File No. 33-
CIK #896937
Securities And Exchange Commission
Washington, D.C. 20549-1004
Form S-6
For Registration under the Securities Act of 1933 of Securities of Unit
Investment Trusts Registered on Form N-8B-2.
A. Exact name of Trust: Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 277
B. Name of Depositor: Van Kampen American Capital
Distributors, Inc.
C. Complete address of Depositor's principal executive offices:
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
D. Name and complete address of agents for service:
Van Kampen American Capital
Distributors, Inc. Chapman and Cutler
Attention: Don G. Powell, Chairman Attention: Mark J. Kneedy
One Parkview Plaza 111 West Monroe Street
Oakbrook Terrace, Illinois 60181 Chicago, Illinois 60603
E. Title and amount of securities being registered: 1,000* Units
F. Proposed maximum offering price to the public of the securities being
registered: ($1,020 per Unit**): $1,020,000
G. Amount of filing fee, computed at one twenty-ninth of 1 percent of the
proposed maximum aggregate offering price to the public: $351.72
H. Approximate date of proposed sale to the public:
as soon as practicable after the Effective Date
of the Registration Statement
_________________________________________________________________________
* 500 Units registered for primary distribution.
500 Units registered for resale by Depositor of Units previously
sold in primary distribution
**Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a) may determine.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
Multi-Series 277
Cross Reference Sheet
Pursuant to Rule 404(c) of Regulation C
under the Securities Act of 1933
(Form N-8B-2 Items Required by Instruction
1 as to Prospectus on Form S-6)
Form N-8B-2 Form S-6
Item Number Heading in Prospectus
I. Organization and General Information
1. (a) Name of trust )
(b) Title of securities issued ) Prospectus Front Cover Page
2. Name and address of Depositor ) Introduction
) Summary of Essential Financial
) Information
) Trust Administration
3. Name and address of Trustee ) Introduction
) Summary of Essential Financial
) Information
) Trust Administration
4. Name and address of principal ) Underwriting
underwriter )
5. Organization of trust ) Introduction
6. Execution and termination of ) Introduction
Trust Indenture and Agreement ) Trust Administration
7. Changes of Name ) *
8. Fiscal year ) *
9. Material Litigation ) *
II. General Description of the Trust and Securities of the Trust
10. General information regarding ) Introduction
trust's securities and rights) Unitholder Explanations
of security holders ) Trust Information
) Trust Administration
11. Type of securities comprising ) Introduction
units ) Trust Information
) Trust Portfolios
12. Certain information regarding ) *
periodic payment certificates)
13. (a) Load, fees, charges and ) Introduction
expenses ) Summary of Essential Financial
) Information
) Unitholder Explanations
) Trust Information
) Trust Administration
(b) Certain information regard-) *
ing periodic payment plan)
certificates )
(c) Certain percentages ) Introduction
) Summary of Essential Financial
) Information
) Unitholder Explanations
(d) Certain other fees, ) Unitholder Explanations
expenses or charges ) Trust Administration
payable by holders )
(e) Certain profits to be ) Unitholder Explanations
received by depositor, ) Underwriting
principal underwriter, ) Notes to Portfolios
trustee or affiliated )
persons )
(f) Ratio of annual charges ) *
to income )
14. Issuance of trust's securities ) Unitholder Explanations
15. Receipt and handling of payments) *
from purchasers )
16. Acquisition and disposition of ) Introduction
underlying securities ) Unitholder Explanations
) Trust Administration
17. Withdrawal or redemption ) Unitholder Explanations
) Trust Administration
18. (a) Receipt and disposition ) Introduction
of income ) Unitholder Explanations
(b) Reinvestment of distribu- ) *
tions )
(c) Reserves or special funds ) Unitholder Explanations
) Trust Administration
(d) Schedule of distributions ) *
19. Records, accounts and reports ) Unitholder Explanations
) Trust Administration
20. Certain miscellaneous provisions) Trust Administration
of Trust Agreement )
21. Loans to security holders ) *
22. Limitations on liability ) Trust Portfolios
) Trust Administration
23. Bonding arrangements ) *
24. Other material provisions of ) *
trust indenture or agreement )
III. Organization, Personnel and Affiliated Persons of Depositor
25. Organization of Depositor ) Trust Administration
26. Fees received by Depositor ) Trust Administration
27. Business of Depositor ) Trust Administration
28. Certain information as to )
officials and affiliated ) *
persons of Depositor )
29. Companies owning securities of ) *
Depositor )
30. Controlling persons of Depositor) *
31. Compensation of Directors ) *
32. Compensation of Directors ) *
33. Compensation of Employees ) *
34. Compensation to other persons ) Unitholder Explanations
IV. Distribution and Redemption of Securities
35. Distribution of trust's ) Introduction
securities by states ) Settlement of Bonds in the Trusts
36. Suspension of sales of trust's ) *
securities )
37. Revocation of authority to ) *
distribute )
38. (a) Method of distribution )
(b) Underwriting agreements ) Unitholder Explanations
(c) Selling agreements )
39. (a) Organization of principal )
underwriter )
) Trust Administration
(b) N.A.S.D. membership by )
principal underwriter )
40. Certain fees received by ) *
principal underwriter )
41. (a) Business of principal ) Trust Administration
underwriter )
(b) Branch offices of principal) *
underwriter )
(c) Salesmen of principal ) *
underwriter )
42. Ownership of securities of the ) *
trust )
43. Certain brokerage commissions )
received by principal ) *
underwriter )
44. (a) Method of valuation ) Introduction
) Summary of Essential Financial
) Information
) Unitholder Explanations
) Trust Administration
(b) Schedule as to offering ) *
price )
(c) Variation in offering price) Unitholder Explanations
to certain persons )
45. Suspension of redemption rights) *
46. (a) Redemption valuation ) Unitholder Explanations
) Trust Administration
(b) Schedule as to redemption ) *
price )
47. Purchase and sale of interests ) Unitholder Explanations
in underlying securities ) Trust Administration
V. Information Concerning the Trustee or Custodian
48. Organization and regulation of ) Trust Administration
trustee )
49. Fees and expenses of trustee ) Summary of Essential Financial
) Information
) Trust Administration
50. Trustee's lien ) Trust Administration
VI. Information Concerning Insurance of Holders of Securities
51. Insurance of holders of trust's)
securities ) *
VII. Policy of Registrant
52. (a) Provisions of trust agree-)
ment with respect to )
replacement or elimi- ) Trust Administration
nation of portfolio )
securities )
(b) Transactions involving )
elimination of underlying) *
securities )
(c) Policy regarding substitu-) Trust Administration
tion or elimination of )
underlying securities )
(d) Fundamental policy not ) *
otherwise covered )
53. Tax Status of trust ) Trust Information
) Other Matters
VIII. Financial and Statistical Information
54. Trust's securities during ) *
last ten years )
55. )
)
56. Certain information regarding ) *
)
57. Periodic payment certificates )
58. )
59. Financial statements (Instruc- ) Other Matters
tions 1(c) to Form S-6) )
__________________________________
* Inapplicable, omitted, answer negative or not required
Preliminary Prospectus Dated June 12, 1996
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust
1,000 Units Multi-Series 277
(A Unit Investment Trust)
The attached final Prospectus for a prior Series of the Fund is
hereby used as a preliminary Prospectus for the above stated Series. The
narrative information and structure of the attached final Prospectus will
be substantially the same as that of the final Prospectus for this
Series. Information with respect to pricing, the number of Units, dates
and summary information regarding the characteristics of securities to be
deposited in this Series is not now available and will be different since
each Series has a unique Portfolio. Accordingly the information
contained herein with regard to the previous Series should be considered
as being included for informational purposes only. Ratings of the
securities in this Series are expected to be comparable to those of the
securities deposited in the previous Series. However, the Estimated
Current Return for this Series will depend on the interest rates and
offering prices of the securities in this Series and may vary materially
from that of the previous Series.
A registration statement relating to the units of this Series will
be filed with the Securities and Exchange Commission but has not yet
become effective. Information contained herein is subject to completion
or amendment. Such Units may not be sold nor may offer to buy be
accepted prior to the time the registration statement becomes effective.
This Prospectus shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of the Units in any state
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
state.
May 31, 1996
Van Kampen American Capital
Insured Municipals Income Trust andInvestors' Quality Tax-Exempt Trust,
Multi-Series 273
California IM-IT 153 Louisiana IM-IT 16 North Carolina Quality 87
Florida IM-IT 104 New Jersey IM-IT 112
In the opinion of counsel, interest to the Fund and to Unitholders, with
certain exceptions, is excludable under existing law from gross income for
Federal income taxes. In addition, the interest income of each State Trust is,
in the opinion of counsel, exempt to the extent indicated from state and local
taxes, when held by residents of the state where the issuers of Bonds in such
Trust are located. Capital gains, if any, are subject to Federal tax.
The Fund. The objectives of the Fund are Federal and, in the case of a State
Trust, state tax-exempt income and conservation of capital through an
investment in a diversified portfolio of tax-exempt bonds. The Fund consists
of five underlying separate unit investment trusts designated as California
Insured Municipals Income Trust, Series 153 (the "California IM-IT
Trust" ), Florida Insured Municipals Income Trust, Series 104 (the "
Florida IM-IT Trust" ), Louisiana Insured Municipals Income Trust, Series
16 (the "Louisiana IM-IT Trust" ), New Jersey Insured Municipals Income
Trust, Series 112 (the "New Jersey IM-IT Trust" ) and North Carolina
Investors' Quality Tax-Exempt Trust, Series 87 (the "North Carolina
Quality Trust" ). The various trusts are collectively referred to herein as
the "Trusts" . The California IM-IT, Florida IM-IT, Louisiana IM-IT,
New Jersey IM-IT and North Carolina Quality Trusts are sometimes collectively
referred to herein as the "State Trusts" , while the California IM-IT,
Florida IM-IT, Louisiana IM-IT and New Jersey IM-IT Trusts are sometimes
collectively referred to herein as the "Insured Trusts" and the North
Carolina Quality Trust is sometimes referred to herein as the "Quality
Trust" . Each Trust initially consists of delivery statements relating to
contracts to purchase securities and, thereafter, will consist of such
securities as may continue to be held (the "Bonds" or "
Securities" ). Such Securities are interest-bearing obligations issued by
or on behalf of municipalities and other governmental authorities, the
interest on which is, in the opinion of recognized bond counsel to the issuing
governmental authority, exempt from all Federal income taxes under the
existing law. In addition, the interest income of each State Trust is, in the
opinion of counsel, exempt to the extent indicated from state and local taxes,
when held by residents of the state where the issuers of Bonds in such Trust
are located.
AAA" Rating for the Insured Trusts Only. Insurance guaranteeing the
payments of principal and interest, when due, on the Securities in the
portfolio of each Insured Trust has been obtained from a municipal bond
insurance company either by such Trust or by the issuer of the Bonds involved,
by a prior owner of the Bonds or by the Sponsor prior to the deposit of such
Bonds in an Insured Trust. See "Unitholder Explanations--Insurance on the
Bonds in the Insured Trusts" on page 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 includes the aggregate offering price of
the Securities in such Trust's portfolio, an applicable sales charge, cash, if
any, in the Principal Account held or owned by such Trust, and accrued
interest, if any. After the initial public offering period, the secondary
market Public Offering Price of each Trust will include the aggregate bid
price of the Securities in such Trust, an applicable sales charge, cash, if
any, in the Principal Account held or owned by such Trust, and accrued
interest, if any. If the Securities in each Trust were available for direct
purchase by investors, the purchase price of the Securities would not include
the sales charge included in the Public Offering Price of the Units. During
the initial offering period, the sales charge is reduced on a graduated scale
for sales involving at least 100 Units. If Units were available for purchase
at the close of business on the day before the Date of Deposit, the Public
Offering Price per Unit would have been that amount set forth in the "
Summary of Essential Financial Information" for each Trust. 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 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 tenth day of each month and record dates for semi-annual
distributions will be the tenth day of the months indicated under "Per
Unit Information" for the applicable Trust. Distributions will be made on
the twenty-fifth 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 of any Van Kampen American Capital-sponsored
unit investment trust may utilize their redemption or termination proceeds to
purchase Units of any other Van Kampen American Capital trust in the initial
offering period accepting rollover investments subject to a reduced sales
charge to the extent stated in the related prospectus (which may be deferred
in certain cases).
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 273
Summary of Essential Financial Information
At the Close of Business on the day before the Date of Deposit: May 30, 1996
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
California Florida Louisiana
GENERAL INFORMATION IM-IT Trust IM-IT Trust IM-IT Trust
<S> <C> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>............................... $ 2,980,000 $ 3,045,000 $ 3,030,000
Number of Units........................................................................ 3,018 3,072 3,056
Fractional Undivided Interest in the Trust per Unit ................................... 1/3,018 1/3,072 1/3,056
Principal Amount (Par Value) of Securities per Unit <F2>............................... $ 987.41 $ 991.21 $ 991.49
Public Offering Price:
Aggregate Offering Price of Securities in Portfolio................................... $ 2,870,132 $ 2,921,486 $ 2,906,271
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>......................................................... $ 943.60 $ 943.57 $ 943.57
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................ $ 56.40 $ 56.43 $ 56.43
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit... $ 7.40 $ 7.43 $ 7.43
Minimum Value of the Trust under which Trust Agreement may be
terminated............................................................................ $ 596,000 $ 609,000 $ 606,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution...........$1.00 per Unit
First Settlement Date....................June 5, 1996
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: 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 - 2.0% (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 273
Summary of Essential Financial Information
At the Close of Business on the day before the Date of Deposit: May 30, 1996
Sponsor: Van Kampen American Capital Distributors, Inc.
Evaluator: American Portfolio Evaluation Services
(A division of an affiliate of the Sponsor)
Trustee: The Bank of New York
<CAPTION>
North
New Jersey Carolina
GENERAL INFORMATION IM-IT Trust Quality Trust
<S> <C> <C>
Principal Amount (Par Value) of Securities in Trust <F1>............................... $ 3,000,000 $ 3,070,000
Number of Units........................................................................ 3,034 3,111
Fractional Undivided Interest in the Trust per Unit.................................... 1/3,034 1/3,111
Principal Amount (Par Value) of Securities per Unit <F2>............................... $ 988.79 $ 986.82
Public Offering Price:
Aggregate Offering Price of Securities in Portfolio................................... $ 2,885,352 $ 2,958,574
Aggregate Offering Price of Securities per Unit....................................... $ 951.01 $ 951.00
Sales Charge <F3>..................................................................... $ 48.99 $ 49.00
Public Offering Price per Unit <F4>................................................... $ 1,000.00 $ 1,000.00
Redemption Price per Unit <F4>......................................................... $ 943.59 $ 943.60
Secondary Market Repurchase Price per Unit <F4>........................................ $ 951.01 $ 951.00
Excess of Public Offering Price per Unit Over Redemption Price per Unit................ $ 56.41 $ 56.40
Excess of Sponsor's Initial Repurchase Price per Unit Over Redemption Price per Unit... $ 7.42 $ 7.40
Minimum Value of the Trust under which Trust Agreement may be terminated............... $ 600,000 $ 614,000
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Minimum Principal Distribution...........$1.00 per Unit
First Settlement Date....................June 5, 1996
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: 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 - 2.0% (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 273 (the "Fund" ), was created under the laws of
the State of New York pursuant to a Trust Indenture and Agreement (the "
Trust Agreement" ), dated the Date of Deposit, among Van Kampen American
Capital Distributors, Inc., as Sponsor, American Portfolio Evaluation
Services, a division of Van Kampen American Capital Investment Advisory Corp.,
as Evaluator, and The Bank of New York, as Trustee.
The Fund consists of five separate portfolios of delivery statements relating
to contracts to purchase interest-bearing obligations issued by or on behalf
of states and territories of the United States, and political subdivisions and
authorities thereof, the interest on which is, in the opinion of recognized
bond counsel to the issuing authorities, excludable from gross income for
Federal income tax under existing law. All issuers of Securities in a State
Trust are located in the State for which such Trust is named or in United
States territories or possessions and their public authorities; consequently,
in the opinion of recognized bond counsel to such State issuers, the related
interest earned on such Securities is exempt to the extent indicated from
state and local taxes of such State. With the exception of the New York and
Pennsylvania Trusts, Units of such Trusts may be purchased only by residents
of the State for which such Trust is named. Units of a New York Trust may be
purchased by residents of New York, Connecticut, Florida and Massachusetts.
Units of a Pennsylvania Trust may be purchased by residents of Pennsylvania,
Connecticut, Florida, Maryland, New York, Ohio and West Virginia. On the Date
of Deposit, the Sponsor deposited with the Trustee the aggregate principal
amount of Securities in each Trust as indicated under "General
Information--Principal Amount (Par Value) of Securities in Trust" in the
"Summary of Essential Financial Information" . Such Securities consist
of delivery statements relating to contracts for the purchase of certain
interest-bearing obligations and cash, cash equivalents and/or irrevocable
letters of credit issued by a financial institution in the amount required for
such purchases. Thereafter, the Trustee, in exchange for the Securities so
deposited, delivered to the Sponsor the certificates evidencing the ownership
of the number of Units in each Trust as indicated under "Summary of
Essential Financial Information." Unless otherwise terminated as provided
herein, the Trust Agreement for any State Trustwill 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 State 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. 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 a State 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 twenty-fifth day of the month indicated under "Initial
Distribution" therein to Unitholders of record on the tenth 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 unless a Unitholder makes
a request to the Trustee that Units be held in book-entry form. 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 (or on such request) 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 the
Estimated Current Returns and the Estimated Long-Term Returns, under the
monthly and semi-annual distribution plans, were as set forth in the "Per
Unit Information" for each Trust. Estimated Current Return is calculated
by dividing the estimated net annual interest income per Unit by the Public
Offering Price. The estimated net annual interest income per Unit will vary
with changes in fees and expenses of the Trustee and the Evaluator and with
the principal prepayment, redemption, maturity, exchange or sale of Securities
while the Public Offering Price will vary with changes in the offering price
of the underlying Securities; therefore, there is no assurance that the
present Estimated Current Return will be realized in the future. Estimated
Long-Term Return is calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in a Trust and (2) takes into account the expenses and sales charge
associated with each Trust Unit. Since the market values and estimated
retirements of the Securities and the expenses of a Trust will change, there
is no assurance that the present Estimated Long-Term Return will be realized
in the future. The Estimated Current Return and Estimated Long-Term Return are
expected to differ because the calculation of Estimated Long-Term Return
reflects the estimated date and amount of principal returned while the
Estimated Current Return calculation includes only net annual interest income
and Public Offering Price.
In order to acquire certain of the Securities contracted for by the Sponsor
for deposit in the Fund, it may be necessary for the Sponsor or Trustee to pay
on the settlement dates for delivery of such Securities amounts covering
accrued interest on such Securities which exceed the amounts which will be
made available through cash furnished by the Sponsor on the Date of Deposit,
which amount of cash may exceed the interest which would accrue to the First
Settlement Date. The Trustee has agreed to pay for any amounts necessary to
cover any such excess and will be reimbursed therefor, when funds become
available from interest payments on the particular Securities with respect to
which such payments may have been made. Also, since interest on any "when,
as and if issued" Securities does not begin accruing as tax-exempt
interest income to the benefit of Unitholders until their respective dates of
delivery, the Trustee may, in order to maintain (or in some cases approach)
for the Unitholders the same estimated net annual interest incomes during the
first year of the Trusts' operations as is indicated under "Per Unit
Information" for the applicable Trust, reduce its fee (and to the extent
necessary pay Trust expenses) in an amount equal to that indicated under "
Per Unit Information" for the applicable Trust.
INTEREST EARNING SCHEDULE
Calculation of Estimated Net Annual Interest Income. The estimated net annual
interest income is based on 360 days. To account for the estimated net annual
interest income per Unit in a Trust, it is necessary to use the following
information.
The beginning interest date for each Trust is June 5, 1996. The first monthly
record date for each Trust (July 10, 1996) is 35 days from such date. The
daily rates of estimated net annual interest income per Unit accrued on a
monthly basis are $.14862, $.14660, $.14723, $.14656 and $.14615 for the
California IM-IT, Florida IM-IT, Louisiana IM-IT, New Jersey IM-IT and North
Carolina Quality Trusts, respectively. This amounts to $5.20, $5.13, $5.15,
$5.13 and $5.12 for the California IM-IT, Florida IM-IT, Louisiana IM-IT, New
Jersey IM-IT 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
$5.20 to the first record date plus
$44.60 which is 10 normal distributions at $4.46, and finally adding
$3.71 which has accrued from May 10, 1997 until June 5, 1997 which completes
the 360 day cycle (25 days times the daily factor)
Total $53.51 interest earned /$1,000.00 (Date of Deposit Public Offering
Price) = 5.35% Estimated Current Return as of the Date of Deposit.
ACCRUED INTEREST
Accrued Interest. Accrued interest is an accumulation of unpaid interest on
securities which generally is paid semi-annually, although the Trust accrues
such interest daily. Because of this, the Trust always has an amount of
interest earned but not yet collected by the Trustee. For this reason, with
respect to sales settling subsequent to the First Settlement Date, the Public
Offering Price of Units will have added to it the proportionate share of
accrued interest to the date of settlement. Unitholders will receive on the
next distribution date of the Trust the amount, if any, of accrued interest
paid on their Units.
In an effort to reduce the amount of accrued interest which would otherwise
have to be paid by Unitholders, the Trustee will advance the amount of accrued
interest to the Sponsor as the Unitholder of record as of the First Settlement
Date. Consequently, the amount of accrued interest to be added to the Public
Offering Price of Units will include only accrued interest from the First
Settlement Date to the date of settlement, less any distributions from the
Interest Account subsequent to the First Settlement Date. See "Public
Offering--Distributions of Interest and Principal."
Because of the varying interest payment dates of the Securities, accrued
interest at any point in time will be greater than the amount of interest
actually received by a Trust and distributed to Unitholders. If a Unitholder
sells or redeems all or a portion of his Units, he will be entitled to receive
his proportionate share of the accrued interest from the purchaser of his
Units. Since the Trustee has the use of the funds held in the Interest Account
for distributions to Unitholders and since such Account is
non-interest-bearing to Unitholders, the Trustee benefits thereby.
PUBLIC OFFERING
General. Units are offered at the Public Offering Price. During the initial
offering period the Public Offering Price is based on the aggregate offering
price of the Securities in such Trust's portfolio, a sales charge of 4.9% of
the Public Offering Price (5.152% of the aggregate offering price of the
Securities) for a State Trust, 4.3% of the Public Offering Price (4.493% of
the aggregate offering price of the Securities) for an IM-IT Limited Maturity
Trust, 3.9% of the Public Offering Price (4.058% of the aggregate offering
price of the Securities) for an IM-IT Intermediate Trust and 2.0% of the
Public Offering Price (2.041% of the aggregate offering price of the
Securities) for an IM-IT Short Intermediate Trust, cash, if any, in the
Principal Account held or owned by such Trust, and accrued interest, if any.
After the initial public offering period, the secondary market public offering
price is based on the bid prices of the Securities in each Trust, an
applicable sales charge as determined in accordance with the table set forth
below, which is based upon the dollar weighted average maturity of each Trust,
cash, if any, in the Principal Account held or owned by such Trust, and
accrued interest, if any. For purposes of computation, Bonds will be deemed to
mature on their expressed maturity dates unless: (a) the Bonds have been
called for redemption or are subject to redemption 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 estimated
long-term return life 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 1.010% 12 4.712
2 1.523 13 4.822
3 2.041 14 4.932
4 2.302 15 5.042
5 2.564 16 5.152
6 2.828 17 5.263
7 3.093 18 5.374
8 3.627 19 5.485
9 4.167 20 5.597
10 4.384 21 to 30 5.708
11 4.603
</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 4.8%. The sales charge
applicable to quantity purchases during the initial offering period is,
however, reduced on a graduated basis to any person acquiring 100 or more
Units as follows:
<TABLE>
<CAPTION>
Dollar Amount of Sales
Charge Reduction Per Unit
Aggregate Number of State and National IM-IT Short
Units Purchased Quality Trusts Intermediate Trust Other Trusts
<S> <C> <C> <C>
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 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 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 twenty-fifth 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 twenty-fifth 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., may elect to have each
distribution of interest income, capital gains and/or principal on their Units
automatically reinvested in shares of any Van Kampen American Capital mutual
funds (except for B shares) which are registered in the Unitholder's state of
residence. 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. Unitholders with an existing Guaranteed Reinvestment
Option (GRO) Program account (whereby a sales charge is imposed on
distribution reinvestments) may transfer their existing account into a new GRO
account which allows purchases of Reinvestment Fund shares at net asset value
as described above.
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.
Unitholders of New York Trusts, other than residents of Massachusetts, may
elect to have distributions reinvested in shares of First Investors New York
Insured Tax Free Fund, Inc. subject to a sales charge of $1.50 per $100
reinvested (paid to First Investors Management Company, Inc.).
Redemption of Units. A Unitholder may redeem all or a portion of his Units by
tender to the Trustee, at its Unit Investment Trust Division, 101 Barclay
Street, 20th Floor, New York, New York 10286, of the certificates representing
the Units to be redeemed (or by written request if Units are not held in
certificated form), 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 an affiliate 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 September 30, 1995 MBIA had admitted
assets of $3.7 billion (unaudited), total liabilities of $2.5 billion
(unaudited), and total capital and surplus of $1.2 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities. As of December 31, 1995, the
Insurer had admitted assets of $3.8 billion (audited), total liabilities of
$2.5 billion (audited), and total capital and surplus of $1.3 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 December 31, 1995, the total capital and surplus
of Financial Guaranty was approximately $1,000,520,000. 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 September 30, 1995, Capital Guaranty had more than $19.0 billion in net
exposure outstanding (excluding defeased issues). The total statutory
policyholders' surplus and contingency reserve of Capital Guaranty was
$204,642,000, and the total admitted assets were $326,802,226 as reported to
the Insurance Department of the State of Maryland as of September 30, 1995.
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.
Capital Markets Assurance Corporation ("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. ("Moody's" ), "AAA" by Standard & Poor's Ratings
Services ("Standard & Poor's" ), "AAA" by Duff & Phelps Credit
Rating Co. ("Duff & Phelps" ) and "AAA" by Nippon Investors
Service Inc. Such ratings reflect only the views of the respective rating
agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
CapMAC is a wholly-owned subsidiary of CapMAC Holdings Inc. ("Holdings"
). In December of 1995, in connection with an initial public offering of its
common stock, Holdings became a public company with its common stock listed on
the New York Stock Exchange under the symbol "KAP." 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 to CapMAC.
CapMAC is regulated by the Superintendent of Insurance of the State of New
York. In addition, CapMAC is subject to regulation by the insurance laws and
regulations of 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, 1995 and 1994, CapMAC had qualified statutory capital
(which consists of policyholders' surplus and contingency reserve) of
approximately $240 million and $170 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.
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. Such rating will be in effect for a period of
thirteen months from the Date of Deposit and will, unless renewed, terminate
at the end of such period. See "Description of 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>
California IM-IT... -- -- 100% 100%
Florida IM-IT...... -- -- 100% 100%
Louisiana IM-IT.... -- -- 100% 100%
New Jersey IM-IT... -- -- 100% 100%
</TABLE>
The breakdown of the Preinsured Bonds is as follows: California IM-IT
Trust--AMBAC Indemnity 15%, Financial Guaranty 17%, MBIA 43% and FSA 25%;
Florida IM-IT Trust--AMBAC Indemnity 8% and MBIA 92%; Louisiana IM-IT
Trust--AMBAC Indemnity 8%, Financial Guaranty 21%, MBIA 25% and FSA 46%; New
Jersey IM-IT Trust--AMBAC Indemnity 4%, Financial Guaranty 33%, MBIA 50%
and FSA 13%.
CALIFORNIA IM-IT TRUST
General. The California IM-IT Trust consists of 9 issues of Securities. One of
the Bonds in the California IM-IT Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total California IM-IT Trust) as follows: Water and Sewer, 3 (30%); Tax
District, 1 (17%); Health Care, 1 (16%); General Obligations, 1 (15%); General
Purpose, 2 (12%) and Higher Education, 1 (10%). 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 but 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>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 56.01 $ 56.01
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.50 $ 2.01
Less: Annual Premium on Portfolio Insurance per Unit.................. -- --
Estimated Net Annual Interest Income per Unit......................... $ 53.51 $ 54.00
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 53.51 $ 54.00
Divided by 12 and 2, respectively..................................... $ 4.46 $ 27.00
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14862 $ .14999
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.35% 5.40%
Estimated Long-Term Return <F2><F3><F4>................................ 5.38% 5.43%
Estimated Initial Monthly Distribution (July 1996)..................... $ 5.20
Estimated Initial Semi-annual Distribution (July 1996)................. $ 5.25
Estimated Normal Distribution per Unit <F4>............................ $ 4.46 $ 27.00
</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... TENTH day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. TWENTY-FIFTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing July 25, 1996
<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 153 (IM-IT AND QUALITY MULTI-SERIES 273)
PORTFOLIO As of May 31, 1996
<CAPTION>
Offering
Price To
California
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of either Redemption IM-IT
Principal<F1> Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C>
$ 395,000 Coronado Financing Authority, California, 1996 Storm Drainage
System Project Revenue Bonds (MBIA Insured) 2006 @ 102
260M-6.00% Due 3/1/2016........................................... AAA 2015 @ 100 S.F. $ 262,600
2006 @ 102
135M-6.00% Due 3/1/2026........................................... AAA 2022 @ 100 S.F. 136,012
500,000 City of Irwindale (Los Angeles County, California) Community
Redevelopment Agency, City Industrial Development Project, 1996
Senior Lien Tax Allocation Bonds (FSA Insured) 2006 @ 101.625
5.90% Due 8/1/2019................................................ AAA 2017 @ 100 S.F. 500,165
500,000 City of Los Angeles, California, Wastewater System Revenue Bonds
Refunding Series 1993D (FGIC Insured) 2003 @ 102
#5.20% Due 11/1/2021.............................................. AAA 2020 @ 100 S.F. 445,900
475,000 City of Loma Linda, California, Hospital Revenue Refunding Bonds
(Loma Linda University Medical Center Project) Series 1993C (MBIA 2003 @ 102
Insured) 5.375% Due 12/1/2022.................................... AAA 2014 @ 100 S.F. 438,226
250,000 San Marcos Public Facilities Authority, California, Tax
Allocation Refunding Bonds, Series 1993A (FSA Insured) 2003 @ 102
5.50% Due 8/1/2023................................................ AAA 2004 @ 100 S.F. 234,575
120,000 Rancho Cucamonga Redevelopment Agency, California, Rancho
Redevelopment Project, 1994 Tax Allocation Refunding Bonds (MBIA
Insured) 2004 @ 102
5.50% Due 9/1/2023................................................ AAA 2016 @ 100 S.F. 112,585
450,000 California, Various Purpose General Obligation Bonds (AMBAC
Indemnity Insured) 2005 @ 101
#5.90% Due 3/1/2025............................................... AAA 2020 @ 100 S.F. 447,894
290,000 California Educational Facilities Authority, Revenue Bonds
(University of San Francisco) Series 1996 (MBIA Insured) 2006 @ 102
#6.00% Due 10/1/2026.............................................. AAA 2017 @ 100 S.F. 292,175
$ 2,980,000 $2,870,132
</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".
FLORIDA IM-IT TRUST
General. The Florida IM-IT Trust consists of 8 issues of Securities. One of
the Bonds in the Florida IM-IT Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total Florida IM-IT Trust) as follows: Airport, 1 (17%); Health Care, 1 (17%);
Certificates of Participation, 1 (16%); Transportation, 1 (16%); General
Purpose, 1 (10%); General Obligations, 1 (8%); Public Education, 1 (8%) and
Retail Electric/Gas, 1 (8%). No Bond issue has received a provisional rating.
Risk Factors. Florida's economy has in the past been highly dependent on the
construction industry and construction related manufacturing. This dependency
has declined in recent years and continues to do so as a result of continued
diversification of the State's economy. For example, in 1980 total contract
construction employment as a share of total non-farm employment was just over
seven percent and in 1993 the share had edged downward to five percent. This
trend is expected to continue as Florida's economy continues to diversify.
Florida, nevertheless, has a dynamic construction industry with single and
multi-family housing starts accounting for 8.5% of total U.S. housing starts
in 1993 while the State's population is 5.3% of the U.S. total population.
Florida's housing starts since 1980 have represented an average of 11.0% of
the U.S.'s total annual starts, and since 1980 total housing starts have
averaged 156,450 a year.
A driving force behind the State's construction industry has been the
State's rapid rate of population growth. Although the State currently is the
fourth most populous state, its annual population growth is now projected to
decline as the number of people moving into the State is expected to hover
near the mid 250,000 range annually throughout the 1990's. This population
trend should provide fuel for business and home builders to keep construction
activity lively in Florida for some time to come. However, other factors do
influence the level of construction in the State. For example, federal tax
reform in 1986 and other changes to the federal income tax code have
eliminated tax deductions for owners of more than two residential real estate
properties and have lengthened depreciation schedules on investment and
commercial properties. Economic growth and existing supplies of homes also
contribute to the level of construction activity in the State.
Since 1980, the State's job creation rate is almost twice the rate for the
nation as a whole, and its growth rate in new non-agricultural jobs is the
fastest of the must populous states, second only to California in the absolute
number of new jobs created. Contributing to the State's rapid rate of growth
in employment and income is international trade. Since 1980, the State's
unemployment rate has generally been below that of the U.S. In recent years,
however, as the State's economic growth has slowed from its previous high the
State's unemployment rate has tracked above the national average. The average
rate in Florida since 1980 has been 6.5% while the national average is 7.1%.
According to the U.S. Department of Commerce, the Florida Department of Labor
and Employment Security, and the Florida Consensus Economic Estimating
Conference (together, the "Organization" ), the State's unemployment
rate was 8.2% during 1992. As of January 1994, the Organization estimates that
the unemployment rate will be 6.1% for 1994-95 and 6.1% in 1995-96.
The rate of job creation in Florida's manufacturing sector has exceeded that
of the U.S. From the beginning of 1980 through 1993, the State added over
50,000 new manufacturing jobs, an 11.7% increase. During the same period,
national manufacturing employment declined ten out of the fourteen years, for
a loss of 2,977,000 jobs.
Total non-farm employment in Florida is expected to increase 3.6% in 1994-95
and rise 3.3% in 1995-96. Trade and services, the two largest sources of
employment in the State, account for more than half of the total non-farm
employment. Employment in the service sectors should experience an increase of
5.4% in 1994-95 while growing 4.7% in 1995-96. Trade is expected to expand
3.1% in 1995 and 3.2% in 1996. The service sector is now the State's largest
employment category.
Tourism is one of the State's most important industries. Approximately 41.1
million tourists visited the State in 1993, as reported by the Florida
Department of Commerce. In terms of business activities and State tax
revenues, tourists in Florida in 1993 represented an estimated 4.5 million
additional residents. Visitors to the State tend to arrive equally by air and
car. The State's tourism industry over the years has become more
sophisticated, attracting visitors year-round and, to a degree, reducing its
seasonality. Tourist arrivals are expected to increase by 5.0% this year, and
3.4% next year. Tourist arrivals to Florida by air are expected to increase by
9.2% this year and 2.9% next year, while arrivals by car are expected to rise
0.7% in 1994-95 and 4.0% in 1995-96. By the end of the State's current fiscal
year, 42.1 million domestic and international tourists are expected to have
visited the State. In 1995-96 tourist arrivals should approximate 43.6 million.
The State's per capita personal income in 1993 of $20,857 was slightly above
the national average of $20,817 and significantly ahead of that for the
southeast United States, which was $18,753. Real personal income in the State
is estimated to increase 4.5% in 1994-95 and 4.2% in 1995-96. By the end of
1995-96, real personal income per capita in the State is projected to average
4.5% higher than its 1993-94 level.
Because Florida has a proportionately greater retirement age population,
property income (dividends, interest, and rent) and transfer payments (Social
Security and pension benefits, among other sources of income) are relatively
more important sources of income. For example, Florida's total wages and
salaries and other labor income in 1993 was 62% of total personal income,
while a similar figure for the nation was 72%. Transfer payments are typically
less sensitive to the business cycle than employment income and, therefore,
act as stabilizing forces in weak economic periods.
Estimated fiscal year 1994-95 General Revenue plus Working Capital and Budget
Stabilization funds available to the State total $14,624.4 million, a 5.7%
increase over 1993-94. This reflects a transfer of $159.0 million in
non-recurring revenue due to Hurricane Andrew, to a hurricane relief trust
fund. Of the total General Revenue plus Working Capital and Budget
Stabilization funds available to the State, $13,858.4 million of that is
Estimated Revenues (excluding the Hurricane Andrew impact), which represents
an increase of 7.9% over the previous year's Estimated Revenues. With
effective General Revenues plus Working Capital Fund and Budget Stabilization
appropriations at $14,311.1 million, unencumbered reserves at the end of
1994-95 are estimated at $313.3 million. Estimated fiscal year 1995-96 General
Revenue plus Working Capital and Budget Stabilization funds available total
$15,145.9 million, a 3.6% increase over 1994-95. The $14,647.2 million in
Estimated Revenues represents an increase of 5.7% over the previous year's
Estimated Revenues.
In fiscal year 1993-94, approximately 66% of the State's total direct
revenue to its three operating funds was derived from State taxes and fees,
with Federal grants and other special revenue accounting for the balance.
State sales and use tax, corporate income tax, intangible personal property
tax and beverage tax amounted to 66%, 8%, 4% and 4%, respectively, of total
General Revenue Funds available during fiscal 1993-94. In that same year,
expenditures for education, health and welfare, and public safety amounted to
approximately 49%, 32%, and 12%, respectively, of total expenditures from the
General Revenue Fund.
The State's sales and use tax (6%) currently accounts for the State's
single largest source of tax receipts. Sightly less than 10% of the State's
sales and use tax is designated for local governments and is distributed to
the respective counties in which collected for use by the counties, and the
municipalities therein. In addition to this distribution, local governments
may assess (by referendum) a 0.5% or a 1.0% discretionary sales surtax within
their county. Proceeds from this local option sales tax are earmarked for
funding local infrastructure programs and acquiring land for public recreation
or conservation or protection of natural resources as provided under
applicable Florida law. Certain charter counties have other additional taxing
powers, and non-consolidated counties with a population in excess of 800,000
may levy a local option sales tax to fund indigent health care. It alone
cannot exceed 0.5% and when combined with the infrastructure surtax cannot
exceed 1.0%. For the fiscal year ended June 30,1994, sales and use tax
receipts (exclusive of the tax on gasoline and special fuels) totalled
$10,012.5 million, an increase of 6.9% over fiscal year 1992-93.
The second largest source of State tax receipts is the tax on motor fuels.
However, these revenues are almost entirely dedicated trust funds for specific
purposes and are not included in the State's General Revenue Fund.
The State imposes an alcoholic beverage wholesale tax (excise tax) on beer,
wine, and liquor. This tax is one of the State's major tax sources, with
revenues totalling $439.8 million in fiscal year ending June 30,1994.
Alcoholic beverage tax receipts decreased about 1.0% from the previous year's
total. The revenues collected from this tax are deposited into the State's
General Revenue Fund.
The State imposes a corporate income tax. All receipts of the corporate
income tax are credited to the General Revenue Fund. For the fiscal year ended
June 30,1994, receipts from this source were $1,047.4 million, an increase of
23.7% from fiscal year 1992-93.
The State imposes a documentary stamp tax on deeds and other documents
relating to realty, corporate shares, bonds, certificates of indebtedness,
promissory notes, wage assignments, and retail charge accounts. The
documentary stamp tax collections totalled $775.0 million during fiscal year
1993-94, a 21.3% increase from the previous fiscal year. Beginning in fiscal
year 1992-93, 71.29% of these taxes is to be deposited to the General Revenue
Fund.
The State imposes a gross receipts tax on electric, natural gas, and
telecommunications services. All gross receipts utilities tax collections are
credited to the State's Public Education Capital Outlay and Debt Service
Trust Fund. In fiscal year 1993-94, this amounted to $459.4 million.
The State imposes an intangible personal property tax on stocks, bonds,
including bonds secured by liens in Florida real property, notes, governmental
leaseholds, and certain other intangibles not secured by a lien on Florida
real property. The annual rate of tax is 2 mils. The State also imposes a
non-recurring 2 mil tax on mortgages and other obligations secured by liens on
Florida real property. In fiscal year 1993-94, total intangible personal
property tax collections were $836.0 million, a 6.7% increase over the prior
year. Of the tax proceeds, 66.5% is distributed to the General Revenue Fund.
The State began its own lottery in 1988. State law requires that lottery
revenues be distributed 50.0% to the public in prizes, 38.0% for use in
enhancing education, and the balance, 12.0%, for costs of administering the
lottery. Fiscal year 1993-94 lottery ticket sales totalled $2.15 billion,
providing education with approximately $816.2 million.
The State's severance tax taxes oil, gas and sulphur production, as well as
the severance of phosphate rock and other solid minerals. Total collections
from severance taxes total $54.8 million during fiscal year 1993-94, down
15.0% from the previous year. Currently 60% of this amount is transferred to
the General Revenue Fund.
At the end of fiscal 1993, approximately $5.61 billion in principal amount of
debt secured by the full faith and credit of the State was outstanding. In
addition, since July 1, 1993, the State issued about $1.36 billion in
principal amount of full faith and credit bonds.
The State Constitution and statutes mandate that the State budget, as a whole,
and each separate fund within the State budget, be kept in balance from
currently available revenues each fiscal year. If the Governor or Comptroller
believe a deficit will occur in any State fund, by statute, he must certify
his opinion to the Administrative Commission, which then is authorized to
reduce all State agency budgets and releases by a sufficient amount to prevent
a deficit in any fund. Additionally, the State Constitution prohibits issuance
of State obligations to fund State operations.
Currently under litigation are several issues relating to State actions or
State taxes that put at risk substantial amounts of General Revenue Fund
monies. Accordingly, there is no assurance that any of such matters,
individually or in the aggregate, will not have a material adverse affect on
Florida's financial position.
Florida law provides preferential tax treatment to insurers who maintain a
home office in the State. Certain insurers challenged the constitutionality of
this tax preference and sought a refund of taxes paid. Recently, the State
Supreme Court ruled in favor of the State. This case and others, along with
pending refund claims, total about $150 million.
Previously, the State imposed a $295 fee on the issuance of certificates of
title for motor vehicles previously titled outside the State. Plaintiffs sued
the State alleging that this fee violated the Commerce Clause of the U.S.
Constitution. The Circuit Court in which the case was filed granted summary
judgment for the plaintiffs, enjoined further collection of the impact fee and
ordered refunds to all those who have paid the fee since the collection of the
fee went into effect. In the State's appeal of the lower court's decision,
the Florida Supreme Court ruled that this fee was unconstitutional under the
Commerce Clause. Thus, the Supreme Court approved the lower court's order
enjoining further collection of the fee and requiring refund of the previously
collected fees. The refund exposure of the State has been estimated to be in
excess of $100 million.
Florida maintains a bond rating of Aa, AA and AA from Moody's Investors
Service, Standard & Poor's and Fitch, respectively, on the majority of its
general obligation bonds, although the rating of a particular series of
revenue bonds relates primarily to the project, facility, or other revenue
sources from which such series derives funds for repayment. While these
ratings and some of the information presented above indicate that Florida is
in satisfactory economic health, there can be no assurance that there will not
be a decline in economic conditions or that particular Municipal Obligations
purchased by the Fund will not be adversely affected by any such changes.
The sources for the information presented above include official statements
and financial statements of the State of Florida. While the Sponsor has not
independently verified this information, the Sponsor has no reason to believe
that the information is not correct in all material respects.
Tax Status. For a discussion of the Federal tax status of income earned on
Florida IM-IT Trust units, see "Other Matters--Federal Tax Status" .
The Bonds were accompanied by opinions of Bond Counsel to the respective
issuers thereof to the effect that the Bonds were exempt from the Florida
intangibles tax. Neither the Sponsor nor its counsel have independently
reviewed such opinions or examined the Bonds to be deposited in and held by
the Florida IM-IT Trust and have assumed the correctness as of the date of
deposit of the opinions of Bond Counsel.
"Non-Corporate Unitholder" means a Unitholder of the Florida Trust who
is an individual not subject to the Florida state income tax on corporations
under Chapter 220, Florida Statutes and "Corporate Unitholder" means a
Unitholder of the Florida Trust that is a corporation, bank or savings
association or other entity subject to Florida state income tax on
corporations or franchise tax imposed on banks or savings associations under
Chapter 220, Florida Statutes.
In the opinion of Chapman and Cutler, counsel to the Sponsor, under existing
law:
For Florida state income tax purposes, the Florida IM-IT Trust will not be
subject to the Florida income tax imposed by Chapter 220, Florida Statutes.
Because Florida does not impose an income tax on individuals, Non-Corporate
Unitholders residing in Florida will not be subject to any Florida income
taxation on income realized by the Florida IM-IT Trust. Any amounts paid to
the Florida IM-IT Trust or to Non-Corporate Unitholders under an insurance
policy issued to the Florida IM-IT Trust or the Sponsor which represent
maturing interest on defaulted obligations held by the Trustee will not be
subject to the Florida income tax imposed by Chapter 220, Florida Statutes.
Corporate Unitholders with commercial domiciles in Florida will be subject to
Florida income or franchise taxation on income realized by the Florida IM-IT
Trust and on payments of interest pursuant to any insurance policy to the
extent such income constitutes "non business income" as defined by
Chapter 220 or is otherwise allocable to Florida under Chapter 220. Other
Corporate Unitholders will be subject to Florida income or franchise taxation
on income realized by the Florida IM-IT Trust (or on payments of interest
pursuant to any insurance policy) only to the extent that the income realized
does not constitute "non-business income" as defined by Chapter 220
and if such income is otherwise allocable to Florida under Chapter 220.
Units will be subject to Florida estate tax only if held by Florida residents.
However, the Florida estate tax is limited to the amount of the credit for
state death taxes provided for in Section 2011 of the Internal Revenue Code.
Neither the Bonds nor the Units will be subject to the Florida ad valorem
property tax, the Florida intangible personal property tax or the Florida
sales or use tax.
Chapman and Cutler has expressed no opinion with respect to taxation under any
other provision of Florida law. Ownership of the Units may result in
collateral Florida tax consequences to certain taxpayers. Prospective
investors should consult their tax advisors as to the applicability of any
such collateral consequences.
<TABLE>
<CAPTION>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Incom:
Estimated Annual Interest Income per Unit............................. $ 55.15 $ 55.15
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.37 $ 1.92
Less: Annual Premium on Portfolio Insurance per Unit.................. -- --
Estimated Net Annual Interest Income per Unit......................... $ 52.78 $ 53.23
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 52.78 $ 53.23
Divided by 12 and 2, respectively..................................... $ 4.40 $ 26.62
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14660 $ .14786
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.28% 5.32%
Estimated Long-Term Return <F2><F3><F4>................................ 5.32% 5.37%
Estimated Initial Monthly Distribution (July 1996)..................... $ 5.13
Estimated Initial Semi-annual Distribution (July 1996)................. $ 5.18
Estimated Normal Distribution per Unit <F4>............................ $ 4.40 $ 26.62
</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
Florida IM-IT Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... TENTH day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. TWENTY-FIFTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing July 25, 1996
<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>
FLORIDA INSURED MUNICIPALS INCOME TRUST
SERIES 104 (IM-IT AND QUALITY MULTI-SERIES 273)
PORTFOLIO As of May 31, 1996
<CAPTION>
Offering
Price To
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of either Redemption Florida IM-IT
Principal<F1> Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C>
$ 300,000 Seminole County, Florida, Sales Tax Revenue Bonds (MBIA Insured) 2006 @ 101
#5.75% Due 10/1/2021.............................................. AAA 2018 @ 100 S.F. $ 296,367
245,000 City of Vero Beach, Florida, Electric Refunding Revenue Bonds,
Series 1993A (MBIA Insured) 2003 @ 101
#5.375% Due 12/1/2021............................................. AAA 2014 @ 100 S.F. 229,984
500,000 Escambia County, Florida, School Board Certificates of
Participation, Series 2 (MBIA Insured) 2006 @ 102
#5.50% Due 2/1/2022............................................... AAA 2018 @ 100 S.F. 477,445
500,000 Lee County, Florida, Transportation Facilities Revenue Bonds,
Series 1995 (MBIA Insured) 2005 @ 102
#5.75% Due 10/1/2022.............................................. AAA 2016 @ 100 S.F. 493,925
500,000 Dade County, Florida, Public Facilities Revenue Bonds (Jackson
Memorial Hospital) Series 1993 (MBIA Insured) 2003 @ 102
#5.25% Due 6/1/2023............................................... AAA 2019 @ 100 S.F. 452,665
250,000 School Board of Dade County, Florida, Certificates of
Participation, Series 1996A (AMBAC Indemnity Insured)
#5.50% Due 5/1/2025............................................... AAA 2006 @ 101 236,125
250,000 Florida, State Board of Education, Public Education Capital
Outlay Bonds, Series 1994C (MBIA Insured) 2005 @ 101
#5.60% Due 6/1/2025............................................... AAA 2021 @ 100 S.F. 241,560
500,000 Dade County, Florida, Aviation Revenue Bonds, Series 1995C (MBIA
Insured)
#5.75% Due 10/1/2025.............................................. AAA 2005 @ 102 493,415
$ 3,045,000 $ 2,921,486
</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" .
LOUISIANA IM-IT TRUST
General. The Louisiana IM-IT Trust consists of 8 issues of Securities. One of
the Bonds in the Louisiana IM-IT Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total Louisiana IM-IT Trust) as follows: Health Care, 2 (33%); Public
Building, 2 (33%); General Purpose, 1 (13%); Single-Family Mortgage Revenue, 1
(9%); Public Education, 1 (8%) and General Obligations, 1 (4%). No Bond issue
has received a provisional rating.
Risk Factors. 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 and other issuers in the State of
Louisiana (the "State" ). Such information, and the following
discussion regarding the economy of the State, is based upon information about
general economic conditions that may or may not affect issuers of the
Louisiana obligations. The Sponsor has not independently verified any of the
information contained in such publicly available documents, but is not aware
of any facts which would render such information inaccurate.
On December 19, 1990 the State received a rating upgrade on its general
obligation bonds to the current Standard & Poor's rating of A from BBB-plus
and was placed on Standard & Poor's Corporation's positive credit watch.
Standard & Poor's cited improvements in the State's cash flow and fiscal
reforms approved by voters in the fall of 1990. The current Moody's rating on
the State's general obligation bonds remains unchanged at BBB-plus. There can
be no assurance that the economic conditions on which these ratings were based
will continue or that particular bond issues may not be adversely affected by
changes in economic or political conditions.
The Revenue Estimating Conference (the "Conference" ) was established
by Act No. 814 of the 1987 Regular Session of the State Legislature. The
Conference was established by the Legislature to provide an official estimate
of anticipated State revenues upon which the executive budget shall be based,
to provide for a more stable and accurate method of financial planning and
budgeting and to facilitate the adoption of a balanced budget as is required
by Article VII, Section 10(B) of the State Constitution. Act No. 814 provides
that the Governor shall cause to be prepared an executive budget presenting a
complete financial and programmatic plan for the ensuing fiscal year based
only upon the official estimate of anticipated State revenues as determined by
the Revenue Estimating Conference. Act No. 814 further provides that at no
time shall appropriations or expenditures for any fiscal year exceed the
official estimate of anticipated State revenues for that fiscal year. During
the 1990 Regular Session of the Louisiana Legislature a constitutional
amendment was approved (Act No. 1096), which, was approved by the State
electorate, granting constitutional status to the existence of the Revenue
Estimating Conference without altering its structure, powers, duties and
responsibilities which are currently provided by statute.
The State General Fund is the principal operating fund of the State, and was
established administratively to provide for the distribution of funds
appropriated by the State Legislature for the ordinary expenses of the State
government. Revenue is provided from the direct deposit of federal grants and
the transfer of State revenues from the Bond Security and Redemption Fund
after general obligation debt requirements are met. The Revenue Estimating
Conference met in February of 1991 and reported a projected $437.5 million
State General Fund surplus for the fiscal year ending June 30, 1991. This
surplus will be available for expenditures during the Fiscal Year 1991-92. The
beginning State General Fund surplus for fiscal year 1990-1991 was $702.3
million. The official recurring State General Fund estimate for Fiscal Year
1990-91 (Revenue Estimating Conference February 1991 as revised April 1991) is
$4,173.5 million.
The Transportation Trust Fund was established pursuant to (i) Section 27 of
Article VII of the State Constitution and (ii) Act No. 16 of the First
Extraordinary Session of the Louisiana Legislature for the year 1989,
(collectively the "Act" ) for the purpose of funding construction and
maintenance of state and federal roads and bridges, the statewide
flood-control program, ports, airports, transit and state police traffic
control projects and to fund the Parish Transportation Fund. The
Transportation Trust Fund is funded by a levy of $0.20 per gallon on gasoline
and motor fuels and on special fuels (diesel, propane, butane and compressed
natural gas) used, sold or consumed in the state (the "Gasoline and Motor
Fuels Taxes and Special Fuels Taxes" ). This levy was increased from $0.16
per gallon (the "Existing Taxes" ) to the current $0.20 per gallon
pursuant to Act No. 16 of the First Extraordinary Session of the Louisiana
Legislature for the year 1989, as amended. The additional tax of $0.04 per
gallon (the "Act 16 Taxes" ) became effective January 1, 1990 and will
expire on the earlier of January 1, 2005 or the date on which obligations
secured by the Act No. 16 taxes are no longer outstanding. The Transportation
Infrastructure Model for Economic Development Account (the "TIME
Account" ) was established in the Transportation Trust Fund. Moneys in the
TIME Account will be expended for certain projects identified in the Act
aggregating $1.4 billion and to fund not exceeding $160 million of additional
capital transportation projects. The State issued $263,902,639.95 of Gasoline
and Fuels Tax Revenue Bonds, 1990 Series A, dated April 15, 1990 payable from
the (i) Act No. 16 Taxes, (ii) any Act No. 16 Taxes and Existing Taxes
deposited in the Transportation Trust Fund, and (iii) any additional taxes on
gasoline and motor fuels and special fuels pledged for the payment of said
Bonds.
The Louisiana Recovery District (the "Recovery District" ) was created
pursuant to Act No. 15 of the First Extraordinary Session of the Legislature
of Louisiana of 1988 to assist the State in the reduction and elimination of a
deficit existing at that time and the delivery of essential services to its
citizens and to assist parishes, cities and other units of local government
experiencing cash flow difficulties. The Recovery District is a special taxing
district the boundaries of which are coterminous with the State and is a body
politic and corporate and a political subdivision of the State. The Recovery
District issued $979,125,000 of Louisiana Recovery District Sales Tax Bonds,
Series 1988, dated July 1, 1988, secured by (i) the revenues derived from the
District's 1% statewide sales and use tax remaining after the costs of
collection and (ii) all funds and accounts held under the Recovery District's
General Bond Resolution and all investment earnings on such funds and
accounts. As of June 30, 1990, the principal amount outstanding was
$851,880,000.
The Legislature passed tax measures which are projected to raise approximately
$418 million in additional revenues for Fiscal Year 1990-91, the most
important of which include the following: sales tax--$328.3 million; hazardous
waste tax--$41.3 million; severance tax--$39.2 million; income tax--$14.9
million; and tobacco tax-- $14.0 million. The Legislature also passed several
constitutional amendments which were approved by the state electorate,
resulting in comprehensive budgetary reforms mandating that: both proposed and
adopted budgets be balanced in accordance with the official forecast of the
Revenue Estimating Conference; any new tax proposal be tied to specific
expenditures; all mineral revenues earned by the State in excess of $750
million be placed in the Revenue Stabilization Mineral Trust Fund, to be used
as a "rainy day fund" ; and, the regular legislative session must end
prior to the completion of the fiscal year in order to streamline budgetary
reporting and planning. The Legislature also adopted a proposed constitutional
amendment which was approved by the State electorate permitting the creation
of a Louisiana lottery. The lottery is projected to generate approximately
$111 million per year in net revenues for the State.
Only local governmental units levy ad valorem taxes at present. Under the 1921
State Constitution a 5.75 mills ad valorem tax was being levied by the State
until January 1, 1973 at which time a constitutional amendment to the 1921
Constitution abolished the ad valorem tax. Under the 1974 State Constitution a
State ad valorem tax of up to 5.75 mills was provided for but is not presently
being levied. The property tax is underutilized at the parish level due to a
constitutional homestead exemption from the property tax applicable to the
first $75,000 of the full market value of single family residences. Homestead
exemptions do not apply to ad valorem property taxes levied by municipalities,
with the exception of the City of New Orleans. Since local governments are
also prohibited from levying an individual income tax by the constitution,
their reliance on State government is increased under the existing tax
structure.
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 Louisiana IM-IT Trust are subject. Additionally,
many factors including national economic, social and environmental policies
and conditions, which are not within the control of the issuers of Bonds,
could affect or could have an adverse impact on the financial condition of the
State and various agencies and political subdivisions located in the State.
The Sponsor is unable to predict whether or to what extent such factors 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 Louisiana
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
Louisiana IM-IT Trust Units, see "Other Matters--Federal Tax Status" .
In the opinion of The Carmouche Law Firm, special counsel to the Fund for the
Louisiana tax matters, under existing Louisiana law:
(1) The Louisiana IM-IT Trust will be treated as a trust for Louisiana
income tax purposes and not as an association taxable as a corporation.
(2) The Louisiana income tax on resident individuals is imposed upon the
"tax table income" of resident individuals. The calculation of the
"tax table income" of a resident individual begins with federal
adjusted gross income. Certain modifications are specified, but no such
modification requires the addition of interest on obligations of the State of
Louisiana and its political subdivisions, public corporations created by them
and constitutional authorities thereof authorized to issue obligations on
their behalf. Accordingly, amounts representing interest excludable from gross
income for federal income tax purposes received by the Louisiana IM-IT Trust
with respect to such obligations will not be taxed to the Louisiana IM-IT
Trust, or, except as provided below, to the resident individual Unitholder,
for Louisiana income tax purposes. In addition to the foregoing, interest on
the respective Securities may also be exempt from Louisiana income taxes
pursuant to the statutes authorizing their issuance.
(3) To the extent that gain from the sale, exchange or other disposition of
obligations held by the Louisiana IM-IT Trust (whether as a result of a sale
or exchange of such obligations by the Louisiana IM-IT Trust or as a result of
a sale or exchange of a Unit by a Unitholder) is includable in the federal
adjusted gross income of a resident individual, such gain will be included in
the calculation of the Unitholder's Louisiana taxable income.
(4) Gain or loss on the Unit or as to underlying bonds for Louisiana income
tax purposes would be determined by taking into account the basis adjustments
for federal income tax purposes described in this Prospectus.
As no opinion is expressed regarding the Louisiana tax consequences of
Unitholders other than individuals who are Louisiana residents, tax counsel
should be consulted by other prospective Unitholders. The Internal Revenue
Code of 1986, as amended (the "1986 Code" ), contains provisions
relating to investing in tax-exempt obligations (including, for example,
corporate minimum tax provisions which treat certain tax-exempt interest and
corporate book income which may include tax-exempt interest, as tax preference
items, provisions affecting the deductibility of interest expense by financial
institutions) which could have a corresponding effect on the Louisiana tax
liability of the Unitholders.
In rendering the opinions expressed above, counsel has relied upon the opinion
of Chapman and Cutler that the Louisiana IM-IT Trust is not an association
taxable as a corporation for Federal income tax purposes, that each Unitholder
of the Louisiana IM-IT Trust will be treated as the owner of a pro rata
portion of such Louisiana IM-IT Trust under the 1986 Code and that the income
of the Louisiana IM-IT Trust will be treated as income of the Unitholders
under the 1986 Code.
Tax counsel should be consulted as to the other Louisiana tax consequences not
specifically considered herein, and as to the Louisiana tax status of
taxpayers other than Louisiana resident individuals who are Unitholders in the
Louisiana IM-IT Trust. In addition, no opinion is being rendered as to
Louisiana tax consequences resulting from any proposed or future federal or
state tax legislation.
<TABLE>
<CAPTION>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 55.41 $ 55.41
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.40 $ 1.92
Less: Annual Premium on Portfolio Insurance per Unit.................. -- --
Estimated Net Annual Interest Income per Unit......................... $ 53.01 $ 53.49
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 53.01 $ 53.49
Divided by 12 and 2, respectively..................................... $ 4.42 $ 26.75
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14723 $ .14858
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.30% 5.35%
Estimated Long-Term Return <F2><F3><F4>................................ 5.35% 5.40%
Estimated Initial Monthly Distribution (July 1996)..................... $ 5.15
Estimated Initial Semi-annual Distribution (July 1996)................. $ 5.20
Estimated Normal Distribution per Unit <F4>............................ $ 4.42 $ 26.75
</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
Louisiana IM-IT Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... TENTH day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. TWENTY-FIFTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing July 25, 1996
<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>
LOUISIANA INSURED MUNICIPALS INCOME TRUST
SERIES 16 (IM-IT AND QUALITY MULTI-SERIES 273)
PORTFOLIO As of May 31, 1996
<CAPTION>
Offering
Price To
Louisiana
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of either Redemption IM-IT
Principal<F1> Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C>
$ 400,000 Orleans Levee District, Louisiana, Trust Receipts, Series 1995A
(FSA Insured)
#5.95% Due 11/1/2014.............................................. AAA 2005 @ 103 $ 406,036
250,000 Jefferson Parish, Louisiana, School Board, Sales and Use Tax
Revenue Bonds (AMBAC Indemnity Insured)
#5.00% Due 2/1/2015............................................... AAA 2006 @ 102 228,613
260,000 Louisiana Housing Finance Agency, Single Family Mortgage Revenue
Refunding Bonds, Series 1995C-1 (MBIA Insured) 2006 @ 102
5.75% Due 6/1/2017................................................ AAA 2011 @ 100 S.F. 255,109
500,000 Louisiana Public Facilities Authority, Hospital Revenue and
Refunding Bonds (St. Francis Medical Center Project) FSA Insured 2004 @ 102
5.45% Due 7/1/2018................................................ AAA 2015 @ 100 S.F. 471,970
500,000 Louisiana Stadium and Exposition District, Hotel Occupancy Tax
and Stadium Revenue Bonds, Series 1995B (FGIC Insured)
#5.25% Due 7/1/2021............................................... AAA 2005 @ 102 460,865
500,000 Louisiana Public Facilities Authority, Hospital Revenue Bonds
(Our Lady of the Lake Regional Medical Center Project) Linked
SAVRS and RIBS (FSA Insured) 2003 @ 102
5.90% Due 12/3/2021............................................... AAA 2017 @ 100 S.F. 489,645
500,000 Ernest N. Morial - New Orleans Exhibition Hall Authority,
Louisiana, Special Tax Bonds, Series C (MBIA Insured) 2006 @ 101
#5.60% Due 7/15/2025.............................................. AAA 2019 @ 100 S.F. 475,090
120,000 City of New Orleans, Louisiana, Public Improvement General
Obligation Bonds, Issue of 1995 (FGIC Insured) 2005 @ 100
#5.90% Due 11/1/2025.............................................. AAA 2021 @ 100 S.F. 118,943
$ 3,030,000 $ 2,906,271
</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 JERSEY IM-IT TRUST
General. The New Jersey IM-IT Trust consists of 8 issues of Securities. One of
the Bonds in the New Jersey IM-IT Trust is a general obligation of the
governmental entity issuing it and is backed by the taxing power thereof. The
remaining issues are payable from the income of a specific project or
authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total New Jersey IM-IT Trust) as follows: Transportation, 2 (33%); Retail
Electric/Gas, 2 (20%); General Obligations, 1 (17%); General Purpose, 1 (17%)
and Health Care, 2 (13%). No Bond issue has received a provisional rating.
Risk Factors. As described above, the New Jersey IM-IT Trust consists of a
portfolio of Bonds. The Trust is therefore susceptible to political, economic
or regulatory factors affecting issuers of the Bonds. The following
information provides only a brief summary of some of the complex factors
affecting the financial situation in New Jersey (the "State" ) and is
derived from sources that are generally available to investors and is believed
to be accurate. It is based in part on information obtained from various State
and local agencies in New Jersey. No independent verification has been made of
any of the following information.
New Jersey is the ninth largest state in population and the fifth smallest in
land area. With an average of 1,062 people per square mile, it is the most
densely populated of all the states. The state's economic base is
diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. Historically, New Jersey's average per capita income has been
well above the national average, and in 1994 the State ranked second among
states in per capita personal income ($27,742).
The New Jersey Economic Policy Council, a statutory arm of the New Jersey
Department of Commerce and Economic Development, has reported in New Jersey
Economic Indicators, a monthly publication of the New Jersey Department of
Labor, Division of Labor Market and Demographic Research, that in 1988 and
1989 employment in New Jersey's manufacturing sector failed to benefit from
the export boom experienced by many Midwest states and the State's service
sectors, which had fueled the State's prosperity since 1982, lost momentum.
In the meantime, the prolonged fast growth in the State in the mid 1980s
resulted in a tight labor market situation, which has led to relatively high
wages and housing prices. This means that, while the incomes of New Jersey
residents are relatively high, the State's business sector has become more
vulnerable to competitive pressures.
The onset of the national recession (which officially began in July 1990
according to the National Bureau of Economic Research) caused an acceleration
of New Jersey's job losses in construction and manufacturing. In addition,
the national recession caused an employment downturn in such previously
growing sectors as wholesale trade, retail trade, finance, utilities and
trucking and warehousing. Reflecting the downturn, the rate of unemployment in
the State rose from a low of 3.6% during the first quarter of 1989 to an
estimated 6.6% in April 1996, which is higher than the national average of
5.4% in April 1996. Economic recovery is likely to be slow and uneven in New
Jersey, with unemployment receding at a correspondingly slow pace, due to the
fact that some sectors may lag due to continued excess capacity. In addition,
employers even in rebounding sectors can be expected to remain cautious about
hiring until they become convinced that improved business will be sustained.
Also, certain firms will continue to merge or downsize to increase
profitability.
Debt Service. The primary method for State financing of capital projects is
through the sale of the general obligation bonds of the State. These bonds are
backed by the full faith and credit of the State tax revenues and certain
other fees are pledged to meet the principal and interest payments and if
provided, redemption premium payments, if any, required to repay the bonds. As
of June 30, 1995, there was a total authorized bond indebtedness of
approximately $9.48 billion, of which $3.65 billion was issued and
outstanding, $4.0 billion was retired (including bonds for which provision for
payment has been made through the sale and issuance of refunding bonds) and
$1.83 billion was unissued. The appropriation for the debt service obligation
on such outstanding indebtedness was $466.3 million for fiscal year 1996.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. At the end of fiscal year 1989,
there was a surplus in the State's general fund (the fund into which all
State revenues not otherwise restricted by statute are deposited and from
which appropriations are made) of $411.2 million. At the end of fiscal year
1990, there was a surplus in the general fund of $1 million. At the end of
fiscal year 1991, there was a surplus in the general fund of $1.4 million. New
Jersey closed its fiscal year 1992 with a surplus of $760.8 million and fiscal
year 1993 with a surplus of $937.4 million. It is estimated that New Jersey
closed its fiscal year 1994 with a surplus of $926.0 million and fiscal year
1995 with a surplus of $569 million.
In order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, Governor Florio signed into law legislation which was
estimated to raise approximately $2.8 billion in additional taxes (consisting
of $1.5 billion in sales and use taxes and $1.3 billion in income taxes), the
biggest tax hike in New Jersey history. There can be no assurance that
receipts and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the increase
in the State's sales and use tax rate from 6% to 7% and the elimination of
exemptions for certain products and services not previously subject to the
tax, such as telephone calls, paper products (which has since been
reinstated), soaps and detergents, janitorial services, alcoholic beverages
and cigarettes. At the time of enactment, it was projected that these taxes
would raise approximately $1.5 billion in additional revenue. Projections and
estimates of receipts from sales and use taxes, however, have been subject to
variance in recent fiscal years.
The second part of the tax hike took effect on January 1, 1991, in the form of
an increased state income tax on individuals. At the time of enactment, it was
projected that this increase would raise approximately $1.3 billion in
additional income taxes to fund a new school aid formula, a new homestead
rebate program and state assumption of welfare and social services costs.
Projections and estimates of receipts from income taxes, however, have also
been subject to variance in recent fiscal years. Under the legislation, income
tax rates increased from their previous range of 2% to 3.5% to a new range of
2% to 7%, with the higher rates applying to married couples with incomes
exceeding $70,000 who file joint returns, and to individuals filing single
returns with incomes of more than $35,000.
The Florio administration had contended that the income tax package will help
reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation the State will assume
approximately $289 million in social services costs that previously were paid
by counties and municipalities and funded by property taxes. In addition,
under the new formula for funding school aid, an extra $1.1 billion was
proposed to be sent by the State to school districts beginning in 1991, thus
reducing the need for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased from 7%
to 6%. Effective January 1, 1994, an across-the-board 5% reduction in the
income tax rates was enacted and effective January 1, 1995 further reductions
ranging from 1% up to 10% in income tax rates took effect. Governor Whitman
recently signed into law further reductions up to 15% for some taxpayers
effective January 1, 1996, completing her campaign promise to reduce income
taxes by up to 30% for most taxpayers within three years.
On June 30, 1995, Governor Whitman signed the New Jersey Legislature's $16.0
billion budget for Fiscal Year 1996. The balanced budget, which includes $541
million in surplus, is $300 million more than the 1995 budget. Whether the
State can achieve a balanced budget depends on its ability to enact and
implement expenditure reductions and to collect the estimated tax revenues.
Litigation. The State is a party 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 cases challenging the following:
the funding of teachers' pension funds, the adequacy of medicaid reimbursement
for hospital services, the hospital assessment authorized by the Health Care
Reform Act of 1992, various provisions, and the constitutionality of the Fair
Automobile Insurance Reform Act of 1990, the State's role in a consent order
concerning the construction of a resource facility in Passaic County, actions
taken by the New Jersey Bureau of Securities against an individual, the
State's actions regarding alleged chromium contamination of State-owned
property in Hudson County, the issuance of emergency redirection orders and a
draft permit by the Department of Environmental Protection and Energy, refusal
of the State to share with Camden County federal funding the State recently
received for disproportionate share hospital payments made to county
psychiatric facilities, and the constitutionality of annual A-901 hazardous
and solid waste licensure renewal fees collected by the Department of
Environmental Protection and Energy. Adverse judgments in these and other
matters could have the potential for either a significant loss of revenue or a
significant unanticipated expenditure by the State.
At any given time, there are various numbers of claims and cases pending
against the State, State agencies and employees seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the New
Jersey Tort Claims Act. In addition, at any given time, there are various
numbers of contract claims against the State and State agencies seeking
recovery of monetary damages. The State is unable to estimate its exposure for
these claims.
Debt Ratings. For many years, both Moody's Investors Service, Inc. and
Standard and Poor's Corporation rated New Jersey general obligation bonds
"Aaa" and "AAA" , respectively. On July 3, 1991, however,
Standard and Poor's Corporation downgraded New Jersey general obligation
bonds to "AA+." On June 4, 1992, Standard and Poor's Corporation
placed New Jersey general obligation bonds on CreditWatch with negative
implications, citing as its principal reason for its caution the unexpected
denial by the federal government of New Jersey's request for $450 million in
retroactive Medicaid payments for psychiatric hospitals. These funds were
critical to closing a $1 billion gap in the State's $15 billion budget for
fiscal year 1992 which ended on June 30, 1992. Under New Jersey state law, the
gap in the budget was required to be closed before the new budget year began
on July 1, 1992. Standard and Poor's suggested the State could close fiscal
1992's budget gap and help fill fiscal 1993's hole by a reversion of $700
million of pension contributions to its general fund under a proposal to
change the way the State calculates its pension liability.
On July 6, 1992, Standard and Poor's Corporation reaffirmed its "AA+"
rating for New Jersey general obligation bonds and removed the debt from its
CreditWatch list, although it stated that New Jersey's long-term financial
outlook was negative. Standard and Poor's Corporation was concerned that the
State was entering fiscal 1993 with only a $26 million surplus and remained
concerned about whether the State economy would recover quickly enough to meet
lawmakers' revenue projections. It also remained concerned about the recent
federal ruling leaving in doubt how much the State was due in retroactive
Medicaid reimbursements and a ruling by a federal judge, now on appeal, of the
State's method for paying for uninsured hospital patients. However, on July
27, 1994, Standard and Poor's announced that it was changing the State's
outlook from negative to stable due to a brightening of the State's prospects
as a result of Governor Whitman's effort to trim spending and cut taxes,
coupled with an improving economy. Standard and Poor's reaffirmed its "
AA+" rating at the same time.
On August 24, 1992, Moody's Investors Service, Inc. downgraded New Jersey
general obligation bonds to "Aa1," stating that the reduction
reflected a developing pattern of reliance on nonrecurring measures to achieve
budgetary balance, four years of financial operations marked by revenue
shortfalls and operating deficits, and the likelihood that serious financial
pressures will persist. On August 5, 1994, Moody's reaffirmed its "
Aa1" rating, citing on the positive side New Jersey's broad-based
economy, high income levels, history of maintaining a positive financial
position and moderate (albeit rising) debt ratios, and on the negative side, a
continued reliance on one-time revenue and a dependence on pension-related
savings to achieve budgetary balance.
Tax Status. For a discussion of the Federal tax status of income earned on New
Jersey IM-IT Trust Units, see "Other Matters--Federal Tax Status" .
In the opinion of Pitney, Hardin, Kipp & Szuch, special counsel to the Fund
for New Jersey tax matters, under existing law:
(1)The New Jersey IM-IT Trust will be recognized as a trust and not an
association taxable as a corporation. The New Jersey IM-IT Trust will not be
subject to the New Jersey Corporation Business Tax or the New Jersey
Corporation Income Tax.
(2)With respect to the non-corporate Unitholders who are residents of New
Jersey, the income of the New Jersey IM-IT Trust which is allocable to each
such Unitholder will be treated as the income of such Unitholder under the New
Jersey Gross Income Tax. Interest on the underlying Bonds which would be
exempt from New Jersey Gross Income Tax if directly received by such
Unitholder will retain its status as tax-exempt interest when received by the
New Jersey IM-IT Trust and distributed to such Unitholder. Any proceeds paid
under the insurance policy issued to the Trustee of the New Jersey IM-IT Trust
with respect to the Bonds or under individual policies obtained by issuers of
Bonds which represent maturing interest on defaulted obligations held by the
Trustee will be exempt from New Jersey Gross 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.
(3)A non-corporate Unitholder will not be subject to the New Jersey Gross
Income Tax on any gain realized either when the New Jersey IM-IT Trust
disposes of a Bond (whether by sale, exchange, redemption, or payment at
maturity), when the Unitholder redeems or sells his Units or upon payment of
any proceeds under the insurance policy issued to the Trustee of the New
Jersey IM-IT Trust with respect to the Bonds or under individual policies
obtained by issuers of Bonds which represent maturing principal on defaulted
obligations held by the Trustee. Any loss realized on such disposition may not
be utilized to offset gains realized by such Unitholder on the disposition of
assets the gain on which is subject to the New Jersey Gross Income Tax.
(4)Units of the New Jersey IM-IT Trust may be taxable on the death of a
Unitholder under the New Jersey Transfer Inheritance Tax Law or the New Jersey
Estate Tax Law.
(5)If a Unitholder is a corporation subject to the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax, interest from the Bonds in
the New Jersey IM-IT Trust which is allocable to such corporation will be
includable in its entire net income for purposes of the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax, less any interest expense
incurred to carry such investment to the extent such interest expense has not
been deducted in computing Federal taxable income. Net gains derived by such
corporation on the disposition of the Bonds by the New Jersey IM-IT Trust or
on the disposition of its Units will be included in its entire net income for
purposes of the New Jersey Corporation Business Tax or New Jersey Corporation
Income Tax. Any proceeds paid under the insurance policy issued to the Trustee
of the New Jersey IM-IT Trust with respect to the Bonds or under individual
policies obtained by issuers of Bonds which represent maturing interest or
maturing principal on defaulted obligations held by the Trustee will be
included in its entire net income for purposes of the New Jersey Corporation
Business Tax or New Jersey Corporation Income Tax if, and to the same extent
as, such interest or proceeds would have been so included if paid by the
issuer of the defaulted obligations.
<TABLE>
<CAPTION>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income <F1>:
Estimated Annual Interest Income per Unit................................. $ 55.06 $ 55.06
Less: Estimated Annual Expense per Unit <F2>.............................. $ 2.29 $ 1.84
Less: Annual Premium on Portfolio Insurance per Unit...................... -- --
Estimated Net Annual Interest Income per Unit............................. $ 52.77 $ 53.22
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit............................. $ 52.77 $ 53.22
Divided by 12 and 2, respectively......................................... $ 4.40 $ 26.61
Estimated Daily Rate of Net Interest Accrual per Unit...................... $ .14656 $ .14783
Estimated Current Return Based on Public Offering Price <F1><F3><F4><F5>... 5.28% 5.32%
Estimated Long-Term Return <F3><F4><F5>.................................... 5.30% 5.35%
Estimated Initial Monthly Distribution (July 1996)......................... $ 5.13
Estimated Initial Semi-annual Distribution (July 1996)..................... $ 5.17
Estimated Normal Distribution per Unit <F5>................................ $ 4.40 $ 26.61
</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 Jersey IM-IT Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... TENTH day of the month as follows: monthly--each month; semi-annual--January and July
Distribution Dates............. TWENTY-FIFTH day of the month as follows: monthly--each month; semi-annual--
January and July commencing July 25, 1996
<FN>
<F1>During the first year the Trustee will reduce its fee by approximately $.10
per Unit (which amount is the estimated interest to be earned per Unit prior
to the expected delivery dates for the "when, as and if issued" Bonds
included in this Trust). Should such estimated interest exceed such amount,
the Trustee will reduce its fee up to its annual fee. After the first year,
the Trustee's fee will be that amount indicated above. Estimated Annual
Interest Income per Unit will be increased to $55.16. Estimated Annual Expense
per Unit (excluding insurance) will be increased to $2.39 and $1.94 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 JERSEY INSURED MUNICIPALS INCOME TRUST
SERIES 112 (IM-IT AND QUALITY MULTI-SERIES 273)
PORTFOLIO As of May 31, 1996
<CAPTION>
Offering
Price To New
Aggregate Name of Issuer, Title, Interest Rate and Maturity Date of either Redemption Jersey IM-IT
Principal<F1> Bonds Deposited or Bonds Contracted for<F1><F5> Rating<F2> Feature<F3> Trust<F4>
<S> <C> <C> <C> <C>
$ 100,000 New Jersey Economic Development Authority, Natural Gas Facilities
Refunding Revenue Bonds, Series 1994A (NUI Corporation Project)
AMBAC Indemnity Insured **
6.35% Due 10/1/2022............................................... AAA 2004 @ 102 $ 104,324
100,000 New Jersey Health Care Facilities Financing Authority, Revenue
Bonds (Newark Beth Israel Medical Center Issue) Series 1994 (FSA
Insured) 2004 @ 102
#6.00% Due 7/1/2024............................................... AAA 2017 @ 100 S.F. 101,624
500,000 Essex County Improvement Authority (Essex County, New Jersey)
General Obligation Lease Revenue Bonds (Gibraltar Building
Project) Series 1994 (FGIC Insured) 2004 @ 101
#5.20% Due 12/1/2024.............................................. AAA 2015 @ 100 S.F. 460,285
500,000 New Jersey Economic Development Authority, Insured Revenue Bonds
(Educational Testing Service Issue) Series 1995A (MBIA Insured) 2005 @ 102
#6.00% Due 5/15/2025.............................................. AAA 2016 @ 100 S.F. 510,500
300,000 New Jersey Economic Development Authority, Revenue Bonds (Clara
Maass Health System Obligated Group Project) Series 1996 (FSA
Insured)** 2006 @ 102
#5.00% Due 7/1/2025............................................... AAA 2017 @ 100 S.F. 266,049
500,000 Delaware River Port Authority, Pennsylvania and New Jersey, 2006 @ 102
Revenue Bonds, Series 1995 (FGIC Insured)
#5.50% Due 1/1/2026............................................... AAA 2017 @ 100 S.F. 476,650
500,000 Port Authority of New York and New Jersey, Consolidated Revenue
Bonds, One Hundredth Series (MBIA Insured) 2005 @ 101
#5.75% Due 6/15/2030.............................................. AAA 2021 @ 100 S.F. 495,440
500,000 Pollution Control Financing Authority of Salem County (New
Jersey) Pollution Control Revenue Refunding Bonds (Public Service
Electric and Gas Company Project) Series 1993C (MBIA Insured)
5.55% Due 11/1/2033............................................... AAA 2003 @ 102 470,480
$ 3,000,000 $ 2,885,352
</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".
NORTH CAROLINA QUALITY TRUST
General. The North Carolina Quality Trust consists of 8 issues of Securities.
None of the Bonds in the North Carolina Quality Trust are general obligations
of the governmental entities issuing them or are backed by the taxing power
thereof. All of the issues are payable from the income of a specific project
or authority and are not supported by the issuer's power to levy taxes. These
issues are divided by purpose of issues (and percentage of principal amount to
total North Carolina Quality Trust) as follows: Certificates of Participation,
2 (27%); General Purpose, 2 (17%); Health Care, 1 (16%); Higher Education, 1
(16%); Wholesale Electric, 1 (16%) and Water and Sewer, 1 (8%). 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. None of the information is relevant to Bonds issued by territories or
possessions of the United States that may be included in the portfolio of the
North Carolina Trust.
General obligations of a city, town or county in North Carolina are payable
from the general revenues of the entity, including ad valorem tax revenues on
property within the jurisdiction. Revenue bonds issued by North Carolina
political subdivisions include (1) revenue bonds payable exclusively from
revenue-producing governmental enterprises and (2) industrial revenue bonds,
college and hospital revenue bonds and other "private activity bonds"
which are essentially non-governmental debt issues and which are payable
exclusively by private entities such as non-profit organizations and business
concerns of all sizes. State and local governments have no obligation to
provide for payment of such private activity bonds and in many cases would be
legally prohibited from doing so. The value of such private activity bonds may
be affected by a wide variety of factors relevant to particular localities or
industries, including economic developments outside of North Carolina.
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 was 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.
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. After trial at the Superior Court level, the plaintiff petitioned the
North Carolina Supreme Court for discretionary review prior to a determination
by the Court of Appeals; this motion was denied. The North Carolina Attorney
General's Office believes that sound legal arguments support the State's
position, but no significant financial impact is expected to result from the
ultimate resolution of this case, even if adverse to the State.
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, but no significant financial impact is expected
to result from the ultimate resolution of this case, even if adverse to the
State.
Faulkenbury v. Teachers' and State Employees' Retirement System; Peele v.
Teachers' and State Employees' Retirement System; Woodard v. Local
Governmental Employees' Retirement System -- Plaintiffs are disability
retirees who brought class actions in state court challenging changes in the
formula for payment of disability retirement benefits and claiming impairment
of contract rights, breach of fiduciary duty, violation of other federal
constitutional rights, and violation of state constitutional and statutory
rights. The State estimates that the cost in damages and higher prospective
benefit payments to 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 systems 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 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
remaining state court claims in all cases are yet to be heard. 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 Corporation v. Justus, Secretary of Revenue --The State's intangible
personal property tax levied on certain shares of stock (repealed as of the
tax year beginning January 1, 1995) was 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, a North Carolina corporation,
paid the intangibles tax on stock it owns in other corporations. The plaintiff
sought to invalidate the tax in its entirety and to recover the intangibles
taxes it paid for the 1990 tax year.
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 appealed to the U.S. Supreme Court which agreed with plaintiff that
the tax was unconstitutionally discriminatory. The U.S. Supreme Court remanded
the case for the State Supreme Court to decide whether to issue refunds or to
levy a similar tax retroactively on holdings in North Carolina firms.
In response, the State's Revenue Secretary has proposed that tax payers who
paid the tax under protest in compliance with State law be issued refunds. The
estimated $123 million in refunds would be paid from a State reserve fund. The
proposal is currently being considered by the State Supreme Court as a
possible remedy, but the State legislature would also have to approve this
expenditure of funds.
Other Tax Cases: 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.
The Swanson Cases -- 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.
The North Carolina Supreme Court ultimately held in favor of the State in the
case brought in State court, and the United States Supreme Court denied the
plaintiffs' request for review of that decision, thereby concluding the State
litigation. Plaintiffs also were unsuccessful in the federal court action. The
federal retirees continue to seek relief through State legislation.
Patton v. State -- In connection with the legislature's repeal of the tax
exemption for state retirees in 1989, certain adjustments were adopted that
reduced the state retirees' tax burden. In May 1995, federal retirees filed a
lawsuit in State court for tax refunds for the years 1989 through 1994
alleging that these adjustments also constitute unlawful discrimination
against federal retirees. The amount of the claim has not been set forth. This
case is still pending in superior court.
The Bailey Cases -- 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.
Although the Superior Court ruled largely in the plaintiff's favor, appeals
are expected from both sides. Additional suits have been filed to recover
taxes subsequently paid. 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 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 6,657,106 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, 1995 is 7,165,298. 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>
Category (All Seasonally Adjusted) June 1991 June 1992 June 1993 June 1994 June 1995
<S> <C> <C> <C> <C> <C>
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 October 1995 was estimated to be
3.9% of the labor force, as compared with 5.5% 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, which had been the leading source of agricultural income
in the State, declined in 1994, based on preliminary figures. For 1994,
commercial broiler production and pork production surpassed tobacco among
sources of agricultural income, providing 30% and 15.5%, respectively, of
gross agricultural income compared to 14.8% for tobacco. 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 number of farms has been decreasing; in 1995 there were approximately
58,000 farms in the State, down from approximately 72,000 in 1987 (a decrease
of about 19% in eight 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>
Semi-
Per Unit Information: Monthly Annual
<S> <C> <C>
Calculation of Estimated Net Annual Unit Income:
Estimated Annual Interest Income per Unit............................. $ 54.93 $ 54.93
Less: Estimated Annual Expense per Unit <F1>.......................... $ 2.31 $ 1.93
Estimated Net Annual Interest Income per Unit......................... $ 52.62 $ 53.00
Calculation of Estimated Interest Earnings per Unit:
Estimated Net Annual Interest Income per Unit......................... $ 52.62 $ 53.00
Divided by 12 and 2, respectively..................................... $ 4.39 $ 26.50
Estimated Daily Rate of Net Interest Accrual per Unit.................. $ .14615 $ .14722
Estimated Current Return Based on Public Offering Price <F2><F3><F4>... 5.26% 5.30%
Estimated Long-Term Return <F2><F3><F4>................................ 5.24% 5.28%
Estimated Initial Monthly Distribution (July 1996)..................... $ 5.12
Estimated Initial Semi-annual Distribution (November 1996)............. $ 22.82
Estimated Normal Distribution per Unit <F4>............................ $ 4.39 $ 26.50
</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 North
Carolina Quality Trust under the monthly and semi-annual distribution plans
Record and Computation Dates... TENTH day of the month as follows: monthly--each month; semi-annual--May and November
Distribution Dates............. TWENTY-FIFTH day of the month as follows: monthly--each month; semi-annual--
May and November commencing July 25, 1996
<FN>
<F1>The estimated annual expenses are expected to fluctuate periodically (see "
Trust Administration--Fund Administration and Expenses--Miscellaneous
Expenses" ).
<F2>The Estimated Current Returns and Estimated Long-Term Returns are increased
for transactions entitled to a reduced sales charge. See "Unitholder
Explanations--Public Offering--General" .
<F3>The Estimated Current Returns are calculated by dividing the Estimated Net
Annual Interest Income per Unit by the Public Offering Price. The Estimated
Net Annual Interest Income per Unit will vary with changes in fees and
expenses of the Trustee and the Evaluator and with the principal prepayment,
redemption, maturity, exchange or sale of Securities while the Public Offering
Price will vary with changes in the offering price of the underlying
Securities; therefore, there is no assurance that the present Estimated
Current Returns indicated above will be realized in the future. The Estimated
Long-Term Returns are calculated using a formula which (1) takes into
consideration, and determines and factors in the relative weightings of, the
market values, yields (which takes into account the amortization of premiums
and the accretion of discounts) and estimated retirements of all of the
Securities in the Trust and (2) takes into account the expenses and sales
charge associated with each Trust Unit. Since the market values and estimated
retirements of the Securities and the expenses of the Trust will change, there
is no assurance that the present Estimated Long-Term Returns as indicated
above will be realized in the future. The Estimated Current Returns and
Estimated Long-Term Returns are expected to differ because the calculation of
the Estimated Long-Term Return reflects the estimated date and amount of
principal returned while the Estimated Current Return calculation includes
only net annual interest income and Public Offering Price.
<F4>These figures are based on estimated per Unit cash flows. Estimated cash flows
will vary with changes in fees and expenses, with changes in current interest
rates and with the principal prepayment, redemption, maturity, call, exchange
or sale of the underlying Securities. The estimated cash flows for this Series
are set forth under "Estimated Cash Flows to Unitholders" .
</TABLE>
<TABLE>
NORTH CAROLINA INVESTORS' QUALITY TAX-EXEMPT TRUST
SERIES 87 (IM-IT AND QUALITY MULTI-SERIES 273)
PORTFOLIO As of May 31, 1996
<CAPTION>
Offering
Price To
North
Name of Issuer, Title, Interest Rate and Maturity Date Carolina
Aggregate of either Bonds Deposited or Bonds Contracted Standard Rating<F2> Redemption Quality
Principal<F1> for<F1><F5> & Poor's Moody's Feature<F3> Trust<F4>
<S> <C> <C> <C> <C> <C>
$ 250,000 Shelby, North Carolina, Combined Enterprise System
Revenue Bonds, Series A 2005 @ 102
#5.625% Due 5/1/2014..................................... A- A 2011 @ 100 S.F. $ 245,042
500,000 North Carolina Medical Care Commission, Hospital Revenue
Bonds (Gaston Memorial Hospital Project) Series 1995 2006 @ 102
#5.50% Due 2/15/2019..................................... A+ A 2016 @ 100 S.F. 476,360
550,000 Cumberland County, North Carolina, Certificates of
Participation (Civic Center Project) Series 1995A (AMBAC
Indemnity Insured) 2004 @ 102
#6.40% Due 12/1/2019..................................... AAA Aaa 2014 @ 100 S.F. 577,704
250,000 City of Concord, North Carolina, Utilities Systems
Revenue Bonds (MBIA Insured) 2005 @ 102
#5.50% Due 12/1/2019..................................... AAA Aaa 2015 @ 100 S.F. 242,623
500,000 North Carolina Municipal Power Agency No. 1, Catawba
Electric Company, Revenue Bonds, Series 1995A (AMBAC
Indemnity Insured) 2006 @ 102
#5.375% Due 1/1/2020..................................... AAA Aaa 2019 @ 100 S.F. 472,300
270,000 Pasquotank County, North Carolina, Certificates of
Participation, Public Schools Project (MBIA Insured)
#5.00% Due 6/1/2020...................................... AAA Aaa 2006 @ 102 244,493
250,000 Union City, North Carolina, Enterprise System Revenue
Bonds (MBIA Insured) 2006 @ 102
#5.50% Due 6/1/2021...................................... AAA Aaa 2018 @ 100 S.F. 242,387
500,000 University of North Carolina, Chapel Hill, Hospital
Revenue Bonds 2006 @ 102
#5.25% Due 2/15/2026..................................... AA Aa 2020 @ 100 S.F. 457,665
$ 3,070,000 $ 2,958,574
</TABLE>
For an explanation of the footnotes used on this page, see "Notes to
Portfolios" .
As of the Date of Deposit: May 31, 1996
(1)All Securities are represented by "regular way" or "when
issued" contracts for the performance of which an irrevocable letter of
credit, obtained from an affiliate of the Trustee, has been deposited with the
Trustee. At the Date of Deposit, Securities may have been delivered to the
Sponsor pursuant to certain of these contracts; the Sponsor has assigned to
the Trustee all of its right, title and interest in and to such Securities.
Contracts to acquire Securities were entered into during the period from May
14,1996 to May 30,1996. These Securities have expected settlement dates
ranging from May 31,1996 to June 10,1996 (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>
California IM-IT......... $-- $ 2,858,353 $ 11,779 $ 169,031 $ 2,847,782
Florida IM-IT............ $-- $ 2,911,335 $ 10,151 $ 169,419 $ 2,898,648
Louisiana IM-IT.......... $-- $ 2,886,844 $ 19,427 $ 169,330 $ 2,883,546
New Jersey IM-IT......... $-- $ 2,879,989 $ 5,363 $ 167,350 $ 2,862,852
North Carolina Quality... $-- $ 2,944,506 $ 14,068 $ 170,888 $ 2,935,549
</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 to
Amount First Settlement Date
<S> <C> <C>
California IM-IT......... -- --
Florida IM-IT............ -- --
Louisiana IM-IT.......... -- --
New Jersey IM-IT......... 13% 5 days
North Carolina Quality... -- --
</TABLE>
On the Date of Deposit, the offering side evaluations of the Securities in the
California IM-IT, Florida IM-IT, Louisiana IM-IT, New Jersey IM-IT and North
Carolina Quality Trusts were higher than the bid side evaluations of such
Securities by 0.75%, 0.75%, 0.75%, 0.75% and 0.75%, 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.
Underwriting. The Underwriters named below have severally purchased Units in
the following respective amounts from the Sponsor.
<TABLE>
<CAPTION>
California
Name IM-IT Trust
Address Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 1,618
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 1,000
Dean Witter Reynolds, Incorporated 2 World Trade Center, 59th Floor, New York, New York 10048 100
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
McLaughlin, Piven, Vogel Securities, Inc. 30 Wall Street, 5th Floor, New York, New York 10005 100
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
3,018
</TABLE>
<TABLE>
<CAPTION>
Name Florida IM-IT
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,672
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
Prudential Securities Inc. 1 New York Plaza, 14th Floor, New York, New York 10292-2014 100
3,072
</TABLE>
<TABLE>
<CAPTION>
Name Louisiana IM-IT
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,256
A.G. Edwards & Sons, Inc. One North Jefferson Avenue, St. Louis, Missouri 63103 250
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
Edward D. Jones & Co. 201 Progress Parkway, Maryland Heights, Missouri 63043 100
Smith Barney Inc. 388 Greenwich Street, 23rd Floor, New York, New York 10013 100
3,056
</TABLE>
<TABLE>
<CAPTION>
Name New Jersey IM-IT
Address Trust Units
<S> <C> <C>
Van Kampen American Capital Dist., Inc. One Parkview Plaza, Oakbrook Terrace, Illinois 60181 2,484
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
Oppenheimer & Co., Inc. World Financial Center, 8th Floor, New York, New York 10281 100
3,034
</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 2,611
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
Wheat First Butcher Singer River Front Plaza, 901 East Byrd Street, Richmond, Virginia 23219 100
3,111
</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. Van Kampen
American Capital Distributors, Inc. specializes in the underwriting and
distribution of unit investment trusts and mutual funds with roots in money
management dating back to 1926. The Sponsor is a member of the National
Association of Securities Dealers, Inc. and has offices at One Parkview Plaza,
Oakbrook Terrace, Illinois 60181, (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 March 31, 1996 the total
stockholders' equity of Van Kampen American Capital Distributors, Inc. was
$123,020,000 (unaudited). (This paragraph relates only to the Sponsor and not
to the Insured Municipals Income Trust and Investors' Quality Tax-Exempt Trust
or to any Multi-Series thereof or to any other Underwriter. The information is
included herein only for the purpose of informing investors as to the
financial responsibility of the Sponsor and its ability to carry out its
contractual obligations. More detailed financial information will be made
available by the Sponsor upon request.)
As of March 31, 1996, the Sponsor and its affiliates managed or supervised
approximately $57.2 billion of investment products, of which over $24.8
billion is invested in municipal securities. The Sponsor and its affiliates
managed $45.4 billion of assets, consisting of $22.5 billion for 63 open-end
mutual funds (of which 47 are distributed by Van Kampen American Capital
Distributors, Inc.), $11.9 billion for 38 closed-end funds and $5.6 billion
for 93 institutional accounts. The Sponsor has also deposited approximately
$26 billion of unit investment trusts. All of Van Kampen American Capital's
open-end funds, closed-end funds and unit investment trusts are professionally
distributed by leading financial firms nationwide. Based on cumulative assets
deposited, the Sponsor believes that it is the largest sponsor of insured
municipal unit investment trusts, primarily through the success of its Insured
Municipals Income Trust(R)or the IM-IT(R)trust. The Sponsor also
provides surveillance and evaluation services at cost for approximately $13
billion of unit investment trust assets outstanding. Since 1976, the Sponsor
has serviced over two million investor accounts, opened through retail
distribution firms.
If the Sponsor shall fail to perform any of its duties under the Trust
Agreement or become incapable of acting or become bankrupt or its affairs are
taken over by public authorities, then the Trustee may (i) appoint a successor
Sponsor at rates of compensation deemed by the Trustee to be reasonable and
not exceeding amounts prescribed by the 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 an affiliate 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 $1,520, $1,553, $1,545, $1,530 and $1,566 for the
California IM-IT, Florida IM-IT, Louisiana IM-IT, New Jersey IM-IT 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 $2,712, $2,771, $2,757, $2,730 and $2,794 for the above
mentioned Trusts, respectively. The Trustee's fees are payable monthly on or
before the twenty-fifth 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 a State 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 a State 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 State 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. 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 1,500 Units, whichever is greater, of any California IM-IT Trust will
receive an additional $2.00 per each such Unit. 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 and Florida 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. The Carmouche Law Firm has acted as special
counsel to the Fund for Louisiana tax matters. Pitney, Hardin, Kipp & Szuch
has acted as special counsel to the Fund for New Jersey tax matters. Hunton &
Williams has acted as special counsel to the Fund for North Carolina tax
matters. Kroll & Tract 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 basis reduction requirements of the Code relating to
amortization of bond premium may, under some circumstances, result in the
Unitholder realizing a taxable gain when his Units are sold or redeemed for an
amount less than or equal to his original cost;
(3)Any proceeds paid under an insurance policy or policies dated the Date of
Deposit, issued to an Insured Trust 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 current Code provisions, the
Superfund Tax does not apply to tax years beginning on or after January 1,
1996. However, the Superfund Tax could be extended retroactively. 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. On December 7,
1995, the U.S. Treasury Department released proposed legislation that, if
enacted, would generally extend the financial institution rules to all
corporations, effective for obligations acquired after the date of
announcement. 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 Kroll & Tract, 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. On December
7, 1995, the U.S. Treasury Department released proposed legislation that, if
adopted, could affect the United States federal income taxation of non-United
States Unitholders and the portion of the Trust's income allocable to
non-United States Unitholders. Similar language, which would be effective on
the date of enactment, was included in the Health Insurance Reform Bill as
passed by the U.S. Senate on April 23, 1996.
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.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities. These Aa bonds are high grade, their market value virtually immune
to all but money market influences, with the occasional exception of
oversupply in a few specific instances.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as higher medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future. The market value of A-rated bonds may be influenced to some degree by
credit circumstances during a sustained period of depressed business
conditions. During periods of normalcy, bonds of this quality frequently move
in parallel with Aaa and Aa obligations, with the occasional exception of
oversupply in a few specific instances.
Baa--Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's bond rating symbols may contain numerical modifiers of a generic
rating classification. The modifier 1 indicates that the bond ranks at the
high end of its category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Con--Bonds for which the security depends upon the completion of some act or
the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
As published by the rating companies.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Van Kampen American Capital Distributors, Inc.
and the Unitholders of Insured Municipals Income Trust and Investors' Quality
Tax-Exempt Trust, Multi-Series 273 (California IM-IT, Florida IM-IT, Louisiana
IM-IT, New Jersey IM-IT 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 273 (California IM-IT, Florida IM-IT, Louisiana
IM-IT, New Jersey IM-IT and North Carolina Quality Trusts) as of May 31, 1996.
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 273 (California
IM-IT, Florida IM-IT, Louisiana IM-IT, New Jersey IM-IT and North Carolina
Quality Trusts) as of May 31, 1996, in conformity with generally accepted
accounting principles.
Chicago, Illinois GRANT THORNTON LLP
May 31, 1996
<TABLE>
INSURED MUNICIPALS INCOME TRUST
and
INVESTORS' QUALITY TAX-EXEMPT TRUST
MULTI-SERIES 273
Statements of Condition
As of May 31, 1996
<CAPTION>
INVESTMENT IN SECURITIES California Florida Louisiana
IM-IT Trust IM-IT Trust IM-IT Trust
<S> <C> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 2,870,132 $ 2,921,486 $ 2,906,271
Accrued interest to the First Settlement Date <F1><F4>..... 23,852 38,953 69,927
Total...................................................... $ 2,893,984 $ 2,960,439 $ 2,976,198
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor <F1><F4> $ 23,852 $ 38,953 $ 69,927
Interest of Unitholders--
Cost to investors <F3>..................................... 3,018,000 3,072,000 3,056,000
Less: Gross underwriting commission <F3>................... 147,868 150,514 149,729
Net interest to Unitholders <F1><F3><F4>................... 2,870,132 2,921,486 2,906,271
Total...................................................... $ 2,893,984 $ 2,960,439 $ 2,976,198
<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>
California IM-IT Trust... $ 2,892,891 $ 2,980,000 $ 2,870,132 $ 22,759
Florida IM-IT Trust...... $ 2,959,205 $ 3,045,000 $ 2,921,486 $ 37,719
Louisiana IM-IT Trust.... $ 2,974,395 $ 3,030,000 $ 2,906,271 $ 68,124
<F2>Insurance coverage providing for timely payment, when due, of all principal
and interest on the Bonds in the Insured Trusts has been obtained either by
such Trusts, by a prior owner of the Bonds, by the Sponsor prior to the
deposit of such Bonds or by the issuers of the Bonds involved. Such insurance
does not guarantee the market value of the Bonds or the value of the Units.
The insurance obtained by the Insured Trusts is effective only while Bonds
thus insured are held in such Trusts. Neither the bid nor offering prices of
the underlying Bonds or of the Units, absent situations in which bonds are in
default in payment of principal or interest or in significant risk of such
default, include value, if any, attributable to the insurance obtained by such
Trusts.
<F3>The aggregate public offering price (exclusive of interest) and the aggregate
sales charge are computed on the bases set forth under "Unitholder
Explanations--Public Offering--Offering Price" and "Trust
Administration--General--Sponsor and Underwriter Profits" and assume all
single transactions involve less than 100 Units. For single transactions
involving 100 or more Units, the sales charge is reduced (see "Unitholder
Explanations--Public Offering--General" ) resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while the
Net interest to Unitholders remains unchanged.
<F4>The Trustee will advance to the Trust the amount of net interest accrued to
June 5, 1996, 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 273
Statements of Condition (Continued)
As of May 31, 1996
<CAPTION>
North
INVESTMENT IN SECURITIES New Jersey Carolina
IM-IT Trust Quality Trust
<S> <C> <C>
Contracts to purchase tax-exempt securities <F1><F2><F4>... $ 2,885,352 $ 2,958,574
Accrued interest to the First Settlement Date <F1><F4>..... 56,543 42,470
Total...................................................... $ 2,941,895 $ 3,001,044
LIABILITY AND INTEREST OF UNITHOLDERS
Liability--
Accrued interest payable to Sponsor <F1><F4> $ 56,543 $ 42,470
Interest of Unitholders--
Cost to investors <F3>..................................... 3,034,000 3,111,000
Less: Gross underwriting commission <F3>................... 148,648 152,426
Net interest to Unitholders <F1><F3><F4>................... 2,885,352 2,958,574
Total...................................................... $ 2,941,895 $ 3,001,044
<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>
New Jersey IM-IT Trust......... $ 2,941,409 $ 3,000,000 $ 2,885,352 $ 56,057
North Carolina Quality Trust... $ 3,000,112 $ 3,070,000 $ 2,958,574 $ 41,538
<FN>
<F2>Insurance coverage providing for timely payment, when due, of all principal
and interest on the Bonds in the Insured Trusts has been obtained either by
such Trusts, by a prior owner of the Bonds, by the Sponsor prior to the
deposit of such Bonds or by the issuers of the Bonds involved. Such insurance
does not guarantee the market value of the Bonds or the value of the Units.
The insurance obtained by the Insured Trusts is effective only while Bonds
thus insured are held in such Trusts. Neither the bid nor offering prices of
the underlying Bonds or of the Units, absent situations in which bonds are in
default in payment of principal or interest or in significant risk of such
default, include value, if any, attributable to the insurance obtained by such
Trusts.
<F3>The aggregate public offering price (exclusive of interest) and the aggregate
sales charge are computed on the bases set forth under "Unitholder
Explanations--Public Offering--Offering Price" and "Trust
Administration--General--Sponsor and Underwriter Profits" and assume all
single transactions involve less than 100 Units. For single transactions
involving 100 or more Units, the sales charge is reduced (see "Unitholder
Explanations--Public Offering--General" ) resulting in an equal reduction
in both the Cost to investors and the Gross underwriting commission while the
Net interest to Unitholders remains unchanged.
<F4>The Trustee will advance to the Trust the amount of net interest accrued to
June 5, 1996, 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 1996. They incorporate increased tax
rates for higher income taxpayers that were included in the Revenue
Reconciliation Act of 1993. These tables illustrate approximately what you
would have to earn on taxable investments to equal the tax-exempt estimated
current return in your income tax bracket. The table assumes that Federal
taxable income is equal to State income subject to tax, and for cases in which
more than one State rate falls within a Federal bracket, the State rate
corresponding to the highest income within that Federal bracket is used. The
combined State and Federal tax rates shown reflect the fact that State tax
payments are currently deductible for Federal tax purposes. The table does not
reflect any local taxes or any taxes other than personal income taxes. The
tables do not show the approximate taxable estimated current returns for
individuals that are subject to the alternative minimum tax. The taxable
equivalent estimated current returns may be somewhat higher than the
equivalent returns indicated in the following tables for those individuals who
have adjusted gross incomes in excess of $117,950. The tables do not reflect
the effect of Federal or State limitations (if any) on the amount of allowable
itemized deductions and the deduction for personal or dependent exemptions or
any other credits. These limitations were designed to phase out certain
benefits of these deductions for higher income taxpayers. These limitations,
in effect, raise the marginal maximum Federal tax rate to approximately 44
percent for taxpayers filing a joint return and entitled to four personal
exemptions and to approximately 41 percent for taxpayers filing a single
return entitled to only one personal exemption. These limitations are subject
to certain maximums, which depend on the number of exemptions claimed and the
total amount of 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.
CALIFORNIA
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
Single Joint Tax
Return Return Bracket* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.00 $ 0 - 40.10 20.1% 6.26% 6.88% 7.51% 8.14% 8.76% 9.39% 10.01%
24.00 - 58.15 40.10 - 96.90 34.7 7.66 8.42 9.19 9.95 10.72 11.49 12.25
96.90 - 147.70 37.4 7.99 8.79 9.58 10.38 11.18 11.98 12.78
58.15 - 121.30 37.4 7.99 8.79 9.58 10.38 11.18 11.98 12.78
121.30 - 219.87 147.70 - 263.75 42 8.62 9.48 10.34 11.21 12.07 12.93 13.79
219.87 - 263.75 42 8.62 9.48 10.34 11.21 12.07 12.93 13.79
263.75 - 439.74 45.2 9.12 10.04 10.95 11.86 12.77 13.69 14.60
Over 263.75 Over 439.74 45.2 9.12 10.04 10.95 11.86 12.77 13.69 14.60
</TABLE>
* The State tax brackets are those for 1995. The 1996 brackets will be
adjusted to take into account changes in the California Consumer Price Index.
These adjustments have not yet been released. The table reflects a decrease in
State income tax rates for high income taxpayers which is, under current law,
scheduled to take place beginning in 1996.
FLORIDA
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
Single Joint Tax
Return Return Bracket* 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.00 $ 0 - 40.10 15% 5.88% 6.47% 7.06% 7.65% 8.24% 8.82% 9.41%
24.00 - 58.15 40.10 - 96.90 28 6.94 7.64 8.33 9.03 9.72 10.42 11.11
58.15 - 121.30 96.90 - 147.70 31 7.25 7.97 8.70 9.42 10.14 10.87 11.59
121.30 - 263.75 147.70 - 263.75 36 7.81 8.59 9.38 10.16 10.94 11.72 12.50
Over 263.75 Over 263.75 39.6 8.28 9.11 9.93 10.76 11.59 12.42 13.25
</TABLE>
* The State of Florida does not impose an income tax on individuals. However,
Florida does impose an intangible personal property tax, which is not included
in this combined rate because it is generally based on property value rather
than income.
LOUISIANA
<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 - 24.00 $ 0 - 40.10 17.9% 6.09% 6.70% 7.31% 7.92% 8.53% 9.14% 9.74%
40.10 - 96.90 30.1 7.15 7.87 8.58 9.30 10.01 10.73 11.44
24.00 - 58.15 31.2 7.27 7.99 8.72 9.45 10.17 10.90 11.63
58.15 - 121.30 96.90 - 147.70 33.9 7.56 8.32 9.08 9.83 10.59 11.35 12.10
121.30 - 263.75 147.70 - 263.75 38.5 8.13 8.94 9.76 10.57 11.38 12.20 13.01
Over 263.75 Over 263.75 41.8 8.59 9.45 10.31 11.17 12.03 12.89 13.75
</TABLE>
* Combined State and Federal tax bracket was computed by taking into account
the deductibility of State tax in determining Federal tax and the
deductibility of Federal tax in determining State tax.
NEW JERSEY
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
Single Joint Tax
Return Return Bracket 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.00 $ 0 - 40.10 16.5% 5.99% 6.59% 7.19% 7.78% 8.38% 8.98% 9.58%
24.00 - 58.15 40.10 - 96.90 32 7.35 8.09 8.82 9.56 10.29 11.03 11.76
96.90 - 147.70 34.8 7.67 8.44 9.20 9.97 10.74 11.50 12.27
58.15 - 121.30 35.4 7.74 8.51 9.29 10.06 10.84 11.61 12.38
121.30 - 263.75 147.70 - 263.75 40.1 8.35 9.18 10.02 10.85 11.69 12.52 13.36
Over 263.75 Over 263.75 43.4 8.83 9.72 10.60 11.48 12.37 13.25 14.13
</TABLE>
NORTH CAROLINA
<TABLE>
<CAPTION>
Taxable Income ($1,000's) Tax-Exempt Estimated Current Return
Single Joint Tax
Return Return Bracket 5% 5 1/2% 6% 6 1/2% 7% 7 1/2% 8%
Equivalent Taxable Estimated Current Return
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 24.00 $ 0 - 40.10 21% 6.33% 6.96% 7.59% 8.23% 8.86% 9.49% 10.13%
24.00 - 58.15 40.10 - 96.90 33 7.46 8.21 8.96 9.70 10.45 11.19 11.94
58.15 - 121.30 96.90 - 147.70 36.3 7.85 8.63 9.42 10.20 10.99 11.77 12.56
121.30 - 263.75 147.70 - 263.75 41 8.47 9.32 10.17 11.02 11.86 12.71 13.56
Over 263.75 Over 263.75 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.
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>
July 1996 $5.20 $ 5.20
August 1996 - February 2008 4.46 4.46
March 2008 4.27 $130.88 135.15
April 2008 - September 2008 3.82 3.82
October 2008 3.68 96.09 99.77
November 2008 - July 2019 3.36 3.36
August 2019 3.12 165.67 168.79
September 2019 - October 2021 2.57 2.57
November 2021 2.36 165.67 168.03
December 2021 - November 2022 1.87 1.87
December 2022 1.67 157.39 159.06
January 2023 - July 2023 1.19 1.19
August 2023 1.08 82.84 83.92
September 2023 .77 39.76 40.53
October 2023 - February 2025 .65 .65
March 2025 .43 149.10 149.53
</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>
July 1996 $ 5.25 $ 5.25
January 1997 - January 2008 27.00 27.00
March 2008 $130.88 130.88
July 2008 24.25 24.25
October 2008 96.09 96.09
January 2009 21.61 21.61
July 2009 - July 2019 20.34 20.34
August 2019 165.67 165.67
January 2020 16.12 16.12
July 2020 - July 2021 15.57 15.57
November 2021 165.67 165.67
January 2022 13.96 13.96
July 2022 11.37 11.37
December 2022 157.39 157.39
January 2023 10.47 10.47
July 2023 7.24 7.24
August 2023 82.84 82.84
September 2023 39.76 39.76
January 2024 4.51 4.51
July 2024 - January 2025 3.95 3.95
March 2025 1.10 149.10 150.20
</TABLE>
Florida 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>
July 1996 $5.13 $ 5.13
August 1996 - September 2021 4.40 4.40
October 2021 4.26 $ 97.65 101.91
November 2021 3.94 3.94
December 2021 3.84 79.75 83.59
January 2022 3.60 3.60
February 2022 3.38 162.76 166.14
March 2022 - September 2022 2.87 2.87
October 2022 2.64 162.76 165.40
November 2022 - May 2023 2.11 2.11
June 2023 1.91 162.77 164.68
July 2023 - April 2025 1.42 1.42
May 2025 1.31 81.38 82.69
June 2025 .95 81.38 82.33
July 2025 - September 2025 .69 .69
October 2025 .47 162.76 163.23
</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>
July 1996 $ 5.18 $ 5.18
January 1997 - July 2021 26.62 26.62
October 2021 $ 97.65 97.65
December 2021 79.75 79.75
January 2022 24.65 24.65
February 2022 162.76 162.76
July 2022 17.90 17.90
October 2022 162.76 162.76
January 2023 14.87 14.87
June 2023 162.77 162.77
July 2023 11.91 11.91
January 2024 - January 2025 8.64 8.64
May 2025 81.38 81.38
June 2025 81.38 81.38
July 2025 7.31 7.31
October 2025 1.88 162.76 164.64
</TABLE>
Louisiana 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>
July 1996 $5.15 $ 5.15
August 1996 - November 2008 4.42 4.42
December 2008 4.23 $130.89 135.12
January 2009 - January 2015 3.79 3.79
February 2015 3.69 81.80 85.49
March 2015 - May 2017 3.46 3.46
June 2017 3.34 85.08 88.42
July 2017 - June 2018 3.06 3.06
July 2018 2.84 163.61 166.45
August 2018 - June 2021 2.34 2.34
July 2021 2.13 163.62 165.75
August 2021 - November 2021 1.65 1.65
December 2021 1.46 163.61 165.07
January 2022 - July 2025 .86 .86
August 2025 .25 163.61 163.86
September 2025 - October 2025 .12 .12
November 2025 .07 39.27 39.34
</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>
July 1996 $ 5.20 $ 5.20
January 1997 - July 2008 26.75 26.75
December 2008 $130.89 130.89
January 2009 25.92 25.92
July 2009 - January 2015 22.93 22.93
February 2015 81.80 81.80
July 2015 21.17 21.17
January 2016 - January 2017 20.94 20.94
June 2017 85.08 85.08
July 2017 20.42 20.42
January 2018 18.54 18.54
July 2018 18.33 163.61 181.94
January 2019 - January 2021 14.19 14.19
July 2021 13.98 163.62 177.60
December 2021 163.61 163.61
January 2022 9.02 9.02
July 2022 - July 2025 5.27 5.27
August 2025 163.61 163.61
November 2025 .59 39.27 39.86
</TABLE>
New Jersey 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>
July 1996 $5.13 $ 5.13
August 1996 - June 2006 4.40 4.40
July 2006 4.35 $32.95 37.30
August 2006 - September 2006 4.24 4.24
October 2006 4.19 32.96 37.15
November 2006 - May 2007 4.07 4.07
June 2007 3.40 164.80 168.20
July 2007 - November 2024 3.27 3.27
December 2024 3.06 164.80 167.86
January 2025 - June 2025 2.57 2.57
July 2025 2.45 98.88 101.33
August 2025 - December 2025 2.17 2.17
January 2026 1.95 164.80 166.75
February 2026 - June 2030 1.44 1.44
July 2030 .80 164.80 165.60
August 2030 - October 2033 .67 .67
November 2033 .45 164.80 165.25
</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>
July 1996 $ 5.17 $ 5.17
January 1997 - January 2006 26.61 26.61
July 2006 26.56 $ 32.95 59.51
October 2006 32.96 32.96
January 2007 25.07 25.07
June 2007 164.80 164.80
July 2007 23.13 23.13
January 2008 - July 2024 19.77 19.77
December 2024 164.80 164.80
January 2025 18.87 18.87
July 2025 15.47 98.88 114.35
January 2026 12.95 164.80 177.75
July 2026 - January 2030 8.74 8.74
July 2030 8.10 164.80 172.90
January 2031 - July 2033 4.11 4.11
November 2033 2.52 164.80 167.32
</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>
July 1996 $5.12 $ 5.12
August 1996 - November 2006 4.39 4.39
December 2006 4.11 $176.79 180.90
January 2007 - April 2014 3.47 3.47
May 2014 3.36 80.36 83.72
June 2014 - February 2019 3.10 3.10
March 2019 2.51 160.72 163.23
April 2019 - November 2019 2.39 2.39
December 2019 2.28 80.36 82.64
January 2020 1.82 160.72 162.54
February 2020 - May 2020 1.33 1.33
June 2020 1.23 86.79 88.02
July 2020 - May 2021 .98 .98
June 2021 .87 80.36 81.23
July 2021 - February 2026 .62 .62
March 2026 .05 160.72 160.77
</TABLE>
Semi-annual
<TABLE>
<CAPTION>
Distribution Dates Estimated Estimated Estimated
(Each May and November Interest Principal Total
Unless Otherwise Indicated) Distribution Distribution Distribution
<S> <C> <C> <C> <C> <C> <C>
November 1996 $22.82 $ 22.82
May 1997 - November 2006 26.50 26.50
December 2006 $176.79 176.79
May 2007 21.60 21.60
November 2007 - November 2013 20.96 20.96
May 2014 20.85 80.36 101.21
November 2014 - November 2018 18.75 18.75
March 2019 160.72 160.72
May 2019 16.71 16.71
November 2019 14.42 14.42
December 2019 80.36 80.36
January 2020 160.72 160.72
May 2020 9.49 9.49
June 2020 86.79 86.79
November 2020 6.17 6.17
May 2021 5.92 5.92
June 2021 80.36 80.36
November 2021 4.01 4.01
May 2022 - November 2025 3.76 3.76
March 2026 1.94 160.72 162.66
</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 notlawful 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
CALIFORNIA IM-IT TRUST 30
FLORIDA IM-IT TRUST 40
LOUISIANA IM-IT TRUST 46
NEW JERSEY IM-IT TRUST 51
NORTH CAROLINA QUALITY TRUST 57
NOTES TO PORTFOLIOS 64
UNDERWRITING 66
TRUST ADMINISTRATION 69
Fund Administration and Expenses 69
Sponsor 69
Compensation of Sponsor and Evaluator 69
Trustee 70
Trustee's Fee 70
Portfolio Administration 71
Sponsor Purchases of Units 72
Insurance Premiums 72
Miscellaneous Expenses 72
General 72
Amendment or Termination 72
Limitation on Liabilities 73
Unit Distribution 74
Sponsor and Underwriter Compensation 74
OTHER MATTERS 75
Legal Opinions 75
Independent Certified Public Accountants 75
FEDERAL TAX STATUS 76
DESCRIPTION OF SECURITIES RATINGS 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS 81
STATEMENTS OF CONDITION 82
EQUIVALENT TAXABLE ESTIMATED CURRENT RETURN
TABLES 84
ESTIMATED CASH FLOWS TO UNITHOLDERS 87
</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
May 31, 1996
Insured Municipals Income Trust
and Investors' Quality Tax-Exempt
Trust, Multi-Series 273
California IM-IT 153
Florida IM-IT 104
Louisiana IM-IT 16
New Jersey IM-IT 112
North Carolina Quality 87
A Wealth of Knowledge A Knowledge of Wealth(sm)
VAN KAMPEN AMERICAN CAPITAL
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
2800 Post Oak Boulevard
Houston, Texas 77056
Please retain this Prospectus for future reference.
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet
The Cross-Reference Sheet
The Prospectus
The signatures
The consents of independent public accountants, rating services and
legal counsel
The following exhibits:
1.1 Proposed form of Trust Agreement among Van Kampen American Capital
Distributors, Inc., Depositor, and The Bank of New York, as Trustee,
and American Portfolio Evaluation Services, a division of Van Kampen
American Capital Investment Advisory Corp., as Evaluator (to be
supplied by amendment).
1.4 Copy of Municipal Bond Fund Portfolio Insurance Policy issued by
AMBAC Indemnity Corporation and/or Financial Guaranty Insurance
Company (to be supplied by amendment).
1.5 Form of Agreement Among Underwriters (to be supplied by amendment).
3.1 Opinion and consent of counsel as to legality of securities being
registered (to be supplied by amendment).
3.2 Opinion and consent of counsel as to Federal income tax status of
securities being registered (to be supplied by amendment).
3.3 Opinion and consent of counsel as to New York tax status of
securities being registered (to be supplied by amendment).
4.1 Consent of Interactive Data Services, Inc. (to be supplied by
amendment).
4.2 Consent of Standard & Poor's (to be supplied by amendment).
4.3 Consent of Grant Thornton LLP (to be supplied by amendment).
4.4 Financial Data Schedule (to be supplied by amendment).
Signatures
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Insured Municipals Income Trust and Investors' Quality Tax-
Exempt Trust, Multi-Series 277 has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Chicago and State of Illinois on the 12th day
of June, 1996.
Insured Municipals Income Trust and
Investors' Quality Tax-Exempt
Trust, Multi-Series 277
(Registrant)
By Van Kampen American Capital
Distributors, Inc.
(Depositor)
By Sandra A. Waterworth
Vice President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on June 12, 1996.
Signature Title
Don G. Powell Chairman and Chief Executive )
Officer )
William R. Rybak Senior Vice President and )
Chief Financial Officer )
Ronald A. Nyberg Director )
William R. Molinari Director )
Sandra A Waterworth
(Attorney-in-fact*)
_______________________________________________________________________
* An executed copy of each of the related powers of attorney was filed
with the Securities and Exchange Commission in connection with the
Registration Statement on Form S-6 of Insured Municipals Income Trust and
Investors' Quality Tax-Exempt Trust Multi-Series 203 (File No. 33-65744)
and with the Registration Statement on Form S-6 of Insured Municipals
Income Trust, 170th Insured Multi-Series (file No. 33-55891) and the same
are hereby incorporated herein by this reference.
