for
State financial assistance.
There can be no assurance that the State will not face substantial potential
budget gaps in the future resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions
to align recurring receipts and disbursements.
1992-93 Fiscal Year. Before giving effect to a 1992-93 year-end deposit to the
refund reserve account of $671 million, General Fund receipts in 1992-93 would
have been $716 million higher than originally projected. This year-end deposit
effectively reduced 1992-93 receipts by $671 million and made those receipts
available for 1993-94.
The State's favorable performance primarily resulted from income tax
collections that were $700 million higher than projected which reflected both
stronger economic activity and tax-induced one-time acceleration of income
into 1992. In other areas larger than projected business tax collections and
unbudgeted receipts offset the loss of $200 million of anticipated Federal
reimbursement and losses of, or shortfalls in, other projected revenue
sources.
For 1992-93, disbursements and transfers to other funds (including the deposit
to the refund reserve account discussed above) totalled $30.829 billion, an
increase of $45 million above projections in April 1992.
Fiscal year 1992-93 was the first time in four years that the State did not
incur a cash-basis operating deficit in the General Fund requiring the
issuance of deficit notes or other bonds, spending cuts or other revenue
raising measures.
Indebtedness. As of March 31, 1993, the total amount of long-term State
general obligation debt authorized but unissued stood at $2.4 billion. As of
the same date, the State had approximately $5.4 billion in general obligation
bonds. The State issued $850 million in tax and revenue anticipation notes
("TRANS") on April 28, 1993. The State does not project the need to
issue additional TRANS during the State's 1993-94 fiscal year.
The State projects that its borrowings for capital purposes during the State's
1993-94 fiscal year will consist of $460 million in general obligation bonds
and $140 million in new commercial paper issuances. In addition, the State
expects to issue $140 million in bonds for the purpose of redeeming
outstanding bond anticipation notes. The Legislature has authorized the
issuance of up to $85 million in certificates of participation during the
State's 1993-94 fiscal year for personal and real property acquisitions during
the State's 1993-94 fiscal year. The projection of the State regarding its
borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
In June 1990, legislation was enacted creating the "New York Local
Government Assistance Corporation" ("LGAC"), a public benefit
corporation empowered to issue long-term obligations to fund certain payments
to local governments traditionally funded through the State's annual seasonal
borrowing. To date, LGAC has issued its bonds to provide net proceeds of $3.28
billion. LGAC has been authorized to issue additional bonds to provide net
proceeds of $703 million during the State's 1993-94 fiscal year.
Ratings. The $850 million in TRANS issued by the State in April 1993 were
rated SP-1-Plus by S&P on April 26, 1993, and MIG-1 by Moody's on April 23,
1993, which represents the highest ratings given by such agencies and the
first time the State's TRANS have received these ratings since its May 1989
TRANS issuance. Both agencies cited the State's improved fiscal position as a
significant factor in the upgrading of the April 1993 TRANS.
Moody's rating of the State's general obligation bonds stood at A on April 23,
1993, and S&P's rating stood at A- with a stable outlook on April 26, 1993, an
improvement from S&P's negative outlook prior to April 1993. Previously,
Moody's lowered its rating to A on June 6, 1990, its rating having been A1
since May 27, 1986. S&P lowered its rating from A to A- on January 13, 1992.
S&P's previous ratings were A from March 1990 to January 1992, AA- from August
1987 to March 1990 and A+ from November 1982 to August 1987.
Moody's, in confirming its rating of the State's general obligation bonds, and
S&P, in improving its outlook on such bonds from negative to stable, noted the
State's improved fiscal condition and reasonable revenue assumptions contained
in the 1993-94 State budget.
The City accounts for approximately 41% of the State's population and personal
income, and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other
actions, the State Legislature (i) created MAC to assist with long-term
financing for the City's short-term debt and other cash requirements and (ii)
created the State Financial Control Board (the "Control Board") to
review and approve the City's budgets and City four-year financial plans (the
financial plans also apply to certain City-related public agencies (the
"Covered Organizations").
In February 1975, the New York State Urban Development Corporation
("UDC"), which had approximately $1 billion of outstanding debt, defaulted
on certain of its short-term notes. Shortly after the UDC default, the City
entered a period of financial crisis. Both the State Legislature and the
United States Congress enacted legislation in response to this crisis. During
1975, the State Legislature (i) created MAC to assist with long-term financing
for the City's short-term debt and other cash requirements and (ii) created
the State Financial Control Board (the "Control Board") to review and
approve the City's budgets and City four-year financial plans (the financial
plans also apply to certain City-related public agencies (the "Covered
Organizations")).
Over the past three years, the rate of economic growth in the City has slowed
substantially, and the City's economy is currently in recession. The City
projects, and its current four-year financial plan assumes, a recovery early
in the 1993 calendar year. The Mayor is responsible for preparing the City's
four-year financial plan, including the City's current financial plan. The
City Comptroller has issued reports concluding that the recession of the
City's economy will be more severe and last longer than is assumed in the
financial plan.
Fiscal Year 1993 and 1993-1996 Financial Plan. The City's 1993 fiscal year
results are projected to be balanced in accordance with generally accepted
accounting principles ("GAAP"). The City was required to close
substantial budget gaps in its 1990, 1991 and 1992 fiscal years in order to
maintain balanced operating results.
The City's modified Financial Plan dated February 9, 1993 covering fiscal
years 1993-1996 projects budget gaps for 1994 through 1996. The Office of the
State Deputy Controller for the City of New York has estimated that under the
modified Financial Plan budget gaps will be $102 million for fiscal year 1994,
$196 million for fiscal year 1995 and $354 million for fiscal year 1996,
primarily due to anticipated higher spending on labor costs.
However, the City's modified Plan is dependent upon a gap-closing program,
certain elements of which the staff of Control Board identified on March 25,
1993 to be at risk due to projected levels of State and Federal aid and
revenue and expenditures estimates which may not be achievable. The Control
Board indicated that the City's modified Financial Plan does not make progress
towards establishing a balanced budget process. The Control Board's report
identified budget gap risks of $1.0 billion, $1.9 billion, $2.3 billion and
$2.6 billion in fiscal years 1994 through 1997, respectively.
On June 3, 1993, the Mayor announced that State and federal aid for Fiscal
Year 1993-1994 would be $280 million less than projected and that in order to
balance the City's budget $176 million of previously announced contingent
budget cuts would be imposed. The Mayor indicated that further savings would
entail serious reductions in services. The State Comptroller on June 14, 1993
criticized efforts by the Mayor and City Council to balance the City's budget
which rely primarily on one-shot revenues. The Comptroller added that the
City's budget should be based on "recurring revenues that fund recurring
expenditures." Given the foregoing factors, there can be no assurance that
the City will continue to maintain a balanced budget, or that it can maintain
a balanced budget without additional tax or other revenue increases or
reductions in City services, which could adversely affect the City's economic
base.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to
submit its financial plans to review bodies, including the Control Board. If
the City were to experience certain adverse financial circumstances, including
the occurrence or the substantial likelihood and imminence of the occurrence
of an annual operating deficit of more than $100 million or the loss of access
to the public credit markets to satisfy the City's capital and seasonal
financial requirements, the Control Board would be required by State law to
exercise certain powers, including prior approval of City financial plans,
proposed borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to balance
its budget and to meet its cash requirements. As a result of the national and
regional economic recession, the State's projections of tax revenues for its
1991 and 1992 fiscal years were substantially reduced. For its 1993 fiscal
year, the State, before taking any remedial action reflected in the State
budget enacted by the State Legislature on April 2, 1992 reported a potential
budget deficit of $4.8 billion. If the State experiences revenue shortfalls or
spending increases beyond its projections during its 1993 fiscal year or
subsequent years, such developments could also result in reductions in
projected State aid to the City. In addition, there can be no assurance that
State budgets in future fiscal years will be adopted by the April 1 statutory
deadline and that there will not be adverse effects on the City's cash flow
and additional City expenditures as a result of such delays.
The City's projections set forth in its financial plan are based on various
assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements. Such assumptions and
contingencies include the timing of any regional and local economic recovery,
the absence of wage increases in excess of the increases assumed in its
financial plan, employment growth, provision of State and Federal aid and
mandate relief, State legislative approval of future State budgets, levels of
education expenditures as may be required by State law, adoption of future
City budgets by the New York City Council, and approval by the Governor or the
State Legislature and the cooperation of MAC with respect to various other
actions proposed in such financial plan.
The City's ability to maintain a balanced operating budget is dependent on
whether it can implement necessary service and personnel reduction programs
successfully. As discussed above, the City must identify additional
expenditure reductions and revenue sources to achieve balanced operating
budgets for fiscal years 1994 and thereafter. Any such proposed expenditure
reductions will be difficult to implement because of their size and the
substantial expenditure reductions already imposed on City operations in the
past two years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. The City's
financing program for fiscal years 1993 through 1996 contemplates issuance of
$15.7 billion of general obligation bonds primarily to reconstruct and
rehabilitate the City's infrastructure and physical assets and to make capital
investments. A significant portion of such bond financing is used to reimburse
the City's general fund for capital expenditures already incurred. In
addition, the City issues revenue and tax anticipation notes to finance its
seasonal working capital requirements. The terms and success of projected
public sales of City general obligation bonds and notes will be subject to
prevailing market conditions at the time of the sale, and no assurance can be
given that the credit markets will absorb the projected amounts of public bond
and note sales. In addition, future developments concerning the City and
public discussion of such developments, the City's future financial needs and
other issues may affect the market for outstanding City general obligation
bonds and notes. If the City were unable to sell its general obligation bonds
and notes, it would be prevented from meeting its planned operating and
capital expenditures.
The City Comptroller, the staff of the Control Board, the Office of the State
Deputy Comptroller for the City of New York (the "OSDC") and other
agencies and public officials have issued reports and made public statements
which, among other things, state that projected revenues may be less and
future expenditures may be greater than those forecast in the financial plan.
In addition, the Control Board and other agencies have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet
the costs of its expenditure increases and to provide necessary services. It
is reasonable to expect that such reports and statements will continue to be
issued and to engender public comment.
Fiscal Years 1990, 1991 and 1992. The City achieved balanced operating results
as reported in accordance with GAAP for the 1992 fiscal year. During the 1990
and 1991 fiscal years, the City implemented various actions to offset a
projected budget deficit of $3.2 billion for the 1991 fiscal year, which
resulted from declines in City revenue sources and increased public assistance
needs due to the recession. Such actions included $822 million of tax
increases and substantial expenditure reductions.
The quarterly modification to the City's financial plan submitted to the
Control Board on May 7, 1992 (the "1992 Modification") projected a
balanced budget in accordance with GAAP for the 1992 fiscal year after taking
into account a discretionary transfer of $455 million to the 1993 fiscal year
as the result of a 1992 fiscal year surplus. In order to achieve a balanced
budget for the 1992 fiscal year, during the 1991 fiscal year, the City
proposed various actions for the 1992 fiscal year to close a projected gap of
$3.3 billion in the 1992 fiscal year.
On November 19, 1992, the City submitted to the Control Board the Financial
Plan for the 1993 through 1996 fiscal years, which is a modification to a
financial plan submitted to the Control Board on June 11, 1992 (the "June
Financial Plan"), and which relates to the City, the Board of Education
("BOE") and the City University of New York ("CUNY"). The
1993-1996 Financial Plan projects revenues and expenditures of $29.9 billion
each for the 1993 fiscal year balanced in accordance with GAAP.
During the 1992 fiscal year, the City proposed various actions to close a
previously projected gap of approximately $1.2 billion for the 1993 fiscal
year. The gap-closing actions for the 1993 fiscal year proposed during the
1992 fiscal year and outlined in the City's June Financial Plan included $489
million of discretionary transfers from the 1992 fiscal year. The 1993-1996
City Financial Plan includes additional gap-closing actions to offset an
additional potential $81 million budget gap.
The 1993-1996 Financial Plan also sets forth projections and outlines a
proposed gap-closing program for the 1994 through 1996 fiscal years to close
projected budget gaps of $1.7 billion, $2.0 billion and $2.6 billion,
respectively, in the 1994 through 1996 fiscal years. On February 9, 1993, the
City issued a modification to the 1993-1996 Financial Plan (the "February
Modification"). The February Modification projects budget gaps for fiscal
years 1994, 1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion,
respectively.
Various actions proposed in the 1993-1996 Financial Plan are subject to
approval by the Governor and approval by the State Legislature, and the
proposed increase in Federal aid is subject to approval by Congress and the
President. The State Legislature has in the past failed to approve certain
proposals similar to those that the 1993-1996 Financial Plan assumes will be
approved by the State Legislature during the 1993 fiscal year. If these
actions cannot be implemented, the City will be required to take other actions
to decrease expenditures or increase revenues to maintain a balanced financial
plan.
On March 9, 1993, OSDC issued a report on the February Modification. The
report expressed concern that the budget gaps projected for fiscal years 1994
through 1996 are the largest the City has faced at this point in the financial
planning cycle in at least a decade, and concluded that the February
Modification represented a step backward in the City's efforts to bring
recurring revenues into line with recurring expenditures.
The City is a defendant in a significant number of lawsuits. Such litigation
includes, but is not limited to, actions commenced and claims asserted against
the City arising out of alleged constitutional violations, torts, breaches of
contracts, and other violations of law and condemnation proceedings. While the
ultimate outcome and fiscal impact, if any, on the proceedings and claims are
not currently predictable, adverse determinations in certain of them might
have a material adverse effect upon the City's ability to carry out its
financial plan. As of June 30, 1992, legal claims in excess of $341 billion
were outstanding against the City for which the City estimated its potential
future liability to be $2.3 billion.
As of the date of this prospectus, Moody's rating of the City's general
obligation bonds stood at Baa1 and S&P's rating stood at A-. On February 11,
1991, Moody's had lowered its rating from A.
On March 30, 1993, in confirming its Baa1 rating, Moody's noted that:
The financial plan for fiscal year 1994 and beyond shows an ongoing imbalance
between the City's expenditures and revenues. The key indication of this
structural imbalance is not necessarily the presence of sizable out-year
budget gaps, but the recurring use of one-shot actions to close gaps.
One-shots constitute a significant share of the proposed gap-closing program
for fiscal year 1994, and they represent an even larger share of those
measures which the City seems reasonably certain to attain. Several major
elements of the program, including certain state actions, federal counter
cyclical aid and part of the city's tax package, remain uncertain. However,
the gap closing plan may be substantially altered when the executive budget is
offered later this spring.
On March 30, 1993, S&P affirmed its A- rating with a negative outlook, stating
that:
The City's key credit factors are marked by a high and growing debt burden,
and taxation levels that are relatively high, but stable. The City's economy
is broad-based and diverse, but currently is in prolonged recession, with slow
growth prospects for the foreseeable future.
The rating outlook is negative, reflecting the continued fiscal pressure
facing the City, driven by continued weakness in the local economy, rising
spending pressures for education and labor costs of city employees, and
increasing costs associated with rising debt for capital construction and
repair.
The current financial plan for the City assumes substantial increases in aid
from national and state governments. Maintenance of the current rating, and
stabilization of the rating outlook, will depend on the City's success in
realizing budgetary aid from these governments, or replacing those revenues
with ongoing revenue-raising measures or spending reductions under the City's
control. However, increased reliance on non-recurring budget balancing
measures that would support current spending, but defer budgetary gaps to
future years, would be viewed by S&P as detrimental to New York City's
single-'A-' rating.
Previously, Moody's had raised its rating to A in May, 1988, to Baa1 in
December, 1985, to Baa in November, 1983 and to Ba1 in November, 1981. S&P had
raised its rating to A- in November, 1987, to BBB+ in July, 1985 and to BBB in
March, 1981.
On May 9, 1990, Moody's revised downward its rating on outstanding City
revenue anticipation notes from MIG-1 to MIG-2 and rated the $900 million
Notes then being sold MIG-2. On April 30, 1991 Moody's confirmed its MIG-2
rating for the outstanding revenue anticipation notes and for the $1.25
billion in notes then being sold. On April 29, 1991, S&P revised downward its
rating on City revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1992, the City and MAC had, respectively, $20.3 billion and
$4.7 billion of outstanding net long-term indebtedness.
Certain Agencies of the State have faced substantial financial difficulties
which could adversely affect the ability of such Agencies to make payments of
interest on, and principal amounts of, their respective bonds. The
difficulties have in certain instances caused the State (under so-called
"moral obligation" provisions which are non-binding statutory provisions
for State appropriations to maintain various debt service reserve funds) to
appropriate funds on behalf of the Agencies. Moreover, it is expected that the
problems faced by these Agencies will continue and will require increasing
amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those Agencies
having financial difficulties to meet their obligations could result in a
default by one or more of the Agencies. Such default, if it were to occur,
would be likely to have a significant adverse effect on investor confidence
in, and therefore the market price of, obligations of the defaulting Agencies.
In addition, any default in payment on any general obligation of any Agency
whose bonds contain a moral obligation provision could constitute a failure of
certain conditions that must be satisfied in connection with Federal
guarantees of City and MAC obligations and could thus jeopardize the City's
long-term financing plans.
As of September 30, 1992, the State reported that there were eighteen Agencies
that each had outstanding debt of $100 million or more. These eighteen
Agencies had an aggregate of $62.2 billion of outstanding debt, including
refunding bonds, of which the State was obligated under lease-purchase,
contractual obligation or moral obligation provisions on $25.3 billion.
The State is a defendant in numerous legal proceedings pertaining to matters
incidental to the performance of routine governmental operations. Such
litigation includes, but is not limited to, claims asserted against the State
arising from alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal laws. Included
in the State's outstanding litigation are a number of cases challenging the
constitutionality or the adequacy and effectiveness of a variety of
significant social welfare programs primarily involving the State's mental
hygiene programs. Adverse judgments in these matters generally could result in
injunctive relief coupled with prospective changes in patient care which could
require substantial increased financing of the litigated programs in the
future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and
nineteenth centuries. The claimants seek recovery of approximately six million
acres of land as well as compensatory and punitive damages.
The U.S. Supreme Court on March 30, 1993 referred to a Special Master for
determination of damages in an action by the State of Delaware to recover
certain unclaimed dividends, interest and other distributions made by issuers
of securities held by New York based-brokers incorporated in Delaware. (State
of Delaware v. State of New York.) The State had taken such unclaimed property
under its Abandoned Property Law. The State expects that it may pay a
significant amount in damages during fiscal year 1993-94 but it has indicated
that it has sufficient funds on hand to pay any such award, including funds
held in contingency reserves. The State's 1993-94 Financial Plan includes the
establishment of a $100 million contingency reserve fund which would be
available to fund such an award which some reports have estimated at $100-$800
million.
In Schulz v. State of New York, commenced May 24, 1993 ("Schulz
1993"), petitioners have challenged the constitutionality of mass
transportation bonding programs of the New York State Thruway Authority
and the Metropolitan Transportation Authority. On May 24, 1993, the Supreme
Court, Albany County, temporarily enjoined the State from implementing those
bonding programs. In previous actions Mr. Schulz and others have challenged
on similar grounds bonding programs for the New York State Urban Development
Corporation and the New York Local Government Assistance Corporation. While
there have been no decisions on the merits in such previous actions, by an
opinion dated May 11, 1993, the New York Court of Appeals held in a
proceeding commenced on April 29, 1991 in the Supreme Court, Albany County
(Schulz v. State of New York), that petitioners had standing as voters under
the State Constitution to bring such action.
Petitioners in Schulz 1993 have asserted that issuance of bonds by the two
Authorities is subject to approval by statewide referendum. At this time there
can be no forecast of the likelihood of success on the merits by the
petitioners, but a decision upholding this constitutional challenge could
restrict and limit the ability of the State and its instrumentalities to
borrow funds in the future. The State has not indicated that the temporary
injunction issued by the Supreme Court in this action will have any immediate
impact on its financial condition or interfere with projects requiring
immediate action.
Adverse developments in the foregoing proceedings or new proceedings could
adversely affect the financial condition of the State in the future.
Certain localities in addition to New York City could have financial problems
leading to requests for additional State assistance. Both the Revised
1992-1993 State Financial Plan and the recommended 1993-94 State Financial
Plan includes a significant reduction in State aid to localities in such
programs as revenue sharing and aid to education from projected base-line
growth in such programs. It is expected that such reductions will result in
the need for localities to reduce their spending or increase their revenues.
The potential impact on the State of such actions by localities is not
included in projections of State receipts and expenditures in the State's
1993-94 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board
is charged with oversight of the fiscal affairs of Yonkers. Future actions
taken by the Governor or the State Legislature to assist Yonkers could result
in allocation of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1991, the total indebtedness of all localities in the
State was approximately $31.6 billion, of which $16.8 billion was debt of New
York City (excluding $6.7 billion in MAC debt). State law requires the
Comptroller to review and make recommendations concerning the budgets of those
local government units other than New York City authorized by State law to
issue debt to finance deficits during the period that such deficit financing
is outstanding. Fifteen localities had outstanding indebtedness for state
financing at the close of their fiscal year ending in 1991. In 1992, an
unusually large number of local government units requested authorization for
deficit financings. According to the Comptroller, ten local government units
have been authorized to issue deficit financing in the aggregate amount of
$131.1 million.
Certain proposed Federal expenditure reductions could reduce, or in some cases
eliminate, Federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities. If the
State, New York City or any of the Agencies were to suffer serious financial
difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State, including notes or bonds in the New York IM-IT Trust, could be
adversely affected. Localities also face anticipated and potential problems
resulting from certain pending litigation, judicial decisions, and long-range
economic trends. The longer-range potential problems of declining urban
population, increasing expenditures, and other economic trends could adversely
affect localities and require increasing State assistance in the future.
Tax Status. For a discussion of the Federal tax status of income earned on New
York IM-IT Trust Units, see "Other Matters--Federal Tax Status".
In the opinion of Tanner Propp & Farber, special counsel to the Fund for New
York tax matters, under existing New York law:
The New York IM-IT Trust is not an association taxable as a corporation and
the income of the New York IM-IT Trust will be treated as the income of the
Unitholders under the income tax laws of the State and City of New York.
Individuals who reside in New York State or City will not be subject to State
and City tax on interest income which is exempt from Federal income tax under
section 103 of the Internal Revenue Code of 1986 and derived from obligations
of New York State or a political subdivision thereof, although they will be
subject to New York State and City tax with respect to any gains realized when
such obligations are sold, redeemed or paid at maturity or when any such Units
are sold or redeemed.
<TABLE>
<CAPTION>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 53.18 $ 53.18
Less: Estimated Annual Expense per Unit <F2>.............................. $ 1.60 $ 1.15
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 51.58 $ 52.03
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 51.58 $ 52.03
Divided by 12 and 2, respectively......................................... $ 4.30 $ 26.02
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14327 $ .14452
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.16% 5.20%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.13% 5.18%
Estimated Initial Monthly Distribution (December 1995)..................... $ 2.44
Estimated Initial Semi-annual Distribution (May 1996)...................... $ 24.14
Estimated Normal Distribution per Unit <F5>................................ $ 4.30 $ 26.02
</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
New York 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--May and November
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--May
and November commencing December 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.76
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 $53.94. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.36 and $1.91 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>
NEW YORK INSURED MUNICIPALS INCOME TRUST
SERIES 129 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To New
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of Redemption York IM-IT
Principal<F1> either Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 370,000 New York State Urban Development Corporation, Youth
Facilities Revenue Bonds, Series 1994 (MBIA Insured) 2004 @ 102
#5.70% Due 4/1/2014........................................ AAA 2010 @ 100 S.F. $ 373,260
100,000 City of New York, New York, General Obligation-Unlimited
Tax Bonds, Series 1991B (FSA Insured) #0.00% Due 6/1/2020 AAA 24,964 <F6>
105,000 New York City Municipal Water Finance Authority (New York)
Water and Sewer System Revenue Bonds, Series 1994F (MBIA
Insured) #5.75% Due 6/15/2020............................ AAA 2004 @ 101.5 105,393
500,000 Dormitory Authority of the State of New York, Leake and
Watts Services, Inc., Insured Revenue Bonds, Series 1994 2004 @ 102
(MBIA Insured) #6.00% Due 7/1/2023....................... AAA 2015 @ 100 S.F. 514,860
145,000 Dormitory Authority of the State of New York, Skidmore
College, Insured Revenue Bonds, Series 1993 (FSA Insured) 2003 @ 102
#5.375% Due 7/1/2023....................................... AAA 2014 @ 100 S.F. 140,171
150,000 Erie County, New York, General Obligation Bonds, Series 2005 @ 101.5
1995B (FGIC Insured) #5.50% Due 6/15/2025................ AAA 2021 @ 100 S.F. 147,525
200,000 New York City Municipal Water Finance Authority, New York,
Water and Sewer System Revenue Bonds, Series A (MBIA
Insured) #5.875% Due 6/15/2025............................ AAA 2005 @ 101 202,912
500,000 Dormitory Authority of the State of New York, City
University System Consolidated, Third General Resolution
Revenue Bonds, 1995 Series 1 (AMBAC Indemnity Insured)** 2005 @ 102
#5.375% Due 7/1/2025....................................... AAA 2017 @ 100 S.F. 482,795
500,000 New York State Dormitory Authority, New York, Revenue
Refunding Bonds (Ellis Hospital Issue) MBIA Insured** 2005 @ 102
#5.60% Due 8/1/2025........................................ AAA 2016 @ 100 S.F. 491,825
465,000 New York State Medical Care Facilities Finance Agency,
Montefiore Medical Center, FHA Insured Mortgage Revenue
Bonds, Series 1995A (AMBAC Indemnity Insured) #6.00% Due 2005 @ 102
2/15/2035.................................................. AAA 2023 @ 100 S.F. 472,965
$ 3,035,000 $ 2,956,670
</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".
OHIO IM-IT TRUST
General. The Ohio IM-IT Trust consists of 10 issues of Securities. Five of the
Bonds in the Ohio 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 Ohio IM-IT Trust) as follows: General Obligations, 5 (54%); Industrial
Revenue, 1 (17%); Water and Sewer, 3 (16%) and Airport, 1 (13%). No Bond issue
has received a provisional rating.
Risk Factors. As described above, the Ohio IM-IT will invest most of its net
assets in securities issued by or on behalf of (or in certificates of
participation in lease-purchase obligations of) the State of Ohio, political
subdivisions of the State, or agencies or instrumentalities of the State or
its political subdivisions ("Ohio Obligations"). The Ohio IM-IT is
therefore susceptible to general or particular economic, political or
regulatory factors that may affect issuers of Ohio Obligations. The following
information constitutes only a brief summary of some of the many complex
factors that may have an effect. The information does not apply to
"conduit" obligations on which the public issuer itself has no financial
responsibility. This information is derived from official statements of
certain Ohio issuers published in connection with their issuance of securities
and from other publicly available information, and is believed to be accurate.
No independent verification has been made of any of the following information.
Generally, creditworthiness of Ohio Obligations of local issuers is unrelated
to that of obligations of the State itself, and the State has no
responsibility to make payments on those local obligations. There may be
specific factors that at particular times apply in connection with investment
in particular Ohio Obligations or in those obligations of particular Ohio
issuers. It is possible that the investment may be in particular Ohio
Obligations, or in those of particular issuers, as to which those factors
apply. However, the information below is intended only as a general summary,
and is not intended as a discussion of any specific factors that may affect
any particular obligation or issuer.
The timely payment of principal of and interest on Ohio Obligations has been
guaranteed by bond insurance purchased by the issuers, the Ohio IM-IT or other
parties. Ohio Obligations may not be subject to the factors referred to in
this section of the Prospectus.
Ohio is the seventh most populous state; the 1990 Census count of 10,847,000
indicated a 0.5% population increase from 1980. The Census estimate for 1993
is 11,091,000.
While diversifying more into the service and other non-manufacturing areas,
the Ohio economy continues to rely in part on durable goods manufacturing
largely concentrated in motor vehicles and equipment, steel, rubber products
and household appliances. As a result, general economic activity, as in many
other industrially-developed states, tends to be more cyclical than in some
other states and in the nation as a whole. Agriculture is an important segment
of the economy, with over half the State's area devoted to farming and
approximately 15% of total employment in agribusiness.
In prior years, the State's overall unemployment rate was commonly somewhat
higher than the national figure. For example, the reported 1990 average
monthly State rate was 5.7%, compared to the 5.5% national figure. However,
for the last four years the State rates were below the national rates (5.5%
versus 6.1% in 1994). The unemployment rate and its effects vary among
geographic areas of the State.
There can be no assurance that future national, regional or state-wide
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of Ohio
Obligations held in the Ohio IM-IT portfolio or the ability of particular
obligors to make timely payments of debt service on (or lease payments
relating to) those Obligations.
The State operates on the basis of a fiscal biennium for its appropriations
and expenditures, and is precluded by law from ending its July 1 to June 30
fiscal year ("FY") or fiscal biennium in a deficit position. Most
State operations are financed through the General Revenue Fund ("GRF"),
for which personal income and sales-use taxes are the major sources. Growth
and depletion of GRF ending fund balances show a consistent pattern related to
national economic conditions, with the ending FY balance reduced during less
favorable and increased during more favorable economic periods. The State has
well-established procedures for, and has timely taken, necessary actions to
ensure resource/expenditure balances during less favorable economic periods.
Those procedures included general and selected reductions in appropriations
spending.
Key biennium ending fund balances at June 30, 1989 were $475.1 million in the
GRF and $353 million in the Budget Stabilization Fund ("BSF", a cash
and budgetary management fund). In the next two fiscal years, necessary
corrective steps were taken *including selected reductions in appropriations
spending and transfer of $64 million from the BSF to the GRF) to respond to
certain lower receipts and higher expenditures than earlier estimated. June
30, 1991 ending fund balances were $135.3 million (GRF) and $300 million
(BSF).
The next biennium, 1992-1993, presented significant challenges to State
finances, successfully addressed. To allow time to resolve certain budget
differences an interim appropriations act was enacted effective July 1, 1991;
it included GRF debt service and lease rental appropriations for the entire
biennium, while continuing most other appropriations for a month. The general
appropriations act for the entire biennium was passed on July 11, 1991.
Pursuant to it, $200 million was transferred from the BSF to the GRF in FY
1992.
Based on updated results and forecasts in the course of FY 1992, both in light
of a continuing uncertain nationwide economic situation, there was projected
and then timely addressed an FY 1992 imbalance in GRF resources and
expenditures. GRF receipts significantly below original forecasts resulted
primarily from lower collections of certain taxes, particularly sales, use and
personal income taxes. Higher expenditure levels were in certain areas,
particularly human services including Medicaid. In response, the Governor
ordered most State agencies to reduce GRF spending in the last six months of
FY 1992 by a total of approximately $184 million; the $100.4 million BSF
balance, and additional amounts from certain other funds were transferred late
in the FY to the GRF, and adjustments made in the timing of certain tax
payments.
A significant GRF shortfall (approximately $520 million) was then projected
for the next year, FY 1993. It was addressed by appropriate legislative and
administrative actions, including the Governor's ordering $300 million in
selected GRF spending reductions and subsequent executive and legislative
action (a combination of tax revisions and additional spending reductions).
The June 30, 1993 ending GRF fund balance was approximately $111 million, of
which, as a first step to BSF replenishment, $21 million was deposited in the
BSF.
No spending reductions were applied to appropriations needed for debt service
on or lease rentals relating to any State obligations.
The 1994-1995 biennium presented a more affirmative financial picture for the
State. Based on June 30, 1994 balances, an additional $260 million was
deposited in the BSF. The biennium ended June 30, 1995 with a GRF ending fund
balance of $928 million, of which $535.2 million has been transferred into the
BSF (which has a current balance of over $828 million).
The GRF appropriations act for the 1995-96 biennium was passed on June 28,
1995 and promptly signed (after selective vetoes) by the Governor. All
necessary GRF appropriations for State debt service and lease rental payments
then projected for the biennium were included in that act. In accordance with
the appropriations act, the significant June 30, 1995 GRF fund balance, after
leaving in the GRF an unreserved and undesignated balance of $70 million, has
been transferred to a variety of funds, including $535.2 million to the BSF.
$322.8 million was transferred to other funds, including school assistance
funds and, in anticipation of possible federal program changes, a human
services stabilization fund.
The State's incurrence or assumption of debt without a vote of the people is,
with limited exceptions, prohibited by current State constitutional
provisions. The State may incur debt, limited in amount to $750,000, to cover
casual deficits or failures in revenues or to meet expenses not otherwise
provided for. The Constitution expressly precludes the State from assuming the
debts of any local government or corporation. (An exception is made in both
cases for any debt incurred to repel invasion, suppress insurrection or defend
the State in war.)
By 13 constitutional amendments, the last adopted in 1993, Ohio voters have
authorized the incurrence of State debt and the pledge to taxes or excises to
its payment. At July 19, 1995, $816 million (excluding certain highway bonds
payable primarily from highway use charges) of this debt was outstanding. The
only such State debt then still authorized to be incurred are portions of the
highway bonds, and the following: (a) up to $100 million of obligations for
coal research and development may be outstanding at any one time ($34.7
million outstanding); (b) $360 million of obligations authorized for local
infrastructure improvements, no more than $120 million of which may be issued
in any calendar year ($728 million outstanding); and (c) up to $200 million in
general obligation bonds for parks, recreation and natural resources purposes
which may be outstanding at any one time ($50 million outstanding, with no
more than $50 million to be issued in any one year).
The General Assembly has placed on the November 1995 ballot a proposed
constitutional amendment that would extend the local infrastructure bond
program (authorizing an additional $1.2 billion of State full faith and credit
obligations to be issued over 10 years for the purpose), and authorize
additional highway bonds (expected to be payable primarily from highway use
receipts). The latter would supersede the current $500 million highway
obligation authorization, and would authorize not more that $1.2 billion to be
outstanding at any time and not more than $220 million to be issued in a
fiscal year.
Common resolutions are pending in both houses of the General Assembly that
would submit a constitutional amendment relating to certain other aspects of
State debt. The proposal would authorize, among other things, the issuance of
general obligation State debt for a variety of purposes with debt service on
all State general obligation debt and GRF-supported obligations not to exceed
5% of the preceeding Fiscal Year's GRF expenditures.
The Constitution also authorizes the issuance of State obligations for certain
purposes, the owners of which do not have the right to have excises or taxes
levied to pay debt service. Those special obligations include obligations
issued by the Ohio Public Facilities Commission and the Ohio Building
Authority, and certain obligations issued by the State Treasurer, over $4.5
billion of which were outstanding at July 19, 1995.
A 1990 constitutional amendment authorizes greater State and political
subdivision participation (including financing) in the provision of housing.
The General Assembly may for that purpose authorize the issuance of State
obligations secured by a pledge of all or such portion as it authorizes of
State revenues or receipts (but not by a pledge of the State's full faith and
credit).
A 1994 constitutional amendment pledges the full faith and credit and taxing
power of the State to meeting certain guarantees under the State's tuition
credit program which provides for purchase of tuition credits, for the benefit
of State residents, guaranteed to cover a specified amount when applied to the
cost of higher education tuition. (A 1965 constitutional provision that
authorized student loan guarantees payable from available State moneys has
never been implemented, apart from a "guarantee fund" approach funded
especially from program revenues.)
The House has adopted a resolution that would submit to the electors a
constitutional amendment prohibiting the General Assembly from imposing a new
tax or increasing an existing tax unless approved by a three-fifths vote of
each house or by a majority vote of the electors. It cannot be predicted
whether required Senate concurrence to submission will be received.
State and local agencies issue obligations that are payable from revenues from
or relating to certain facilities (but not from taxes). By judicial
interpretation, these obligations are not "debt" within constitutional
provisions. In general, payment obligations under lease-purchase agreements of
Ohio public agencies (in which certificates of participation may be issued)
are limited in duration to the agency's fiscal period, and are renewable only
upon appropriations being made available for the subsequent fiscal period.
Local school districts in Ohio receive a major portion (state-wide aggregate
in the range of 44% in recent years) of their operating moneys from State
subsidies, but are dependent on local property taxes, and in 115 districts
from voter-authorized income taxes, for significant portions of their budgets.
Litigation, similar to that in other states, is pending questioning the
constitutionality of Ohio's system of school funding. The trial court recently
concluded that aspects of the system (including basic operating assistance)
are unconstitutional and ordered the State to provide for and fund a system
complying with the Ohio Constitution. The State has appealed. A small number
of the State's 612 local school districts have in any year required special
assistance to avoid year-end deficits. A current program provides for school
district cash need borrowing directly from commercial lenders, with diversion
of State subsidy distributions to repayment if needed. Recent borrowings under
this program totalled $94.5 million for 27 districts (including $75 million
for one) in FY 1993, and $41.1 million for 28 districts in FY 1994, and $71.1
million for 29 districts in FY 1995.
Ohio's 943 incorporated cities and villages rely primarily on property and
municipal income taxes for their operations. With other subdivisions, they
also receive local government support and property tax relief moneys
distributed by the State. For those few municipalities that on occasion have
faced significant financial problems, there are statutory procedures for a
joint State/local commission to monitor the municipality's fiscal affairs and
for development of a financial plan to eliminate deficits and cure any
defaults. Since inception in 1979, these procedures have been applied to 23
cities and villages; for 18 of them the fiscal situation was resolved and the
procedures terminated.
At present the State itself does not levy ad valorem taxes on real or tangible
personal property. Those taxes are levied by political subdivisions and other
local taxing districts. The Constitution has since 1934 limited to 1% of true
value in money the amount of the aggregate levy (including a levy for unvoted
general obligations) of property taxes by all overlapping subdivisions,
without a vote of the electors or a municipal charter provision, and statutes
limit the amount of that aggregate levy to 10 mills per $1 of assessed
valuation (commonly referred to as the "ten-mill limitation"). Voted
general obligations of subdivisions are payable from property taxes that are
unlimited as to amount or rate.
Tax Status. For a discussion of the Federal tax status of income earned on
Ohio IM-IT Trust Units, see "Other Matters--Federal Tax Status".
Commencing in 1985, Ohio municipalities may be permitted under Ohio law to
subject interest on certain of the obligations held by the Ohio IM-IT Trust to
income taxes imposed on their residents and entities doing business therein.
In the opinion of Squire, Sanders & Dempsey, special counsel to the Fund for
Ohio tax matters, under existing law:
(1)The Ohio IM-IT Trust is not taxable as a corporation or otherwise for
purposes of the Ohio personal income tax, school district income taxes in
Ohio, the Ohio corporation franchise tax, or the Ohio dealers in intangibles
tax.
(2)Distributions with respect to Units of the Ohio IM-IT Trust
("Distributions") will be treated as the income of the Unitholders for
purposes of the Ohio personal income tax, and school district and municipal
income taxes in Ohio and the Ohio corporation franchise tax in proportion to
the respective interest therein of each Unitholder.
(3)Distributions properly attributable to interest on obligations issued by or
on behalf of the State of Ohio, political subdivisions thereof, or agencies or
instrumentalities thereof ("Ohio Obligations"), or by the governments
of Puerto Rico, the Virgin Islands or Guam ("Territorial Obligations")
held by the Trust are exempt from the Ohio personal income tax, school
district and municipal income taxes, and are excluded from the net income base
of the Ohio corporation franchise tax when distributed or deemed distributed
to Unitholders.
(4)Distributions properly attributable to proceeds of insurance paid to the
Ohio IM-IT Trust that represent maturing or matured interest on defaulted
obligations held by the Ohio IM-IT Trust and that are excluded from gross
income for federal income tax purposes will be exempt from Ohio personal
income tax, and school district and municipal income taxes in Ohio and the net
income base of the Ohio corporation franchise tax.
Distributions of profit made on the sale, exchange or other disposition by the
Ohio IM-IT Trust of Ohio Obligations including Distributions of "capital
gain dividends" as defined in Section 852(b)(3)(C) of the Code, properly
attributable to the sale, exchange or other disposition of Ohio Obligations
are exempt from Ohio personal income tax, and school district and municipal
income taxes in Ohio, and are excluded from the net income base of the Ohio
corporation franchise tax.
<TABLE>
<CAPTION>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 52.71 $ 52.71
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.30 $ 1.82
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 50.41 $ 50.89
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 50.41 $ 50.89
Divided by 12 and 2, respectively......................................... $ 4.20 $ 25.45
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14003 $ .14135
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.04% 5.09%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.05% 5.09%
Estimated Initial Monthly Distribution (December 1995)..................... $ 2.38
Estimated Initial Semi-annual Distribution (January 1996).................. $ 6.64
Estimated Normal Distribution per Unit <F5>................................ $ 4.20 $ 25.45
</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
Ohio 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 December 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.20
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 $52.91. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.50 and $2.02 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>
OHIO INSURED MUNICIPALS INCOME TRUST
SERIES 99 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To Ohio
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of Redemption IM-IT
Principal<F1> either Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 400,000 City of Dayton, Ohio, Airport Revenue Refunding Bonds,
Series 1995 (James M. Cox Dayton International Airport) 2005 @ 101
AMBAC Indemnity Insured #5.25% Due 12/1/2015 ............ AAA 2010 @ 100 S.F. $ 385,244
125,000 City of Hilliard, Franklin County, Ohio, Various Purpose
Bonds, Series 1995 (General Obligation-Limited Tax) AMBAC 2005 @ 101
Indemnity Insured #5.75% Due 12/1/2015 .................. AAA 2008 @ 100 S.F. 127,150
250,000 County of Lucas, Ohio, General Obligation (Limited Tax)
Various Purpose Improvement Bonds, Series 1995-I (AMBAC 2005 @ 102
Indemnity Insured)** #5.40% Due 12/1/2015 ............... AAA 2006 @ 100 S.F. 245,265
250,000 Indian Valley Local School District, Ohio, General
Obligation (Unlimited Tax) School Improvement Bonds,
Series 1995 (AMBAC Indemnity Insured) #5.75% Due 2005 @ 102
12/1/2019 ................................................. AAA 2015 @ 100 S.F. 254,505
500,000 Delaware City School District, Delaware County, Ohio,
School Facilities Construction and Improvement Bonds
(General Obligation-Unlimited Tax) FGIC Insured #5.75% 2005 @ 101
Due 12/1/2020 ............................................. AAA 2016 @ 100 S.F. 506,550
350,000 City of Dover, Ohio, Waterworks System Revenue Bonds,
Series 1994 (AMBAC Indemnity Insured) #6.00% Due 2004 @ 102
12/1/2020 ................................................. AAA 2016 @ 100 S.F. 361,704
145,000 City of Huber Heights, Ohio, Water System Revenue Bonds,
Series 1995 (MBIA Insured)
#100M- 0.00% Due 12/1/2020 ................................ AAA 24,269 <F6>
# 45M- 0.00% Due 12/1/2021 ................................ AAA 10,322 <F6>
500,000 City of Centerville, Ohio, General Obligation (Limited
Tax) Capital Facilities Bonds, Series 1995 (MBIA
Insured)** 5.625% Due 12/1/2026 ......................... AAA 2005 @ 101 500,665
500,000 Ohio Air Quality Development Authority, Ohio, Pollution
Control Revenue Refunding Bonds, Series 1993B (Ohio Edison
Company Project) AMBAC Indemnity Insured 5.625% Due
11/15/2029 ................................................ AAA 2003 @ 102 497,260
$ 3,020,000 $ 2,912,934
</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".
PENNSYLVANIA IM-IT TRUST
General. The Pennsylvania IM-IT Trust consists of 9 issues of Securities. Four
of the Bonds in the Pennsylvania 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 Pennsylvania IM-IT Trust) as follows: General Obligations, 4 (44%);
General Purpose, 2 (20%); Water and Sewer, 1 (16%); Retail Electric/Gas, 1
(12%) and Transportation, 1 (8%). No Bond issue has received a provisional
rating.
Risk Factors. Investors should be aware of certain factors that might affect
the financial conditions of the Commonwealth of Pennsylvania. Pennsylvania
historically has been identified as a heavy industry state although that
reputation has changed recently as the industrial composition of the
Commonwealth diversified when the coal, steel and railroad industries began to
decline. A more diversified economy was necessary as the traditionally strong
industries in the Commonwealth declined due to a long-term shift in jobs,
investment and workers away from the northeast part of the nation. The major
sources of growth in Pennsylvania are in the service sector, including trade,
medical and the health services, education and financial institutions.
Pennsylvania's agricultural industries are also an important component of the
Commonwealth's economic structure, accounting for more than $3.6 billion in
crop and livestock products annually, while agribusiness and food related
industries support $39 billion in economic activity annually.
Non-agricultural employment in the Commonwealth declined by 5.1 percent during
the recessionary period from 1980 to 1983. In 1984, the declining trend was
reversed as employment grew by 2.9 percent over 1983 levels. From 1983 to
1990, Commonwealth employment continued to grow each year, increasing an
additional 14.3 percent. For the three years ended 1993, unemployment in the
Commonwealth declined 1.2 percent.
Back to back recessions in the early 1980s reduced the manufacturing sector's
employment levels moderately during 1980 and 1981, sharply during 1982, and
even further in 1983. Non-manufacturing employment has increased steadily
since 1980 to its 1993 level of 81.6 percent of total Commonwealth employment.
Consequently, manufacturing employment constitutes a diminished share of total
employment within the Commonwealth. Manufacturing, contributing 18.4 percent
of 1993 non-agricultural employment, has fallen behind both the services
sector and the trade sector as the largest single source of employment within
the Commonwealth. In 1993 the services sector accounted for 29.9 percent of
all non-agricultural employment while the trade sector accounted for 22.4
percent.
From 1983 to 1989, Pennsylvania's annual average unemployment rate dropped
from 11.8 percent to 4.5 percent, falling below the national rate in 1986 for
the first time in over a decade. Pennsylvania's annual average unemployment
rate remained below the national average from 1986 until 1990. Slower economic
growth caused the unemployment rate in the Commonwealth to rise to 6.9 percent
in 1991 and 7.5 percent in 1992. The resumption of faster economic growth
resulted in a decrease in the Commonwealth's unemployment rate to 7.1 percent
in 1993. As of March 1995, the seasonally adjusted unemployment rate for the
Commonwealth was 6.0 percent compared to 5.5 percent for the United States.
The five year period from fiscal 1990 through fiscal 1994 was marked by public
health and welfare costs growing at a rate double the growth rate for all the
state expenditures. Rising caseloads, increased utilization of services and
rising prices joined to produce the rapid rise of public health and welfare
costs at a time when a national recession caused tax revenues to stagnate and
even decline. During the period from fiscal 1989 through fiscal 1993, public
health and welfare costs rose by an average annual rate of 9.4 percent while
tax revenues were growing at an average annual rate of 5.8 percent.
Consequently, spending on other budget programs was restrained to a growth
rate below 4.7 percent and sources of revenues other than taxes became larger
components of fund revenues. Among those sources are transfers from other
funds and hospital and nursing home pooling of contributions to use as federal
matching funds.
Tax revenues declined in fiscal 1991 as a result of the recession in the
economy. A $2.7 billion tax increase enacted for fiscal 1992 brought financial
stability to the General Fund. That tax increase included several taxes with
retroactive effective dates which generated some one-time revenues during
fiscal 1992. The absence of those revenues in fiscal 1993 contributed to the
decline in tax revenues shown for fiscal 1993. Fiscal 1994 revenues increased
4.1 percent, but a decline in other revenues caused by the end of medical
assistance pooled financing in fiscal 1993 held total revenues to a 1.8
percent gain. Expenditures for fiscal 1994 rose by 4.3 percent.
It should be noted that the creditworthiness of obligations issued by local
Pennsylvania issuers may be unrelated to the creditworthiness of obligations
issued by the Commonwealth of Pennsylvania, and there is no obligation on the
part of the Commonwealth to make payment on such local obligations in the
event of default.
Financial information for the principal operating funds of the Commonwealth is
maintained on a budgetary basis of accounting. A budgetary basis of accounting
is used for the purpose of ensuring compliance with the enacted operating
budget and is governed by applicable statutes of the Commonwealth and by
administrative procedures. The Commonwealth also prepares annual financial
statements in accordance with generally accepted accounting principles
("GAAP"). The budgetary basis financial information maintained by the
Commonwealth to monitor and enforce budgetary control is adjusted at fiscal
year-end to reflect appropriate accruals for financial reporting in conformity
with GAAP.
Fiscal 1992 Financial Results. GAAP Basis: During fiscal 1992 the General Fund
reported a $1.1 billion operating surplus. This operating surplus was achieved
through legislated tax rate increases and tax base broadening measures enacted
in August 1991 and by controlling expenditures through numerous cost reduction
measures implemented throughout the fiscal year. As a result of the fiscal
1992 operating surplus, the fund balance increased to $87.5 million and the
unreserved-undesignated deficit dropped to $138.6 million from its fiscal 1991
level of $1,146.2 million.
Budgetary Basis: Total revenues for the fiscal year were $14,516.8 million, a
$2,654.5 million increase over cash revenues during fiscal 1991. Largely due
to the tax revisions enacted for the budget, corporate tax receipts totalled
$3,761.2 million, up from $2,656.3 million in fiscal 1991, sales tax receipts
increased by $302 million to $4,499.7 million, and personal income tax
receipts totalled $4,807.4 million, an increase of $1,443.8 million over
receipts in fiscal 1991.
Spending increases in the fiscal 1992 budget were largely accounted for by
increases for education, social services and corrections programs.
Commonwealth funds for the support of public schools were increased by 9.8
percent to provide a $438 million increase to $4.9 billion for fiscal 1992.
Child welfare appropriations supporting county operated child welfare programs
were increased $67 million, more than 31.5 percent over fiscal 1991. Other
social service areas such as medical and cash assistance also received
significant funding increases as costs rose quickly as a result of the
economic recession and high inflation rates of medical care costs. The costs
of corrections programs, reflecting the marked increase in the prisoner
population, increased by 12 percent. Economic development efforts, largely
funded from bond proceeds in fiscal 1991, were continued with General Fund
appropriations for fiscal 1992.
The budget included the use of several Medicaid pooled financing transactions.
These pooling transactions replaced $135 million of Commonwealth funds,
allowing total spending under the budget to increase by an equal amount.
Fiscal 1993 Financial Results. GAAP Basis: The fund balance of the General
Fund increased by $611.4 million during the fiscal year, led by an increase in
the unreserved balance of $576.8 million over the prior fiscal year balance.
At June 30, 1993, the fund balance totalled $698.9 and the
unreserved/undesignated balance totalled $64.4 million. The increase in the
fund balance and a return to a positive unreserved-undesignated balance
provided indication of a continuing recovery of the Commonwealth's financial
condition.
Budgetary Basis: The 1993 fiscal year closed with revenues higher than
anticipated and expenditures about as projected, resulting in an ending
unappropriated balance surplus (prior to the ten percent transfer to the Tax
Stabilization Reserve Fund) of $242.3 million, slightly higher than estimated.
Cash revenues were $41.5 million above the budget estimate and totalled
$14.633 billion representing less than a one percent increase over revenues
for the 1992 fiscal year. A reduction in the personal income tax rate in July
1992 and the one-time receipt of revenues from retroactive corporate tax
increases in fiscal 1992 were responsible, in part, for the low revenue growth
in fiscal 1993.
Appropriations less lapses totalled $13.870 billion representing a 1.1 percent
increase over expenditures during fiscal 1992. The low growth in spending is a
consequence of a low rate of revenue growth, significant one-time expenses
during fiscal 1992, increased tax refund reserves to cushion against adverse
decisions on pending litigations, and the receipt of federal funds for
expenditures previously paid out of Commonwealth funds.
By state statute, ten percent of the budgetary basis unappropriated surplus at
the end of a fiscal year is to be transferred to the Tax Stabilization Reserve
Fund. The transfer for the fiscal 1993 balance was $24.2 million. The
remaining unappropriated surplus of $218.0 million was carried forward into
the 1994 fiscal year.
Fiscal 1994 Financial Results. GAAP Basis: The fund balance increased $194.0
million due largely to an increased reserve for encumbrances and an increase
in other designated funds. The unreserved-undesignated balance increased by
$14.8 million to $72.2 million. Revenues and other sources increased by 1.8
percent over the prior fiscal year while expenditures and other uses increased
by 4.3 percent. Consequently, the operating surplus declined to $179.4 million
for fiscal 1994 from $686.3 million for fiscal 1993.
Budgetary Basis: Commonwealth revenues during the fiscal year totalled
$15,210.7 million, $38.6 million above the fiscal year estimate, and 3.9
percent over Commonwealth revenues during the previous fiscal year. The sales
tax was an important contributor to the higher than estimated revenues.
Collections from the sales tax were $5.124 billion, a 6.1 percent increase
from the prior fiscal year and $81.3 million above estimate. The strength of
collections from the sales tax offset the lower than budgeted performance of
the personal income tax which ended the fiscal year $74.4 million below
estimate. The shortfall in the personal income tax was largely due to
shortfalls in income not subject to withholding such as interest, dividends
and other income. Tax refunds in fiscal 1994 were reduced substantially below
the $530 million amount provided in fiscal 1993. The higher fiscal 1993 amount
and the reduced fiscal 1994 amount occurred because reserves of approximately
$160 million were added to fiscal 1993 tax refunds to cover potential payments
if the Commonwealth lost litigation known as Philadelphia Suburban Corp v.
Commonwealth. Those reserves were carried into fiscal 1994 until the
litigation was decided in the Commonwealth's favor in December 1993 and $147.3
million of reserves for tax refunds were released.
Expenditures, excluding pooled financing expenditures and net of all fiscal
1994 appropriation lapses, totalled $14,934.4 million representing a 7.2
percent increase over fiscal 1993 expenditures. Medical assistance and
corrections spending contributed to the rate of spending growth for the fiscal
year.
The Commonwealth maintained an operating balance on a budgetary basis for
fiscal 1994 producing a fiscal year ending unappropriated surplus of $335.8
million. By state statute, ten percent ($33.6 million) of that surplus
transferred to the Tax Stabilization Reserve Fund and the remaining balance
was carried over into the fiscal 1995 fiscal year. The balance in the Tax
Stabilization Reserve Fund as of March 31, 1995 was $65.3 million.
Fiscal 1995 Budget. The approved fiscal 1995 budget provided for $15,665.7
million of appropriations from Commonwealth funds, an increase of 4.0 percent
over appropriations, including supplemental appropriations, for fiscal 1994.
Medical assistance expenditures represent the largest single increase in the
budget ($221 million) representing a nine percent increase over the prior
fiscal year. The budget includes a reform of the state-funded public
assistance program that added certain categories of eligibility to the program
but also limited the availability of such assistance to other eligible
persons. Education subsidies to local school districts were increased by
$132.2 million to continue the increased funding for the poorest school
districts in the state.
Several tax reductions were enacted with the fiscal 1995 budget. Low income
working families will benefit from an increase to the dependent exemption to
$3,000 from $1,500 for the first dependent and from $1,000 for all additional
dependents. A reduction to the corporate net income tax rate from 12.25
percent to 9.99 percent to be phased in over a period of four years was
enacted. A net operating loss provision has been added to the corporate net
income tax and will be phased in over three years with an annual $500,000 cap
on losses used to offset profits. Several other tax changes to the sales tax,
the inheritance tax and the capital stock and franchise tax also were enacted.
Estimated commonwealth revenue reductions from these tax cuts have been raised
from $166.4 million to $173.4 million based on upward revised estimates of
commonwealth revenues for the fiscal 1995 to 6.3 percent, excluding the effect
of the fiscal 1995 tax reductions, and is largely due to actual and
anticipated higher collections of the corporate net income tax, the sales and
use tax and miscellaneous collections.
After a review of the fiscal 1994 budget in January 1995, $64.9 million of
additional appropriation needs were identified for the fiscal year. Of this
amount, the largest are for medical assistance ($21.8 million) and general
assistance cash grants ($10.3 million). The balance of the additional
appropriation needs are for other public welfare programs, educational
subsidies and office relocation costs due to a fire. The supplemental
appropriations requested are proposed to be funded from appropriation lapses
estimated to total $172 million for the fiscal year.
With the revised estimates for revenues, appropriations and lapses for the
1994 fiscal year, an unappropriated balance prior to transfers to the Tax
Stabilization Reserve Fund of $395.5 million is projected, an increase from
the $335.8 million fiscal year 1993 ending balance (prior to transfers).
Fiscal 1996 Budget. The fiscal 1996 budget was approved by the Governor on
June 30, 1995. The budget includes spending growth of 2.7%. It includes a
reduction of the Corporate Net Income Tax from 10.99% to 9.99% retroactive to
January 1, 1995. The budget includes a proportionate increase in funds for
public safety and education and a proportionate decrease in funds for welfare.
All outstanding general obligation bonds of the Commonwealth are rated AA- by
S&P and A1 by Moody's.
Any explanation concerning the significance of such ratings must be obtained
from the rating agencies. There is no assurance that any ratings will continue
for any period of time or that they will not be revised or withdrawn.
The City of Philadelphia ("Philadelphia") is the largest city in the
Commonwealth, with an estimated population of 1,585,577 according to the 1990
Census. Philadelphia functions both as a city of the first class and a county
for the purpose of administering various governmental programs.
For the fiscal year ending June 30, 1991, Philadelphia experienced a
cumulative General Fund balance deficit of $153.5 million. The audit findings
for the fiscal year ending June 30, 1992, placed the Cumulative General Fund
balance deficit at $224.9.
Legislation providing for the establishment of the Pennsylvania
Intergovernmental Cooperation Authority ("PICA") to assist first class
cities in remedying fiscal emergencies was enacted by the General Assembly and
approved by the Governor in June, 1991. PICA is designed to provide assistance
through the issuance of funding debt to liquidate budget deficits and to make
factual findings and recommendations to the assisted city concerning its
budgetary and fiscal affairs. An intergovernmental cooperation agreement
between Philadelphia and PICA was approved by City Council on January 3, 1992,
and approved by the PICA Board and signed by the Mayor on January 8, 1992. At
this time, Philadelphia is operating under a five year fiscal plan approved by
PICA on April 17, 1995 in which Philadelphia projects a balanced budget in
each of the five years (fiscal years 1996 through 2000) covered by the plan.
In June 1992, PICA issued $474,555,000 of its Special Tax Revenue Bonds to
provide financial assistance to Philadelphia and to liquidate the cumulative
General Fund balance deficit. PICA issued $643,430,000 in July 1993 and
$178,675,000 in August 1993 of Special Tax Revenue Bonds to refund certain
general obligation bonds of the City and to fund additional capital projects.
In December 1994, PICA issued $122,020,000 of Special Tax Revenue Bonds to
fund additional capital projects.
As of the date hereof, the ratings on the City's long-term obligations
supported by payments from the City's General Fund are rated Baa by Moody's
and BBB- by S&P. Any explanation concerning the significance of such ratings
must be obtained from the rating agencies. There is no assurance that any
ratings will continue for any period of time or that they will not be revised
or withdrawn.
The foregoing information constitutes only a brief summary of some of the
financial difficulties which may impact certain issuers of bonds and does not
purport to be a complete or exhaustive description of all adverse conditions
to which the issuers of the Bonds in the Pennsylvania IM-IT Trust are subject.
Additionally, many factors including national economic, social and
environmental policies and conditions, which are not within the control of the
issuers of Bonds, could have an adverse impact on the financial condition of
the State and various agencies and political subdivisions located in the
State. The Sponsor is unable to predict whether or to what extent such factors
or other factors may affect the issuers of Bonds, the market value or
marketability of the Bonds or the ability of the respective issuers of the
Bonds acquired by the Pennsylvania IM-IT Trust to pay interest on or principal
of the Bonds.
Tax Status. For a discussion of the Federal tax status of income earned on
Pennsylvania IM-IT Trust Units, see "Other Matters--Federal Tax Status"
.
In the opinion of Saul, Ewing, Remick & Saul, counsel to the Fund for
Pennsylvania tax matters, under existing law:
(1)Units evidencing fractional undivided interest in the Pennsylvania IM-IT
Trust, which are represented by obligations issued by the Commonwealth of
Pennsylvania, any public authority, commission, board or other agency created
by the Commonwealth of Pennsylvania, any political subdivision of the
Commonwealth of Pennsylvania or any public authority created by any such
political subdivision are not taxable under any of the personal property taxes
presently in effect in Pennsylvania;
(2)distributions of interest income to Unitholders that would not be taxable
it received directly by a Pennsylvania resident are not subject to personal
income tax under the Pennsylvania Tax Reform Code of 1971; nor will such
interest be taxable under the Philadelphia School District Investment Income
Tax imposed on Philadelphia resident individuals;
(3)a Unitholder will have a taxable event under the Pennsylvania state and
local income taxes referred to in the preceding paragraph upon the redemption
or sale of his Units. Units will be taxable under the Pennsylvania inheritance
and estate taxes;
(4)a Unitholder which is a corporation will have a taxable event under the
Pennsylvania Corporate Net Income Tax when it redeems or sells its Units.
Interest income distributed to Unitholders which are corporations is not
subject to Pennsylvania Corporate Net Income Tax or Mutual Thrift Institutions
Tax. However, banks, title insurance companies and trust companies may be
required to take the value of the Units into account in determining the
taxable value of their shares subject to the Shares Tax;
(5)under Act No. 68 of December 3, 1993, gains derived by the Fund from the
sale, exchange or other disposition of Bonds may be subject to Pennsylvania
personal or corporate income taxes. Those gains which are distributed by the
Fund to Unitholders who are individuals may be subject to Pennsylvania
Personal Income Tax. For Unitholders which are corporations, the distributed
gains may be subject to Corporate Net Income Tax or Mutual Thrift Institutions
Tax. Gains which are not distributed by the Fund may nevertheless be taxable
to Unitholders if derived by the Fund from the sale, exchange or other
disposition of Bonds issued on or after February 1, 1994. Gains which are not
distributed by the Fund will remain nontaxable to Unitholders if derived by
the Fund from the sale, exchange or other disposition of Bonds issued prior to
February 1, 1994;
(6)any proceeds paid under insurance policies issued to the Trustee or
obtained by the issuers of the Bonds with respect to the Bonds which represent
maturing interest on defaulted obligations held by the Trustee will be
excludable from Pennsylvania gross income if, and to the same extent as, such
interest would have been so excludable if paid by the issuer of the defaulted
obligations; and
(7)the Fund is not taxable as a corporation under Pennsylvania tax laws
applicable to corporations.
On December 3, 1993, changes to Pennsylvania laws affecting taxation of income
and gains from the sale of Commonwealth of Pennsylvania and local obligations
were enacted. Among these changes was the repeal of the exemption from tax of
gains realized upon the sale or other disposition of such obligations. The
Pennsylvania Department of Revenue has issued proposed regulations concerning
these changes. The opinions expressed above are based on our analysis of the
law and proposed regulations but are subject to modification upon review of
final regulations or other guidance that may be issued by the Department of
Revenue or future court decisions.
In rendering its opinion, Saul, Ewing, Remick & Saul has not, for timing
reasons, made an independent review of proceedings related to the issuance of
the Bonds. It has relied on Van Kampen American Capital Distributors, Inc. for
assurance that the Bonds have been issued by the Commonwealth of Pennsylvania
or by or on behalf of municipalities or other governmental agencies within the
Commonwealth.
<TABLE>
<CAPTION>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 53.77 $ 53.77
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.47 $ 1.97
Less: Annual Premium on Portfolio Insurance per Unit.................. -- --
Estimated Net Annual Interest Income per Unit......................... $ 51.30 $ 51.80
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 51.30 $ 51.80
Divided by 12 and 2, respectively..................................... $ 4.28 $ 25.90
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14251 $ .14387
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.13% 5.18%
Estimated Long-Term Return <F2><F3><F4>................................ 5.14% 5.19%
Estimated Initial Monthly Distribution (December 1995)................. $ 2.42
Estimated Initial Semi-annual Distribution (January 1996).............. $ 6.76
Estimated Normal Distribution per Unit <F4>............................ $ 4.28 $ 25.90
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Trustee's Annual Fee .......... $.91 and $.51 per $1,000 principal amount of Bonds, respectively, for those portions of the
Pennsylvania 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 December 15, 1995
<FN>
<F1>Excluding insurance costs. 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>
<TABLE>
PENNSYLVANIA INSURED MUNICIPALS INCOME TRUST
SERIES 210 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To
Pennsylvania
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of Redemption IM-IT
Principal<F1> either Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 500,000 Bradford Area School District, McKean County, Pennsylvania,
General Obligation Bonds, Series 1995 (FGIC Insured) 2005 @ 100
#5.75% Due 10/1/2015 ....................................... AAA 2012 @ 100 S.F. $ 505,880
250,000 Southeastern Pennsylvania Transportation Authority,
Pennsylvania, Special Revenue Bonds, Series A (FGIC 2005 @ 101
Insured) #5.75% Due 3/1/2020 ............................. AAA 2016 @ 100 S.F. 252,188
500,000 Abington School District, Montgomery County, Pennsylvania,
General Obligation Bonds, Series 1995A (FGIC Insured) 2005 @ 100
#5.625% Due 5/15/2020 ...................................... AAA 2016 @ 100 S.F. 497,570
100,000 Washington County Authority (Washington County,
Pennsylvania) Guaranteed Lease Revenue Refunding Bonds, 2003 @ 100
Series 1993A (FGIC Insured) #5.625% Due 6/1/2022 ......... AAA 2014 @ 100 S.F. 98,804
500,000 Pittsburgh Water and Sewer Authority (Allegheny County,
Pennsylvania) Water and Sewer System First Lien Revenue 2005 @ 100
Bonds, Series A (FGIC Insured) #5.60% Due 9/1/2022 ....... AAA 2019 @ 100 S.F. 495,625
65,000 Hazleton Area School District, Luzerne, Carbon and
Schuykill Counties, Pennsylvania, Unlimited Tax-General
Obligation Bonds, Series 1995B (FGIC Insured) #0.00% Due
3/1/2023 ................................................... AAA 13,533 <F6>
500,000 Pennsylvania Intergovernmental Cooperation Authority,
Special Tax Revenue Bonds (City of Philadelphia Funding 2003 @ 100
Program) Series 1993 (MBIA Insured) #5.625% Due 6/15/2023.. AAA 2016 @ 100 S.F. 492,520
250,000 School District of Philadelphia, Pennsylvania, Unlimited
Tax-General Obligation Bonds, Series 1995B (AMBAC 2005 @ 101
Indemnity Insured) #5.50% Due 9/1/2025 ................... AAA 2019 @ 100 S.F. 243,750
350,000 Beaver County Industrial Development Authority,
Pennsylvania, Pollution Control Revenue Refunding Bonds,
Series 1993A (Ohio Edison Company Mansfield Project) AMBAC
Indemnity Insured #5.45% Due 9/15/2033 ................... AAA 2003 @ 102 333,025
$ 3,015,000 $ 2,932,895
</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".
NATIONAL QUALITY TRUST
General. The National Quality Trust consists of 12 issues of Securities. One
of the Bonds in the National Quality Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are located in 7 states or territories, divided by purpose of issues
(and approximate percentage of principal amount to total National Quality
Trust) as follows: Health Care, 3 (30%); Multi-Family Mortgage Revenue, 3
(30%); Higher Education, 1 (10%); Tax District, 1 (10%); Waste Disposal, 1
(10%); Certificates of Participation, 1 (6%); General Obligations, 1 (3%) and
Public Building, 1 (1%). Three bond issues aggregating approximately 26% of
the aggregate principal amount of Bonds in the National Quality Trust are
issued by issuers located in the state of California. No Bond issue has
received a provisional rating. The dollar weighted average maturity of the
Bonds in the Trust is 25 years.
Tax Status. For a discussion of the Federal tax status of income earned on
National Quality Trust Units, see "Other Matters--Federal Tax Status".
<TABLE>
<CAPTION>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 56.98 $ 56.98
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.32 $ 1.87
Estimated Net Annual Interest Income per Unit............................. $ 54.66 $ 55.11
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 54.66 $ 55.11
Divided by 12 and 2, respectively......................................... $ 4.56 $ 27.56
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .15184 $ .15307
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.47% 5.51%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.48% 5.52%
Estimated Initial Monthly Distribution (December 1995)..................... $ 2.58
Estimated Initial Semi-annual Distribution (January 1996).................. $ 7.19
Estimated Normal Distribution per Unit <F5>................................ $ 4.56 $ 27.56
</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
National 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--January and July
Distribution Dates............. FIFTEENTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing December 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.03
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 $57.01. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.35 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>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>
INVESTORS' QUALITY TAX-EXEMPT TRUST
SERIES 92 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To
Name of Issuer, Title, Interest Rate and Maturity Rating<F2> National
Aggregate Date of either Bonds Deposited or Bonds Contracted Standard Redemption Quality
Principal<F1> for<F1><F5> & Poor's Moody's Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 De Kalb County Redevelopment Authority, Indiana
(Mini-Mill Local Public Improvement Project)
Series 1995A #6.50% Due 1/15/2014................ A- N/R 2005 @ 102 $ 522,595
300,000 California Statewide Communities Development
Authority, Certificates of Participation (The Salk
Institute for Biological Studies, San Diego,
California) Connie Lee Insured 6.10% Due 2004 @ 102
7/1/2014 .......................................... AAA N/R 2009 @ 100 S.F. 303,807
500,000 City of Las Cruces, New Mexico, South Central
Solid Waste Authority, Environmental Services
Gross Receipts Tax/Project Revenue Bonds, Series 2005 @ 100
1995** #6.00% Due 6/1/2016 ...................... N/R A 2011 @ 100 S.F. 502,500
500,000 Indiana Health Facilities Financing Authority,
Hospital Refunding Revenue Bonds, Series 1993
(Welborn Memorial Baptist Hospital Project) 2003 @ 102
#5.60% Due 7/1/2018 ............................... A N/R 2015 @ 100 S.F. 470,250
150,000 City of New Orleans, Louisiana, General Obligation
Refunding Bonds, Series 1991 (AMBAC Indemnity
Insured) #0.00% Due 9/1/2018 .................... AAA Aaa 39,990 <F6>
500,000 State Public Works Board of the State of
California, Lease Revenue Bonds (California
Community Colleges) Various Community College 2003 @ 102
Projects, Series 1993 #5.625% Due 12/1/2018 ..... A- A 2014 @ 100 S.F. 480,595
500,000 Illinois Health Facilities Authority, Revenue
Refunding Bonds (Illinois Masonic Medical Center) 2003 @ 102
Series 1993 #5.50% Due 10/1/2019 ................ A- A 2008 @ 100 S.F. 460,300
50,000 Metropolitan Pier and Exposition Authority
(Illinois) McCormick Place Expansion Project
Refunding Revenue Bonds, Series 1994A (MBIA
Insured) #0.00% Due 6/15/2020 ................... AAA Aaa 11,730 <F6>
500,000 Illinois Health Facilities Authority, Revenue
Bonds (OSF Healthcare System) Series 1993 #6.00% 2003 @ 102
Due 11/15/2023 .................................... A+ A1 2014 @ 100 S.F. 493,845
Offering
Price To
Name of Issuer, Title, Interest Rate and Maturity Rating<F2> National
Aggregate Date of either Bonds Deposited or Bonds Contracted Standard Redemption Quality
Principal<F1> for<F1><F5> & Poor's Moody's Feature<F3> Trust<F4>
$ 500,000 Lynchburg Redevelopment and Housing Authority
(Virginia) Waldon Pond III Revenue Refunding Bonds
(GNMA Mortgage Backed Security Financing) Series 2005 @ 103
1995A 6.20% Due 7/20/2027 ....................... AAA N/R 2016 @ 100 S.F. $ 509,135
500,000 Tulsa Industrial Authority (Oklahoma) Multi-Family
Housing Revenue Refunding Bonds (GNMA
Collateralized-Country Club of Woodland Hills 2005 @ 103
Development) Series 1995 6.25% Due 11/1/2027 .... N/R Aaa 2007 @ 100 S.F. 509,145
500,000 Redevelopment Agency of the City of Morgan Hill,
California, Mortgage Revenue Refunding Bonds,
Series 1995 (FHA Insured Mortgage Loan-La Crosse 2005 @ 103
Village Project) 6.45% Due 12/1/2027 ............ AAA N/R 2007 @ 100 S.F. 515,800
$ 5,000,000 $ 4,819,692
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
NORTH CAROLINA QUALITY TRUST
General. The North Carolina Quality Trust consists of 9 issues of Securities.
One of the Bonds in the North Carolina Quality Trust is a general obligation
of the governmental entity issuing it and is backed by the taxing power
thereof. The remaining issues are payable from the income of a specific
project or authority and are not supported by the issuer's power to levy
taxes. These issues are divided by purpose of issues (and percentage of
principal amount to total North Carolina Quality Trust) as follows:
Certificates of Participation, 2 (32%); Health Care, 4 (32%); Higher
Education, 1 (16%); Wholesale Electric, 1 (16%) and General Obligations, 1
(4%). No Bond issue has received a provisional rating.
Risk Factors. See "Portfolio" for a list of the Bonds included in the
North Carolina Trust. The portions of the following discussion regarding the
financial condition of the State government may not be relevant to general
obligation or revenue bonds issued by political subdivisions of the State.
Those portions and the sections which follow regarding the economy of the
State are included for the purpose of providing information about general
economic conditions that may or may not affect issuers of the North Carolina
Bonds.
General obligations of a city, town or county in North Carolina are payable
from the general revenues of the entity, including ad valorem tax revenues on
property within the jurisdiction. Revenue bonds issued by North Carolina
political subdivisions include (1) revenue bonds payable exclusively from
revenue-producing governmental enterprises and (2) industrial revenue bonds,
college and hospital revenue bonds and other "private activity bonds"
which are essentially non-governmental debt issues and which are payable
exclusively by private entities such as non-profit organizations and business
concerns of all sizes. State and local governments have no obligation to
provide for payment of such private activity bonds and in many cases would be
legally prohibited from doing so. The value of such private activity bonds may
be affected by a wide variety of factors relevant to particular localities or
industries, including economic developments outside of North Carolina.
Section 23-48 of the North Carolina General Statutes appears to permit any
city, town, school district, county or other taxing district to avail itself
of the provisions of Chapter 9 of the United States Bankruptcy Code, but only
with the consent of the Local Government Commission of the State and of the
holders of such percentage or percentages of the indebtedness of the issuer as
may be required by the Bankruptcy Code (if any such consent is required).
Thus, although limitations apply, in certain circumstances political
subdivisions might be able to seek the protection of the Bankruptcy Code.
State Budget and Revenues. The North Carolina State Constitution requires that
the total expenditures of the State for the fiscal period covered by each
budget not exceed the total of receipts during the fiscal period and the
surplus remaining in the State Treasury at the beginning of the period. The
State's fiscal year runs from July 1st through June 30th.
In 1990 and 1991, the State had difficulty meeting its budget projections. The
General Assembly responded by enacting a number of new taxes and fees to
generate additional revenue and reduce allowable departmental operating
expenditures and continuation funding. The spending reductions were based on
recommendations from the Governor, the Government Performance Audit Committee
and selected reductions identified by the General Assembly.
The State, like the nation, has experienced economic recovery since 1991. In
the opinion of the State Controller, the growth in the economy and the
legislative actions taken in 1991 had a positive effect on the State's revenue
collections over the past several years. The State had a budget surplus of
approximately $865 million at the end of fiscal 1993-94. After review of the
1994-95 continuation budget adopted in 1993, the General Assembly approved
spending expansion funds, in part to restore certain employee salaries to
budgeted levels, which amounts had been deferred to balance the budgets in
1989-1993, and to authorize funding for new initiatives for economic
development, education, human services and environmental programs. (The
cutback in funding for infrastructure and social development projects had been
cited by agencies rating State obligations, following the 1991 reductions, as
cause for concern about the long-term consequences of those reductions on the
economy of the State and the State's fiscal prospects).
Because of growth in State tax and fee revenues, the General Fund balance at
the end of the 1994-95 fiscal year is reported at approximately $300 million.
The State budget is based upon estimated revenues and a multitude of existing
and assumed State and non-state factors including State and national economic
conditions, international activity, and federal government policies and
legislation. The Congress of the United States is considering a number of
matters affecting the federal government's relationship with state governments
that, if enacted into law, could affect fiscal and economic policies of the
states, including North Carolina.
In April 1995, the North Carolina General Assembly repealed, effective for
taxable years beginning on or after January 1, 1995, the tax levied on various
forms of intangible personal property. The intangibles tax revenues receivable
by counties and municipalities will no longer be received. Instead, the
legislature has provided for specific appropriations to counties and
municipalities.
It is unclear what effect these developments at the State level may have on
the value of the Bonds in the North Carolina Trust.
Litigation. Litigation against the State includes the following. None of the
cases, in the reported opinion of the Department of the Treasurer, would have
a material adverse affect on the State's ability to meet its obligations.
Leandro et al v. State of North Carolina and State Board of Education - In
May, 1994 students and boards of education in five counties in the State filed
suit in state court requesting a declaration that the public education system
of North Carolina, including its system of funding, violates the State
constitution by failing to provide adequate or substantially equal educational
opportunities and denying due process of law and violates various statutes
relating to public education. The suit is similar to a number of suits in
other states, some of which resulted in holdings that the respective systems
of public education funding were unconstitutional under the applicable state
law. The defendants in such suit have filed a motion to dismiss, which was
denied. The North Carolina Attorney General's Office believes that sound legal
arguments support the State's position.
Francisco Case - In August, 1994 a class action lawsuit was filed in state
court against the Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and
has failed to supervise local school systems in administering programs for
them. The complaint does not allege an amount in controversy, but asks the
Court to order the defendants to fund a comprehensive program to ensure equal
educational opportunities for children with limited English proficiency. The
North Carolina Attorney General's Office believes that sound legal arguments
support the State's position.
Swanson Case -- State Tax Refunds -- Federal Retirees. In Davis v. Michigan
(1989), the United States Supreme Court ruled that a Michigan income tax
statute which taxed federal retirement benefits while exempting those paid by
state and local governments violated the constitutional doctrine of
intergovernmental tax immunity. At the time of the Davis decision, North
Carolina law contained similar exemptions in favor of state and local
retirees. Those exemptions were repealed prospectively, beginning with the
1989 tax year. All public pension and retirement benefits are now entitled to
a $4,000 annual exclusion.
Following Davis, federal retirees filed a class action suit in federal court
in 1989 seeking damages equal to the North Carolina income tax paid on federal
retirement income by the class members. A companion suit was filed in state
court in 1990. The complaints alleged that the amount in controversy exceeded
$140 million. The North Carolina Department of Revenue estimated refunds and
interest liability of $280.89 million as of June 30, 1994. In 1991, the North
Carolina Supreme Court ruled in favor of the State in the state court action,
concluding that Davis could only applied prospectively and that the taxes
collected form the federal retirees were thus not improperly collected. In
1993, the United States Supreme Court vacated that decision and remanded the
case back to the North Carolina Supreme Court. The North Carolina Supreme
Court then ruled in favor of the State on the grounds that the federal
retirees had failed to comply with state procedures for challenging
unconstitutional taxes. Plaintiffs petitioned the United Sates Supreme Court
for review of that decision and the Supreme Court denied that petition. The
United States District Court has ruled in favor of the defendants in the
companion federal case, and a petition for reconsideration was denied.
Plaintiffs appealed to the United States Court of Appeals which also rejected
the retirees' arguments. The plaintiffs continue to seek relief through state
legislation.
Bailey Case -- States Tax Refunds -- State Retirees. State and local
government retirees filed a class action suit in 1990 as a result of the
repeal of the income tax exemptions for state and local government retirement
benefits. The original suit was dismissed after the North Carolina Supreme
Court ruled in 1991 that the plaintiffs had failed to comply with state law
requirements for challenging unconstitutional taxes and the United States
Supreme Court denied review. In 1992, many of the same plaintiffs filed a new
lawsuit alleging essentially the same claims, including breach of contract,
unconstitutional impairment of contract rights by the State in taxing benefits
that were allegedly promised to be tax-exempt and violation of several state
constitutional provisions. The North Carolina Attorney General's Office
estimates that the amount in controversy is approximately $40-$45 million
annually for the tax years 1989 through 1992. The case has been tried in
Superior Court but a decision has not yet been made by the trial judge. The
North Carolina Attorney General's Office believes that sound legal arguments
support the State's position.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele v.
Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula
for payment of disability retirement benefits and claiming impairment of
contract rights, breach of fiduciary duty, violation of other federal
constitutional rights, and violation of state constitutional and statutory
rights. The State estimates that the cost in damages and higher prospective
benefit payments to plaintiffs and class members would probably amount to $50
million or more in Faulkenbury, $50 million or more in Peele, and $15 million
or more in Woodward, all ultimately payable, at least initially, from the
state retirement system funds. Upon review in Faulkenbury, the North Carolina
Court of Appeals and Supreme Court have held that claims made in Faulkenbury
substantially similar to those in Peele and Woodward, for breach of fiduciary
duty and violation of federal constitutional rights brought under the federal
Civil Rights Act either do not state a cause of action or are otherwise barred
by the statute of limitations. In 1994 plaintiffs took voluntary dismissals of
their claims for impairment of contract rights in violation of the United
States Constitution and filed new actions in federal court asserting the same
claims along with claims for violation of constitutional rights in the
taxation of retirement benefits. The federal court actions have been stayed
pending the trial in state court. The North Carolina Attorney General's
Office believes that sound legal arguments support the State's position.
Fulton Case - The State's intangible personal property tax levied on certain
shares of stock has been challenged by the plaintiff on grounds that it
violates the Commerce Clause of the United States Constitution by
discriminating against stock issued by corporations that do all or part of
their business outside the State. The plaintiff in the action is a North
Carolina corporation that does all or part of its business outside the State.
The plaintiff seeks to invalidate the tax in its entirety and to recover tax
paid on the value of its shares in other corporations. The North Carolina
Court of Appeals invalidated the taxable percentage deduction and excised it
from the statute beginning with the 1994 tax year. The effect of this ruling
was to increase collections by rendering all stock taxable on 100% of its
value. The North Carolina Supreme Court reversed the Court of Appeals and held
that the tax is valid and constitutional. The plaintiff's petition for review
by the U.S. Supreme Court was granted. Net collections from the tax for the
fiscal year ended June 30, 1993 amounted to $120.6 million. The North Carolina
Attorney General's Office believes that sound legal arguments support the
State's position.
General. The population of the State has increased 13% from 1980, from
5,880,095 to 6,656,589 as reported by the 1990 federal census and the State
rose from twelfth to tenth in population. The State's estimate of population
as of June 30, 1994 is 7,064,470. Notwithstanding its rank in population size,
North Carolina is primarily a rural state, having only five municipalities
with populations in excess of 100,000.
The labor force has undergone significant change during recent years as the
State has moved from an agricultural to a service and goods producing economy.
Those persons displaced by farm mechanization and farm consolidations have, in
large measure, sought and found employment in other pursuits. Due to the wide
dispersion of non-agricultural employment, the people have been able to
maintain, to a large extent, their rural habitation practices. During the
period 1980 to 1994, the State labor force grew about 26% (from 2,855,200 to
3,609,000). Per capita income during the period 1980 to 1993 grew from $7,999
to $18,702, an increase of 133.8%.
The current economic profile of the State consists of a combination of
industry, agriculture and tourism. As of November 1994, the State was reported
to rank ninth among the states in non-agricultural employment and eighth in
manufacturing employment. Employment indicators have varied somewhat in the
annual periods since June of 1990, but have demonstrated an upward trend since
1991. The following table reflects the fluctuations in certain key employment
categories.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Category (All Seasonally Adjusted) June 1991 June 1992 June 1993 June 1994 June 1995
Civilian Labor Force 3,228,000 3,495,000 3,504,000 3,560,000 3,578,000
Nonagricultural Employment 3,059,000 3,135,000 3,203,400 3,358,000 3,419,100
Goods Producing Occupations (mining, construction and
manufacturing) 973,600 980,800 993,600 1,021,500 1,036,700
Service Occupations 2,085,400 2,154,200 2,209,800 2,337,200 2,382,400
Wholesale/Retail Occupations 704,100 715,100 723,200 749,000 776,900
Government Employees 496,700 513,400 515,400 554,600 555,300
Miscellaneous Services 596,300 638,300 676,900 731,900 742,200
Agricultural Employment 88,700 102,800 88,400 53,000 53,000
</TABLE>
The seasonally adjusted unemployment rate in June 1995 was estimated to be
4.4% of the labor force, as compared with 5.6% nationwide.
As of 1994, the State was ninth in the nation in gross agricultural income of
which nearly the entire amount (approximately $5.5 billion) was from
commodities. According to the State Commissioner of Agriculture, in 1994, the
State ranked first in the nation in the production of flue-cured tobacco,
total tobacco, turkeys and sweet potatoes; second in hog production, trout and
the production of cucumbers for pickles; fourth in commercial broilers,
blueberries and strawberries; fifth in burley tobacco and sixth in peaches.
The diversity of agriculture in North Carolina and a continuing push in
marketing efforts have protected farm income from some of the wide variations
that have been experienced in other states where most of the agricultural
economy is dependent on a small number of agricultural commodities. North
Carolina is the third most diversified agricultural state in the nation.
Tobacco production, is the leading source of agricultural income in the State,
accounting for 14.8% of gross agricultural income. Tobacco farming in North
Carolina has been and is expected to continue to be affected by major Federal
legislation and regulatory measures regarding tobacco production and marketing
and by international competition. Measures adverse to tobacco farming could
have negative effects on farm income and the North Carolina economy generally.
The poultry industry provides nearly 35% of gross agricultural income. The
pork industry has been expanding and accounted for almost 18% of gross
agricultural income in 1994.
The number of farms has been decreasing; in 1994 there were approximately
58,000 farms in the State (down from approximately 72,000 in 1987, a decrease
of about 19% in seven years). However, a strong agribusiness sector also
supports farmers with farm inputs (fertilizer, insecticide, pesticide and farm
machinery) and processing of commodities produced by farmers (vegetable
canning and cigarette manufacturing). North Carolina's agriculture industry,
including food, fiber and forest products, contributes over $42 billion
annually to the State's economy.
The State Department of Commerce, Travel and Tourism Division reports that in
1993 more than $8 billion was spent on tourism in the State. The Department
estimates that two-thirds of total expenditures came from out-of-state
travelers, and that approximately 250,000 people were employed in
tourism-related jobs.
Bond Ratings. Currently, Moody's rates North Carolina general obligation bonds
as Aaa and Standard & Poor's rates such bonds as AAA. Standard & Poor's also
reaffirmed its stable outlook for the State in January 1994.
Standard & Poor's reports that North Carolina's rating reflects the State's
strong economic characteristics, sound financial performance, and low debt
levels.
The Sponsor believes the information summarized above describes some of the
more significant events relating to the North Carolina Trust. The sources of
this information are the official statements of issuers located in North
Carolina, State agencies, publicly available documents, publications of rating
agencies and statements by, or news reports of statements by State officials
and employees and by rating agencies. The Sponsor and its counsel have not
independently verified any of the information contained in the official
statements and other sources and counsel have not expressed any opinion
regarding the completeness or materiality of any matters contained in this
Prospectus other than the tax opinions set forth below under North Carolina
Taxes.
Tax Status. For a discussion of the Federal tax status of income earned on
North Carolina Quality Trust Units, see "Other Matters--Federal Tax
Status". The portfolio of the North Carolina Quality Trust consists of
bonds issued by the State of North Carolina or municipalities, authorities or
political subdivisions thereof (the "Bonds").
In the opinion of Hunton & Williams, special counsel to the Fund for North
Carolina tax matters, under existing North Carolina law:
Upon the establishing of the North Carolina Quality Trust and the Units
thereunder:
(1)The North Carolina Quality Trust is not an "association" taxable as
a corporation under North Carolina law with the result that income of the
North Carolina Quality Trust will be deemed to be income of the Unitholders.
(2)Interest on the Bonds that is exempt from North Carolina income tax when
received by the North Carolina Quality Trust will retain its tax-exempt status
when received by the Unitholders.
(3)Unitholders will realize a taxable event when the North Carolina Quality
Trust disposes of a Bond (whether by sale, exchange, redemption or payment at
maturity) or when a Unitholder redeems or sells his Units (or any of them),
and taxable gains for Federal income tax purposes may result in gain taxable
as ordinary income for North Carolina income tax purposes. However, when a
Bond has been issued under an act of the North Carolina General Assembly that
provides that all income from such Bond, including any profit made from the
sale thereof, shall be free from all taxation by the State of North Carolina,
any such profit received by the North Carolina Quality Trust will retain its
tax-exempt status in the hands of the Unitholders.
(4)Unitholders must amortize their proportionate shares of any premium on a
Bond. Amortization for each taxable year is accomplished by lowering the
Unitholder's basis (as adjusted) in his Units with no deduction against gross
income for the year.
(5)The Units are exempt from the North Carolina tax on intangible personal
property so long as the corpus of the North Carolina Quality Trust remains
composed entirely of Bonds or, pending distribution, amounts received on the
sale, redemption or maturity of the Bonds and the Trustee periodically
supplies to the North Carolina Department of Revenue at such times as required
by the Department of Revenue a complete description of the North Carolina
Quality Trust and also the name, description and value of the obligations held
in the corpus of the North Carolina Quality Trust.
The opinion of Hunton & Williams is based, in part, on the opinion of Chapman
and Cutler regarding Federal tax status
<TABLE>
<CAPTION>
<S> <C> <C>
Semi-
Per Unit Information: Monthly Annual
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 53.50 $ 53.50
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.31 $ 1.86
Estimated Net Annual Interest Income per Unit............................. $ 51.19 $ 51.64
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 51.19 $ 51.64
Divided by 12 and 2, respectively......................................... $ 4.27 $ 25.82
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14221 $ .14346
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.12% 5.16%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.09% 5.13%
Estimated Initial Monthly Distribution (December 1995)..................... $ 2.42
Estimated Initial Semi-annual Distribution (May 1996)...................... $ 23.96
Estimated Normal Distribution per Unit <F5>................................ $ 4.27 $ 25.82
</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 North
Carolina 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 December 15, 1995
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.02
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 $53.52. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.33 and $1.88 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>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>
NORTH CAROLINA INVESTORS' QUALITY TAX-EXEMPT TRUST
SERIES 84 (IM-IT AND QUALITY MULTI-SERIES 262)
PORTFOLIO As of November 9, 1995
<CAPTION>
Offering
Price To
North
Name of Issuer, Title, Interest Rate and Maturity Rating<F2> Carolina
Aggregate Date of either Bonds Deposited or Bonds Contracted Standard Redemption Quality
Principal<F1> for<F1><F5> & Poor's Moody's Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 500,000 North Carolina, Municipal Power Agency No. 1, Catawba
Electric Revenue Refunding Bonds, Series 1993 (MBIA 2003 @ 102
Insured) #5.00% Due 1/1/2015 ......................... AAA Aaa 2013 @ 100 S.F. $ 465,235
500,000 Gastonia, North Carolina, Certificates of Participation
(Police Station Project) Series 1995 (FGIC Insured) 2005 @ 102
#5.70% Due 8/1/2015 .................................... AAA Aaa 2008 @ 100 S.F. 502,500
175,000 Pitt County, North Carolina, Hospital Revenue Bonds
(Pitt County Memorial Hospital Issue) Series 1995 2005 @ 102
#5.50% Due 12/1/2015 ................................... AA- Aa 2011 @ 100 S.F. 171,715
110,000 City of Charlotte, North Carolina, Water and Sewer
General Obligation Bonds, Series 1994 5.90% Due
2/1/2019 ............................................... AAA Aaa 2004 @ 102 114,362
500,000 North Carolina Medical Care Commission, Hospital
Revenue Bonds (Gaston Memorial Hospital Project) Series 2006 @ 102
1995** #5.50% Due 2/15/2019 .......................... A+ A 2016 @ 100 S.F. 483,425
500,000 Appalachian State University, North Carolina, Utilities
System Revenue Bonds, Board of Governors of the
University of North Carolina, Series 1994 (MBIA 2004 @ 102
Insured) #6.125% Due 5/15/2019 ....................... AAA Aaa 2015 @ 100 S.F. 519,645
155,000 North Carolina Medical Care Commission, Hospital
Revenue Refunding Bonds (Presbyterian Health Services 2003 @ 102
Corp. Project) Series 1993 #5.50% Due 10/1/2020 ...... AA Aa 2015 @ 100 S.F. 150,668
500,000 City of Charlotte, North Carolina, Refunding
Certificates of Participation (Convention Facility
Project) Series 1993C (AMBAC Indemnity Insured)
#5.00% Due 12/1/2021 ................................... AAA Aaa 2003 @ 100 458,820
145,000 Craven Regional Medical Authority, North Carolina,
Insured Health Care Facilities Revenue Refunding Bonds, 2003 @ 102
Series 1993 (MBIA Insured) #5.50% Due 10/1/2023 ...... AAA Aaa 2018 @ 100 S.F. 140,708
$ 3,085,000 $ 3,007,078
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to
Portfolios".
As of the Date of Deposit: November 9, 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
October 4,1995 to November 8,1995. These Securities have expected settlement
dates ranging from November 9,1995 to November 30,1995 (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
Cost Sponsor Sponsor Trust of Bonds
<S> <C> <C> <C> <C> <C>
IM-IT.................... $-- $ 8,561,376 $ 62,322 $ 490,643 $ 8,556,945
California IM-IT......... $-- $ 2,855,255 $ 20,582 $ 164,181 $ 2,853,506
New York IM-IT........... $-- $ 2,922,711 $ 33,959 $ 167,696 $ 2,934,175
Ohio IM-IT............... $-- $ 2,884,034 $ 28,900 $ 162,063 $ 2,891,340
Pennsylvania IM-IT....... $-- $ 2,913,006 $ 19,889 $ 165,825 $ 2,909,663
National Quality......... $-- $ 4,785,460 $ 34,232 $ 288,925 $ 4,782,820
North Carolina Quality... $-- $ 2,984,261 $ 22,817 $ 169,240 $ 2,983,744
</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.................... 19% 2 to 14 days
California IM-IT......... -- --
New York IM-IT........... 33% 15 to 16 days
Ohio IM-IT............... 25% 2 to 7 days
Pennsylvania IM-IT....... -- --
National Quality......... 10% 2 days
North Carolina Quality... 16% 1 day
</TABLE>
On the Date of Deposit, the offering side evaluations of the Securities in the
IM-IT, California IM-IT, New York IM-IT, Ohio IM-IT, Pennsylvania IM-IT,
National Quality and North Carolina Quality Trusts were higher than the bid
side evaluations of such Securities by 0.74%, 0.75%, 0.74%, 0.72%, 0.77%,
0.74% and 0.76%, 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 4%,
3%, 3%, 5%, 2% and 4% of the aggregate principal amount of the Securities in
the IM-IT, California IM-IT Trust, New York IM-IT Trust, Ohio IM-IT Trust,
Pennsylvania IM-IT Trust and National 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 5,118
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 1,000
Fidelity Capital Markets 164 Northern Avenue, Boston, Massachusetts 02210 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
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 250
US Clearing Corp. 26 Broadway, New York, New York 10004 250
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
Robert W. Baird & Co. Inc. 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 100
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
First Investors Corporation 95 Wall Street, 22nd Floor New York, New York 10005 100
First Miami Securities 20660 West Dixie Highway, North Miami Beach, Florida 33180 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Huntleigh Securities Corporation 222 South Central, 3rd Floor, St. Louis, Missouri 63105 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
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 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
Southwest Securities Inc. 1201 Elm Street, Suite 4300, Dallas, Texas 75270 100
Stifel, Nicolaus & Company, Incorporated 500 North Broadway, St. Louis, Missouri 63102 100
B.C. Ziegler and Company 215 North Main Street, West Bend, Wisconsin 53095 100
9,068
</TABLE>
<TABLE>
<CAPTION>
Name California IM-IT
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,024
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 250
Stephens Inc. 111 Center Street, Little Rock, Arkansas 72201 250
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
3,024
</TABLE>
<TABLE>
<CAPTION>
Name New York IM-IT
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,209
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 500
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
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
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
3,109
</TABLE>
<TABLE>
<CAPTION>
Ohio
IM-IT
Name Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,963
The Ohio Company 155 East Broad Street, Columbus, Ohio 43215 250
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 150
Butler, Wick & Co., Inc. City Center One, Suite 700, P.O. Box 149, Youngstown, Ohio 44501 100
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
McDonald Investment Center, 800 Superior Avenue, Suite 2100, Cleveland, Ohio
McDonald & Company Securities, Inc. 44114 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
3,063
</TABLE>
<TABLE>
<CAPTION>
Pennsylvania
Name IM-IT Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,484
Janney Montgomery Scott Inc. 1801 Market Street, 11th Floor, Philadelphia, Pennsylvania 19103 250
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 250
Advest, Inc. 280 Trumbull Street, Hartford, Connecticut 06103 100
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 100
Fidelity Capital Markets 164 Northern Avenue, Boston, Massachusetts 02210 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
Legg Mason Wood Walker, Inc. 111 South Calvert Street, Baltimore, Maryland 21202 100
W.H. Newbold's Son & Co. 1500 Walnut Street, Philadelphia, Pennsylvania 19102 100
Parker/Hunter, Incorporated 600 Grant Street, Pittsburgh, Pennsylvania 15219 100
Pershing DIV of DLJ Secs Corp. One Pershing Plaza, 7th Floor, Jersey City, New Jersey 07399 100
Wheat First Butcher Singer River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
3,084
</TABLE>
<TABLE>
<CAPTION>
Name National Quality
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 4,418
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 250
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
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
5,068
</TABLE>
<TABLE>
<CAPTION>
North
Carolina
Name Quality Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,512
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 250
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Gruntal & Co., Incorporated 14 Wall Street, New York, New York 10005 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Wheat First Butcher Singer River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
3,162
</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 June 30, 1995, the Sponsor and its affiliates managed or supervised
approximately $54 billion of investment products, of which over $25.3 billion
is invested in municipal securities. The Sponsor and its affiliates managed
$40.95 billion of assets, consisting of $25.2 billion for 42 open end mutual
funds, $9.9 billion for 38 closed-end funds and $5.9 billion for 87
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 two million 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.
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 $4,628, $1,512, $1,548, $1,540, $1,538, $2,550 and
$1,573 for the IM-IT, California IM-IT, New York IM-IT, Ohio IM-IT,
Pennsylvania IM-IT, National Quality and North Carolina Quality Trusts,
respectively. Assuming in the alternative that all Unitholders had elected the
monthly distribution plan such fees would have initially amount to $8,258,
$2,698, $2,762, $2,748, $2,744, $4,550 and $2,807 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, State
or National Quality Trust, or beyond the end of the year preceding the
twentieth anniversary of the Trust Agreement in the case of IM-IT Limited
Maturity, IM-IT Intermediate 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 in the case of an IM-IT, State or National Quality 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".
Except as stated hereinafter, the minimum purchase requirement in the initial
offering period and in the secondary market is one Unit. In connection with
fully disclosed transactions with the Sponsor, the minimum purchase
requirement will be that number of Units set forth in the contract between the
Sponsor and the related broker or agent.
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, $12.00 and $35.00 per Unit of any
Quality, IM-IT Limited Maturity, IM-IT Intermediate, IM-IT Short Intermediate
and other Insured Trusts, respectively, as of the Date of Deposit. In
connection with quantity sales to purchasers of any IM-IT, State or National
Quality Trust the Underwriters will receive from the Sponsor commissions
totalling $37.00 per Unit for any single transaction of 100 to 249 Units,
$39.00 per Unit for any single transaction of 250 to 499 Units, $40.00 per
Unit for any single transaction of 500 to 999 Units and $39.00 per Unit for
any single transaction of 1,000 or more Units. 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. The Sponsor and First Investors Corporation ("First
Investors") have entered into an agreement under which First Investors
will receive an additional $5.00 per Unit in connection with a minimum
commitment of 17.5% of the total Units of the New York IM-IT Trust, provided
that the New York IM-IT Trust does not exceed 10,000 Units. If the New York
IM-IT Trust exceeds 10,000 Units, First Investors will receive an additional
$5.00 per Unit if First Investors underwrites the lesser of 3,000 Units or 20%
of the New York IM-IT Trust. In addition, the Sponsor has entered into
agreements with Advest, Inc. ("Advest") and Gruntal & Co., Inc.
("Gruntal") whereby Advest and Gruntal will receive an additional $2.00 per
Unit in connection with a minimum commitment of 1,500 Units of any New York
IM-IT Trust. Also, the Sponsor will receive from the Managing Underwriters of
the New York IM-IT Trust (who underwrite 15% of the Trust or 1,000 Units of
the Trust, whichever is greater) the excess of such gross sales commission
over $38.00 per Unit of the Trust, as of the Date of Deposit. Also, any such
Managing Underwriter that sells a total of 25% or 1,500 Units, whichever is
greater, of the New York IM-IT Trust will receive an additional $2.00 per each
such Unit In addition, the Sponsor will receive from the Managing Underwriters
of the Ohio IM-IT Trust (who underwrite 15% of the Trust or 1,000 Units,
whichever is greater) the excess of the gross sales commission over $38.00 per
Unit of any Ohio IM-IT Trust, as of the Date of Deposit. Also, any such
Managing Underwriter that sells a total of 25% or 1,500 Units, whichever is
greater, of any Ohio IM-IT Trust will receive an additional $2.00 per each
such Unit. In connection with quantity sales to purchasers of any Pennsylvania
IM-IT Trust the Underwriters will receive from the Sponsor commissions
totalling $35.00 per Unit for any single transaction of 100 to 249 Units,
$36.00 per Unit for any single transaction of 250 to 499 units, $37.00 per
Unit for any single transaction of 500 to 999 Units and $38.00 per Unit for
any single transaction of 1,000 or more Units. In addition, any Underwriter
that sells a total of 25% or 1,500 Units, whichever is greater, of any
Pennsylvania IM-IT Trust will receive an additional $2.00 per each such Unit.
In addition, A.G Edwards & Sons, Inc. ("Edwards"), which acts as a
Managing Underwriter of Units of the various series of the National Quality
Trust, will receive from the Sponsor reimbursement for certain costs and
further compensation in the amount of $5.00 for each Unit it underwrites of
the National Quality Trust. 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 Corporation 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. Hunton & Williams has acted as special counsel to the
Fund for North Carolina tax matters. Squire, Sanders & Dempsey has acted as
special counsel to the Fund for Ohio tax matters. Saul, Ewing, Remick & Saul
has acted as special counsel to the Fund for Pennsylvania tax matters. Tanner
Propp & Farber has acted as counsel for the Trustee and as special counsel to
the Fund for New York tax matters. None of the special counsel for the Fund
has expressed any opinion regarding the completeness or materiality of any
matters contained in this Prospectus other than the tax opinion set forth
under "Tax Status" relating to the Trust for which it has provided an
opinion.
Independent Certified Public Accountants. The statements of condition and the
related securities portfolios at the Date of Deposit included in this
Prospectus have been audited by Grant Thornton 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;
however such interest may be taken into account in computing the alternative
minimum tax, an additional tax on branches of foreign corporations and the
environmental tax (the "Superfund Tax"), as noted below;
(2)Each Unitholder is considered to be the owner of a pro rata portion of 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 valuation date nearest 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 less than or equal to his original cost;
(3)Any proceeds paid under an insurance policy or policies dated the Date of
Deposit, issued to an Insured Trust 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.
Unitholders should consult with their tax advisers regarding these rules and
their application.
"The Revenue Reconciliation Act of 1993" (the "Tax Act")
subjects tax-exempt bonds to the market discount rules of the Code effective
for bonds purchased after April 30, 1993. In general, market discount is the
amount (if any) by which the stated redemption price at maturity exceeds an
investor's purchase price (except to the extent that such difference, if any,
is attributable to original issue discount not yet accrued), subject to a
statutory de minimis rule. Market discount can arise based on the price a
Trust pays for Bonds or the price a Unitholder pays for his or her Units.
Under the Tax Act, accretion of market discount is taxable as ordinary income;
under prior law the accretion had been treated as capital gain. Market
discount that accretes while a Trust holds a Bond would be recognized as
ordinary income by the Unitholders when principal payments are received on the
Bond, upon sale or at redemption (including early redemption), or upon the
sale or redemption of his or her Units, unless a Unitholder elects to include
market discount in taxable income as it accrues. The market discount rules are
complex and Unitholders should consult their tax advisers regarding these
rules and their application.
In the case of certain corporations, the alternative minimum tax and the
Superfund Tax for taxable years beginning after December 31, 1986 depends upon
the corporation's alternative minimum taxable income, which is the
corporation's taxable income with certain adjustments. One of the adjustment
items used in computing the alternative minimum taxable income and the
Superfund Tax of a corporation (other than an S Corporation, Regulated
Investment Company, Real Estate Investment Trust, or REMIC) is an amount equal
to 75% of the excess of such corporation's "adjusted current earnings"
over an amount equal to its alternative minimum taxable income (before such
adjustment item and the alternative tax net operating loss deduction).
"Adjusted current earnings" includes all tax exempt interest, including
interest on all of the Bonds in the Fund. Under the provisions of Section 884
of the Code, a branch profits tax is levied on the "effectively connected
earnings and profits" of certain foreign corporations which include
tax-exempt interest such as interest on the Bonds in the Trust. Unitholders
should consult their tax advisers with respect to the particular tax
consequences to them including the corporate alternative minimum tax, the
Superfund Tax and the branch profits tax imposed by Section 884 of the Code.
Counsel for the Sponsor has also advised that under Section 265 of the Code,
interest on indebtedness incurred or continued to purchase or carry Units of a
Trust is not deductible for Federal income tax purposes. The Internal Revenue
Service has taken the position that such indebtedness need not be directly
traceable to the purchase or carrying of Units (however, these rules generally
do not apply to interest paid on indebtedness incurred to purchase or improve
a personal residence). Also, under Section 265 of the Code, certain financial
institutions that acquire Units would generally not be able to deduct any of
the interest expense attributable to ownership of such Units. 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 the Code and U.S. Treasury Regulations. Any person who believes
that he or she may be a "substantial user" or a "related
person" as so defined should contact his or her tax adviser.
In the opinion of 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.
Ownership of the Units may result in collateral federal income tax
consequences to certain taxpayers, including, without limitation, corporations
subject to either the environmental tax or the branch profits tax, financial
institutions, certain insurance companies, certain S corporations, individual
recipients of Social Security or Railroad Retirement benefits and taxpayers
who may be deemed to have incurred (or continued) indebtedness to purchase or
carry tax-exempt obligations. Prospective investors should consult their tax
advisors as to the applicability of any collateral consequences.
For a discussion of the state tax status of income earned on Units of a Trust,
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 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.
As published by the rating companies.
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.
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 262 (IM-IT, California IM-IT, New York IM-IT,
Ohio IM-IT, Pennsylvania IM-IT, National Quality and North Carolina Quality
Trusts):
We have audited the accompanying statements of condition and the related
portfolios of Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 262 (IM-IT, California IM-IT, New York IM-IT,
Ohio IM-IT, Pennsylvania IM-IT, National Quality and North Carolina Quality
Trusts) as of November 9, 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 262 (IM-IT,
California IM-IT, New York IM-IT, Ohio IM-IT, Pennsylvania IM-IT, National
Quality and North Carolina Quality Trusts) as of November 9, 1995, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Chicago, Illinois
November 9, 1995
<TABLE>
INSURED MUNICIPALS INCOME TRUST
and
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 262
Statements of Condition
As of November 9, 1995
<CAPTION>
INVESTMENT IN SECURITIES California New York Ohio
IM-IT IM-IT Trust IM-IT Trust IM-IT Trust
<S> <C> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 8,623,698 $ 2,875,837 $ 2,956,670 $ 2,912,934
Accrued interest to the First Settlement Date <F1><F4>..... 122,467 22,800 36,585 44,756
Total...................................................... $ 8,746,165 $ 2,898,637 $ 2,993,255 $ 2,957,690
LIABILITY AND INTEREST OF UNITHOLDERS
Liability-- ...............................................
Accrued interest payable to Sponsor <F1><F4> $ 122,467 $ 22,800 $ 36,585 $ 44,756
Interest of Unitholders-- .................................
Cost to investors <F3>..................................... 9,068,000 3,024,000 3,109,000 3,063,000
Less: Gross underwriting commission <F3>................... 444,302 148,163 152,330 150,066
Net interest to Unitholders <F1><F3><F4>................... 8,623,698 2,875,837 2,956,670 2,912,934
Total...................................................... $ 8,746,165 $ 2,898,637 $ 2,993,255 $ 2,957,690
<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 Corporation 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>
Principal Offering Accrued
Amount of Amount of Price of Interest to
Letter of Bonds Under Bonds Under Expected
Credit Contracts Contracts Delivery Dates
<S> <C> <C> <C> <C>
IM-IT.................... $ 8,743,856 $ 9,075,000 $ 8,623,698 $ 120,158
California IM-IT Trust... $ 2,897,097 $ 2,965,000 $ 2,875,837 $ 21,260
New York IM-IT Trust..... $ 2,994,091 $ 3,035,000 $ 2,956,670 $ 37,421
Ohio IM-IT Trust......... $ 2,956,639 $ 3,020,000 $ 2,912,934 $ 43,705
<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
November 14, 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 262
Statements of Condition (Continued)
As of November 9, 1995
<CAPTION>
North
INVESTMENT IN SECURITIES Pennsylvania National Carolina
IM-IT Trust Quality Trust Quality Trust
<S> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 2,932,895 $ 4,819,692 $ 3,007,078
Accrued interest to the First Settlement Date <F1><F4>..... 36,826 81,822 51,932
Total...................................................... $ 2,969,721 $ 4,901,514 $ 3,059,010
LIABILITY AND INTEREST OF UNITHOLDERS
Liability-- ...............................................
Accrued interest payable to Sponsor <F1><F4> $ 36,826 $ 81,822 $ 51,932
Interest of Unitholders-- .................................
Cost to investors <F3>..................................... 3,084,000 5,068,000 3,162,000
Less: Gross underwriting commission <F3>................... 151,105 248,308 154,922
Net interest to Unitholders <F1><F3><F4>................... 2,932,895 4,819,692 3,007,078
Total...................................................... $ 2,969,721 $ 4,901,514 $ 3,059,010
<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 Corporation 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>
Principal Offering Accrued
Amount of Amount of Price of Interest to
Letter of Bonds Under Bonds Under Expected
Credit Contracts Contracts Delivery Dates
<S> <C> <C> <C> <C>
Pennsylvania IM-IT Trust....... $ 2,968,065 $ 3,015,000 $ 2,932,895 $ 35,170
National Quality Trust......... $ 4,898,374 $ 5,000,000 $ 4,819,692 $ 78,682
North Carolina Quality Trust... $ 3,057,117 $ 3,085,000 $ 3,007,078 $ 50,039
<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
November 14, 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
<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 for 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.
NEW YORK
<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 21.5% 6.37% 7.01% 7.64% 8.28% 8.92% 9.55% 10.19%
23.35 - 56.55 39.00 - 94.25 33.5 7.52 8.27 9.02 9.77 10.53 11.28 12.03
56.55 - 117.95 94.25 - 143.60 36.2 7.84 8.62 9.40 10.19 10.97 11.76 12.54
117.95 - 256.50 143.60 - 256.50 40.9 8.46 9.31 10.15 11.00 11.84 12.69 13.54
Over 256.50 Over 256.50 44.2 8.96 9.86 10.75 11.65 12.54 13.44 14.34
</TABLE>
* Combined Federal and State tax bracket was computed assuming that the
investor is not subject to local income taxes, such as New York City taxes.
Should a Unitholder reside in a locality which imposes an income tax, the
Unitholder's equivalent taxable estimated current return would be greater than
the equivalent taxable estimated current returns indicated in the table. The
table does not reflect the New York State supplemental income tax based upon a
taxpayer's New York State taxable income and New York State adjusted gross
income. This supplemental tax results in an increased marginal State income
tax rate to the extent a taxpayer's New York State adjusted gross income
ranges between $100,000 and $150,000. In addition, the table does not reflect
the amendments to the New York State income tax law that impose limitations on
the deductibility of itemized deductions. The application of the New York
State supplemental income tax and limitation on itemized deductions may result
in a higher combined Federal, State and local tax rate than indicated in the
table.
OHIO
<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 18.8% 6.16% 6.77% 7.39% 8.00% 8.62% 9.24% 9.85%
23.35 - 56.55 31.7 7.32 8.05 8.78 9.52 10.25 10.98 11.71
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 35.8 7.79 8.57 9.35 10.12 10.90 11.68 12.46
117.95 - 256.50 143.60 - 256.50 40.8 8.45 9.29 10.14 10.98 11.82 12.67 13.51
Over 256.50 Over 256.50 44.1 8.94 9.84 10.73 11.63 12.52 13.42 14.31
</TABLE>
PENNSYLVANIA
<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 17.4% 6.05% 6.66% 7.26% 7.87% 8.47% 9.08% 9.69%
23.35 - 56.55 39.00 - 94.25 30 7.14 7.86 8.57 9.29 10.00 10.71 11.43
56.55 - 117.95 94.25 - 143.60 32.9 7.45 8.20 8.94 9.69 10.43 11.18 11.92
117.95 - 256.50 143.60 - 256.50 37.8 8.04 8.84 9.65 10.45 11.25 12.06 12.86
Over 256.50 Over 256.50 41.3 8.52 9.37 10.22 11.07 11.93 12.78 13.63
</TABLE>
* The table does not reflect the effect of the exemption of the Trust from
local personal property taxes and from the Philadelphia School District
Investment Net Income Tax; accordingly, residents of Pennsylvania subject to
such taxes would need a higher taxable estimated current return than those
shown to equal the tax-exempt estimated current return of the Trust.
QUALITY
<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>
NORTH CAROLINA
<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 21% 6.33% 6.96% 7.59% 8.23% 8.86% 9.49% 10.13%
23.35 - 56.55 39.00 - 94.25 33 7.46 8.21 8.96 9.70 10.45 11.19 11.94
56.55 - 117.95 94.25 - 143.60 36.4 7.86 8.65 9.43 10.22 11.01 11.79 12.58
117.95 - 256.50 143.60 - 256.50 41 8.47 9.32 10.17 11.02 11.86 12.71 13.56
Over 256.50 Over 256.50 44.3 8.98 9.87 10.77 11.67 12.57 13.46 14.36
</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>
December 1995 $ 2.46 $ 2.46
January 1996 - July 2006 4.34 4.34
August 2006 4.29 $ 18.19 22.48
September 2006 - November 2006 4.25 4.25
December 2006 3.97 110.28 114.25
January 2007 3.73 3.73
February 2007 3.73 110.28 114.01
March 2007 3.13 27.57 30.70
April 2007 - May 2007 3.07 3.07
June 2007 2.93 94.84 97.77
July 2007 2.63 16.54 19.17
August 2007 - November 2015 2.54 2.54
December 2015 2.48 27.57 30.05
January 2016 - March 2017 2.42 2.42
April 2017 2.42 65.06 67.48
May 2017 - January 2020 2.12 2.12
February 2020 2.12 55.14 57.26
March 2020 - June 2020 1.86 1.86
July 2020 1.86 14.34 16.20
August 2020 1.44 110.27 111.71
September 2020 - January 2021 1.37 1.37
February 2021 1.37 27.57 28.94
March 2021 - August 2021 1.37 1.37
September 2021 1.12 110.28 111.40
October 2021 - May 2023 .91 .91
June 2023 .83 35.84 36.67
July 2023 - April 2025 .76 .76
May 2025 .76 55.14 55.90
June 2025 - September 2025 .51 .51
October 2025 .51 55.14 55.65
November 2025 - September 2033 .25 .25
October 2033 .10 66.72 66.82
</TABLE>
IM-IT (continued)
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 $ 2.47 $ 2.47
June 1996 - June 2006 26.21 26.21
August 2006 $ 18.19 18.19
December 2006 25.53 110.28 135.81
February 2007 110.28 110.28
March 2007 27.57 27.57
June 2007 19.82 94.84 114.66
July 2007 16.54 16.54
December 2007 15.46 15.46
June 2008 - June 2015 15.38 15.38
December 2015 15.31 27.57 42.88
June 2016 - December 2016 14.62 14.62
April 2017 65.06 65.06
June 2017 14.01 14.01
December 2017 - December 2019 12.80 12.80
February 2020 55.14 55.14
June 2020 11.77 11.77
July 2020 14.34 14.34
August 2020 110.27 110.27
December 2020 8.85 8.85
February 2021 27.57 27.57
June 2021 8.30 8.30
September 2021 110.28 110.28
December 2021 6.64 6.64
June 2022 - December 2022 5.47 5.47
June 2023 5.39 35.84 41.23
December 2023 - December 2024 4.60 4.60
May 2025 55.14 55.14
June 2025 4.34 4.34
October 2025 55.14 55.14
December 2025 2.56 2.56
June 2026 - June 2033 1.53 1.53
October 2033 .86 66.72 67.58
</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>
December 1995 $ 2.45 $ 2.45
January 1996 - October 2006 4.33 4.33
November 2006 4.33 $ 165.34 169.67
December 2006 - April 2007 3.55 3.55
May 2007 3.55 165.34 168.89
June 2007 - January 2019 2.77 2.77
February 2019 2.77 33.07 35.84
March 2019 - January 2020 2.77 2.77
February 2020 2.77 165.35 168.12
March 2020 2.01 66.13 68.14
April 2020 - June 2023 1.71 1.71
July 2023 1.71 90.94 92.65
August 2023 - February 2025 1.28 1.28
March 2025 1.13 66.14 67.27
April 2025 - September 2025 1.00 1.00
October 2025 1.00 165.34 166.34
November 2025 - March 2028 .23 .23
April 2028 .07 62.83 62.90
</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 $ 6.83 $ 6.83
July 1996 - July 2006 26.17 26.17
November 2006 $ 165.34 165.34
January 2007 24.60 24.60
May 2007 165.34 165.34
July 2007 19.91 19.91
January 2008 - January 2019 16.79 16.79
February 2019 33.07 33.07
July 2019 - January 2020 16.79 16.79
February 2020 165.35 165.35
March 2020 66.13 66.13
July 2020 11.74 11.74
January 2021 - January 2023 10.38 10.38
July 2023 10.38 90.94 101.32
January 2024 - January 2025 7.76 7.76
March 2025 66.14 66.14
July 2025 6.47 6.47
October 2025 165.34 165.34
January 2026 3.73 3.73
July 2026 - January 2028 1.40 1.40
April 2028 .54 62.83 63.37
</TABLE>
New York 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>
December 1995 $ 2.44 $ 2.44
January 1996 - March 2006 4.30 4.30
April 2006 4.30 $ 119.00 123.30
May 2006 - June 2006 3.75 3.75
July 2006 3.67 194.60 198.27
August 2006 - February 2007 2.81 2.81
March 2007 2.42 149.57 151.99
April 2007 - June 2007 2.08 2.08
July 2007 1.92 64.33 66.25
August 2007 - May 2020 1.78 1.78
June 2020 1.78 32.16 33.94
July 2020 - June 2023 1.78 1.78
July 2023 1.78 46.64 48.42
August 2023 - June 2025 1.58 1.58
July 2025 1.46 209.07 210.53
August 2025 .66 160.82 161.48
</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>
May 1996 $ 24.14 $ 24.14
November 1996 - November 2005 26.02 26.02
April 2006 $ 119.00 119.00
May 2006 25.46 25.46
July 2006 194.60 194.60
November 2006 18.83 18.83
March 2007 149.57 149.57
May 2007 15.17 15.17
July 2007 64.33 64.33
November 2007 11.23 11.23
May 2008 - May 2020 10.78 10.78
June 2020 32.16 32.16
November 2020 - May 2023 10.78 10.78
July 2023 46.64 46.64
November 2023 9.98 9.98
May 2024 - May 2025 9.57 9.57
July 2025 209.07 209.07
August 2025 3.75 160.82 164.57
</TABLE>
Ohio 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>
December 1995 $ 2.38 $ 2.38
January 1996 - November 2006 4.20 4.20
December 2006 4.20 $ 318.31 322.51
January 2007 - November 2007 2.70 2.70
December 2007 2.70 244.86 247.56
January 2008 - November 2015 1.58 1.58
December 2015 1.58 212.21 213.79
January 2016 - November 2020 .67 .67
December 2020 .67 32.65 33.32
January 2021 - November 2021 .67 .67
December 2021 .67 14.69 15.36
January 2022 - November 2029 .67 .67
December 2029 .28 163.24 163.52
</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 $ 6.64 $ 6.64
July 1996 - July 2006 25.45 25.45
December 2006 $ 318.31 318.31
January 2007 23.93 23.93
July 2007 16.37 16.37
December 2007 244.86 244.86
January 2008 15.24 15.24
July 2008 - July 2015 9.60 9.60
December 2015 212.21 212.21
January 2016 8.68 8.68
July 2016 - July 2020 4.11 4.11
December 2020 32.65 32.65
January 2021 - July 2021 4.11 4.11
December 2021 14.69 14.69
January 2022 - July 2029 4.11 4.11
December 2029 3.04 163.24 166.28
</TABLE>
Pennsylvania 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>
December 1995 $ 2.42 $ 2.42
January 1996 - September 2005 4.28 4.28
October 2005 4.28 $ 162.12 166.40
November 2005 - February 2006 3.52 3.52
March 2006 3.52 81.07 84.59
April 2006 - May 2020 3.15 3.15
June 2020 2.75 162.12 164.87
July 2020 - May 2022 2.41 2.41
June 2022 2.41 32.43 34.84
July 2022 - August 2022 2.26 2.26
September 2022 2.26 162.13 164.39
October 2022 - February 2023 1.53 1.53
March 2023 1.53 21.07 22.60
April 2023 - June 2023 1.53 1.53
July 2023 1.14 162.13 163.27
August 2023 - August 2025 .79 .79
September 2025 .79 81.06 81.85
October 2025 - September 2033 .43 .43
October 2033 .17 113.49 113.66
</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 $ 6.76 $ 6.76
July 1996 - July 2005 25.90 25.90
October 2005 $ 162.12 162.12
January 2006 23.62 23.62
March 2006 81.07 81.07
July 2006 19.83 19.83
January 2007 - January 2020 19.07 19.07
June 2020 162.12 162.12
July 2020 17.93 17.93
January 2021 - January 2022 14.62 14.62
June 2022 32.43 32.43
July 2022 14.47 14.47
September 2022 162.13 162.13
January 2023 10.77 10.77
March 2023 21.07 21.07
July 2023 8.91 162.13 171.04
January 2024 - July 2025 4.85 4.85
September 2025 81.06 81.06
January 2026 3.40 3.40
July 2026 - July 2033 2.68 2.68
October 2033 1.07 113.49 114.56
</TABLE>
National 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>
December 1995 $ 2.58 $ 2.58
January 1996 - May 2005 4.56 4.56
June 2005 4.56 $ 98.65 103.21
July 2005 - June 2006 4.08 4.08
July 2006 4.08 59.20 63.28
August 2006 - January 2007 3.78 3.78
February 2007 3.51 98.66 102.17
March 2007 - October 2008 3.26 3.26
November 2008 3.08 197.31 200.39
December 2008 2.27 98.66 100.93
January 2009 - June 2018 1.75 1.75
July 2018 1.75 98.66 100.41
August 2018 1.30 1.30
September 2018 1.30 29.60 30.90
October 2018 - November 2018 1.30 1.30
December 2018 1.30 98.66 99.96
January 2019 - September 2019 .86 .86
October 2019 .86 98.65 99.51
November 2019 - June 2020 .42 .42
July 2020 .42 9.87 10.29
August 2020 - November 2023 .42 .42
December 2023 .17 98.66 98.83
</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 $ 7.19 $ 7.19
July 1996 - January 2005 27.56 27.56
June 2005 $ 98.65 98.65
July 2005 27.07 27.07
January 2006 24.66 24.66
July 2006 24.66 59.20 83.86
January 2007 22.89 22.89
February 2007 98.66 98.66
July 2007 19.99 19.99
January 2008 - July 2008 19.75 19.75
November 2008 197.31 197.31
December 2008 98.66 98.66
January 2009 17.04 17.04
July 2009 - January 2018 10.62 10.62
July 2018 10.62 98.66 109.28
September 2018 29.60 29.60
December 2018 98.66 98.66
January 2019 7.47 7.47
July 2019 5.22 5.22
October 2019 98.65 98.65
January 2020 3.89 3.89
July 2020 2.57 9.87 12.44
January 2021 - July 2023 2.57 2.57
December 2023 1.88 98.66 100.54
</TABLE>
North Carolina 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>
December 1995 $ 2.42 $ 2.42
January 1996 - January 2004 4.27 4.27
February 2004 4.27 $ 35.48 39.75
March 2004 - May 2006 4.10 4.10
June 2006 3.68 158.13 161.81
July 2006 - July 2007 3.31 3.31
August 2007 3.31 158.12 161.43
September 2007 - December 2014 2.58 2.58
January 2015 2.58 158.13 160.71
February 2015 - November 2015 1.95 1.95
December 2015 1.95 55.35 57.30
January 2016 - February 2019 1.70 1.70
March 2019 1.32 158.12 159.44
April 2019 - September 2020 1.00 1.00
October 2020 1.00 49.02 50.02
November 2020 - November 2021 .78 .78
December 2021 .78 158.13 158.91
January 2022 - September 2023 .14 .14
October 2023 .14 45.86 46.00
</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>
May 1996 $ 23.96 $ 23.96
November 1996 - November 2003 25.82 25.82
February 2004 $ 35.48 35.48
May 2004 25.32 25.32
November 2004 - May 2006 24.82 24.82
June 2006 158.13 158.13
November 2006 20.44 20.44
May 2007 20.07 20.07
August 2007 158.12 158.12
November 2007 17.87 17.87
May 2008 - November 2014 15.66 15.66
January 2015 158.13 158.13
May 2015 13.09 13.09
November 2015 11.80 11.80
December 2015 55.35 55.35
May 2016 10.56 10.56
November 2016 - November 2018 10.31 10.31
March 2019 158.12 158.12
May 2019 8.51 8.51
November 2019 - May 2020 6.06 6.06
October 2020 49.02 49.02
November 2020 5.84 5.84
May 2021 - November 2021 4.74 4.74
December 2021 158.13 158.13
May 2022 1.52 1.52
November 2022 - May 2023 .88 .88
October 2023 .73 45.86 46.59
</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.
<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 12
Bond Redemptions 13
Distributions 14
Change of Distribution Option 14
Certificates 14
Estimated Current Returns and Estimated Long-Term Returns 15
Interest Earning Schedule 15
Calculation of Estimated Net Annual Interest Income 15
Accrued Interest 16
Accrued Interest 16
Public Offering 16
General 16
Offering Price 18
Market for Units 19
Distributions of Interest and Principal 20
Reinvestment Option 20
Redemption of Units 21
Reports Provided 22
Insurance on the Bonds in the Insured Trusts 23
IM-IT TRUST 30
CALIFORNIA IM-IT TRUST 34
NEW YORK IM-IT TRUST 44
OHIO IM-IT TRUST 54
PENNSYLVANIA IM-IT TRUST 60
NATIONAL QUALITY TRUST 67
NORTH CAROLINA QUALITY TRUST 71
NOTES TO PORTFOLIOS 78
UNDERWRITING 80
TRUST ADMINISTRATION 84
Fund Administration and Expenses 84
Sponsor 84
Compensation of Sponsor and Evaluator 84
Trustee 85
Trustee's Fee 85
Portfolio Administration 86
Sponsor Purchases of Units 87
Insurance Premiums 87
Miscellaneous Expenses 87
General 88
Amendment or Termination 88
Limitation on Liabilities 89
Unit Distribution 89
Sponsor and Underwriter Compensation 90
OTHER MATTERS 91
Legal Opinions 91
Independent Certified Public Accountants 91
FEDERAL TAX STATUS 91
DESCRIPTION OF SECURITIES RATINGS 95
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS 97
STATEMENTS OF CONDITION 98
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
TABLES 100
ESTIMATED CASH FLOWS TO UNITHOLDERS 104
</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
November 9, 1995
Insured Municipals Income Trust
and Investors' Quality Tax-Exempt Trust, Multi-Series 262
IM-IT 360
California IM-IT 147
New York IM-IT 129
Ohio IM-IT 99
Pennsylvania IM-IT 210
National Quality 92
North Carolina Quality 84
A Wealth of Knowledge A Knowledge of Wealthsm
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.
